Digging deep on digital: can the life reinsurance market keep up with the kids?

The re/insurance industry has undergone somewhat of a transformation over the past decade.

Criticism from within and outside the industry has often focused on carriers’ and brokers’ lack of innovation with new products and use of technologies, but as competition has grown and more investors have spotted an opportunity to develop new markets, the sector has begun to catch up.

One of the trickiest sectors in which to introduce these developments is also one of the industry’s oldest: the life industry.

With a history stretching back centuries and assets running into the trillions of dollars, life re/insurance is among the most important parts of the industry.

How is it developing new products which can attract a new generation of consumers and using technology?

Philip Edbrooke, director of protection and innovation for Europe at Pacific Life Re, spoke to Bermuda:Re+ILS to discuss the opportunities for introducing new products and digitising the life risk market.

The re/insurance industry has historically faced criticism that it has failed to keep up with other sectors of financial services such as banking and investment management when it comes to digitising its product offering.

While the rise of insurtech firms and increasing investment from traditional carriers over the last decade has gone some way to bridging that gap, Edbrooke says that the sector is still some way behind others when it comes to providing the type of services consumers expect.

“People earn income and they have expenses, they pay mortgages and credit card bills, and that isn’t going to change, but their expectations are certainly different.

“People are used to managing things on their phones and they want things at the click of a button. Sadly, the insurance industry is lagging behind many others in this area,” he says.

“It isn’t clear whether this desire to manage all aspects of life from a smartphone is a generational thing or is just something people want when they are young. It is possible that as people get older their views on this might change.”

The COVID-19 pandemic may have permanently changed the way people feel about using digital channels, particularly for consumers who may otherwise have taken decades to change their habits or would never have trusted particular services delivered online.

Many people who would never have considered buying groceries online were forced to do so during lockdowns, and they may never go back to visiting supermarkets, and the experience could change the way they think about buying insurance as well.

While other sectors of the insurance industry targeting consumers have built platforms which cater to these changing buying habits, it has taken the pandemic for potential customers to become more aware of the need and value of life coverage, Edbrooke says.

“COVID-19 has created an opportunity for the life industry. Insurance is a morally good product, and the pandemic has exposed the fragility of life, and health. People relate to this issue now in a way they perhaps didn’t before. Coupled with the increase in digital proficiency, this could increase sales,” he says.

New products

There is an opportunity for life companies to explore new types of products. Instead of having a policy that pays out a lump sum in the event of an accident, life companies could make a series of payments in instalments to help policyholders with ongoing bills.

Life companies could also manage bill payments directly, taking the hassle away from grieving relatives and leverage their size to secure discounts.

“There is a shift towards seeing life cover as a service, rather than being purely a financial transaction, which you see in the UK with the growth of things such as remote GPs. It is about helping people through their rehabilitation,” Edbrooke says.

“The system of making lump sum payments is unfit for purpose, especially when it comes to critical illness products. Most of these products pay out the same amount for a wide variety of case severities, which affects the price.

“Critical illness is a very expensive product but if payments were tiered based on severity they could be made more affordable, and there is evidence that this is already starting to happen.

“The life industry is used to dealing with long-term guaranteed risk but it isn’t so good at managing short-term risk. Transitioning to smarter, more flexible benefits requires the industry to get better at managing short term risk,” he explains.

Edbrooke says one of the major avenues through which the industry could further develop its digital offerings to customers would be by encouraging more intermediaries such as brokers and price comparison websites to offer more comparable products, giving consumers greater transparency over the protection they are purchasing.

“We have to get the brokers on board because they have a lot of influence in this industry, especially in the UK. A lot of products are sold through market comparison sites, which encourages standardisation for the purposes of comparability, making it much harder for innovative products that take a different approach.

“Intermediaries are the hand that feeds the industry and it will take a lot of courage to risk losing market share.”

While the technology is there and the market is beginning to adopt more modern ways of delivering the service to the end client, Edbrooke remains cautious over the short term even as the longer horizon shows more promise.

“Past performance suggests that technology will probably not transform the industry, the pessimistic view is that we will see some change—more digital sales, less face to face, for example—but with the products themselves staying basically similar,” he says.

“There is enough enthusiasm for change in the industry to make a bigger shift possible, and there is more diversity of experience among employees than ever before. More life companies have created things such as behavioural science functions and these are already yielding results.

“I am confident that in five years we will have seen significant disruption in this industry,” he concludes.