The macroeconomic news has been largely positive for several years running, especially in the U.S. Record-low unemployment. Recent wage growth. Nearly a decade of steady — if slow — growth. So why do so many people feel uncertain about their financial lives?
Why financial stress matters: the link to physical and mental health
Financial stress may be the most damaging type of stress. According to the American Psychological Association, more than 60% of Americans suffer from financial stress, which has been linked to migraine headaches, cardiovascular disease, insomnia and other health problems. A National Institutes of Health study showed that people with more debt face greater risk of depression and high blood pressure. That’s a potential vicious circle; health events can cause financial problems that can further deteriorate our sense of financial well-being (through huge healthcare expenses, for example).
The path forward to financial well-being
It’s clear that the financial services industry — and insurers, in particular — have a role to play. It’s just as clear that previous efforts haven’t paid off fully, which means a new approach is necessary. Financial education has been around for years but hasn’t fundamentally changed behaviors. As important as financial literacy is, it’s not enough by itself to increase the general sense of financial well-being or move large numbers of consumers closer to their goals. Insurers — as well as retirement firms and wealth managers — should focus on a more integrated and holistic approach that addresses the components of financial well-being and that has a chance at changing behaviors.
In this context, it is interesting to observe where fintechs and insurtechs are placing their bets. Many are focused on delivering digital tools that educate customers and help them take charge of particular challenges, such as asset allocation or saving for an emergency fund.
See also: Why Financial Wellness Is Elusive
The question is, how do traditional players that are capable of providing solutions for many elements of financial well-being through their savings, investments and protection products develop an approach that takes a comprehensive view and actually helps change consumer behavior?
Recommended actions: What insurers should do now
With broad product offerings and large amounts of high-value data, insurance companies are well-positioned to help consumers achieve financial well-being. The question is, what strategic and tactical steps can they take today to begin engaging consumers more directly and broadly in terms of financial well-being?
- Develop a proprietary, multi-factor analytical model that determines financial well-being from the customer point of view, especially to the moments that matter in their lives. It’s not enough for insurers to understand what customers want — they must also know when and how they want it.
- Understand customers’ financial stressors and review existing portfolios and the new product pipeline for those that can specifically address these issues. Offerings that deliver “quick wins” (both for consumers and insurers) can advance the dialogue on financial well-being.
- Adopt “evolutionary” and “revolutionary” in designing new products and experiences — that is, evolve existing products through simplification and basic enhancements and innovate boldly with new product types (e.g., portable group policies) and embrace digital transformation to offer entirely new experiences.
- Develop digital tools based on artificial intelligence and other advanced technologies but surround them with a human element, such as real-time access to financial advisers or customer service agents via phone or live chat. This way, firms can have the right conversations with consumers in the right way at the right time.
- Develop a platform strategy, recognizing that platforms designed to promote financial well-being may need to incorporate multiple external parties, including other financial services providers. Scalable platforms should reduce the cost to serve, support evolving technology sophistication and enhance customer experiences.
- Develop an integrated brand and marketing strategy to effectively communicate and drive demand. Consumers must come to understand that insurers want to help them live richer, less stressful lives, rather than simply selling policies to protect against losses and other unfortunate events.
- Design and build the necessary technology architecture, which likely requires digitizing legacy systems so next-generation tools and apps can be deployed. Most insurers today face serious legacy system constraints in at least some channels or lines of business. These constraints must be removed if insurers are to meet customer expectations for seamless and personalized experiences across channels.
- Orient all touch points around trust and transparency. It’s not enough to simply secure channels, assets and data to be compliant. To build trust, insurers must also share information transparently (like digital leaders in other sectors) and deliver high-quality, personalized experiences.
