Time marches forward, at what seems like a quickening pace each year, bringing with it both demographic and technical changes. These shifts have significant implications for all business, but may be particularly thought-provoking for those that have especially long lead times for implementing changes or where there is a thread of conservatism embedded in culture and business models.
Since this may be a particularly apt description of the insurance industry, the gathering clouds on the horizon may represent an emerging perfect storm. In both weather and business, ignoring what is emerging outside of a clear line of sight can be a perilous pursuit.
For example, while it has been a long and interesting run, the Baby Boom generation is now moving toward retirement eligibility at warp speed. With 10,000 in the United States achieving that milestone every day, and the youngest of them now hitting 50, there’s not a great deal of mystery related to how this story ends. A transition in financial patterns will emerge as they experience a range of new life events.
As a Boomer on the younger side of the cohort, I just bought my last life insurance policy. Forever. A business model optimized to target my peers will have, pun intended, a limited lifespan. My needs have changed; what’s next? The life insurer I’ve used for 30 years apparently has no clue. An unintended consequence of carriers blissfully ignoring this client base is that these consumers may well seek advice and support from other institutions that seem more connected to their daily financial lives and changing requirements for support.
So what comes next? As the Millennials emerge in the market, they will fundamentally change it. As a recent report in Business Week pointed out, the sheer size of the generation now coming of age will reshape many business opportunities and redefine what “normal” is. Even if per capita incomes are depressed in our new-normal economy, the sheer number of heads (and wallets) will drive aggregate spending in a positive direction. Marketers should be tooling now.
But what to market? This generation will have comparable financial needs to those that have gone before, but the business model needs to integrate with their reality rather than forcing someone else’s aging idea of what works on them.
Case in point: When so many tasks can be done in a near-instant gratification mode, how can life insurers still expect an underwriting process measured in weeks and months to persist? It won’t. Arguments around the complexity of the process, the timelines for gathering information and the pace of data analysis (e.g., underwriting) will fall on deaf ears as consumers look for buying experiences that are more consistent with their own expectations.
Should insurers fail to take on this challenge directly, others will step in to fill the void. Having Overstock.com as a retail outlet for auto insurance may be a prelude to others doing similar things with more complex life, health and annuity offerings. Concurrent with this, the Affordable Care Act and a move toward more voluntary benefit offerings will change the landscape, too.
Another fundamental shift is underway with mobility. The mobility of most 20th century generations, which found freedom in the automobile, now find comparable access to communities through mobile devices. For P&C carriers, these changes could be profound. Concurrent with reduced interest in driving per se, self-driving vehicles may have a strong pull for people who are more inclined to see the car as an appliance (or a burden) rather than a chariot to a promised land.
The newly defined mobility has other consequences. For people accustomed to being able to run their lives on touchscreens, forcing customers to work with tools dating back to the dawn of the PC era seems an unlikely way to win customers and maintain their loyalty. Customer expectations have rapidly moved to a need to allow interactions to take place when, where and on the device of their choosing. Companies like Google, Amazon, Facebook and Apple have created a new paradigm of expectations. Leveraging it rather than fighting it will position carriers to interact optimally with the emerging generation.
With the nature of work changing, and the expectation that Millennial employees will have more varied work experiences than their parents, carrier technology needs to step up its internal game, too. Following the expectation that careers will also be far more mobile, or transitory, than in the past, new paradigms will be required to keep pace with the changes.
Investing in modern systems, with flexibility and configurability at their core, will be imperative for dealing with the new and emerging environment. Trading operational costs for capital expenditures could be one way of making carriers better able to adjust with the speed of a motorboat, rather than the turning radius of the Titanic.
There’s a brave new world emerging as the Millennial generation takes center stage. Embracing the changes that come with this may be the surest way to raise the probabilities for future success. Ignoring the changes, however, could be the equivalent of signing up for Death by a Thousand Cuts.
Editor's Note: This column is from INN's August/September issue.
INNSight is exclusive commentary from Novarica.
Robert McIsaac is a principal focusing on life insurance, annuities and wealth management at Novarica, a research and advisory firm focused on business and technology strategy for insurers.
