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June 20, 2019

How Life Insurers Prepare for Recession

Summary:

Deploying insurtech is letting insurers launch digital life and annuity products in months instead of years and leverage public data.

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Life insurance remains a foundation for transferring wealth to the next generation. But during recessions, life insurance companies could be under a threat of extinction as consumers may cut back on or downsize their plans and coverages, especially because life insurance might not be seen as a necessity to consumers.

As 2019 shapes up to be a banner year for some insurance carriers, concerns are being raised about a potential economic slowdown, if not a full-fledged recession, in as early as 2020. In fact, Vanguard Group Chief Investment Officer Greg Davis recently warned in an interview that the probability for a recession by late 2020 is a 50-50 chance.

Creating a consistent influx of commission-based transactions and keeping up with the market and competitors is crucial for life insurance carriers or an insurance agent.

To survive the next recession, insurers are adopting new technologies and investing heavily in insurtech initiatives. According to a recent report by McKinsey, titled “Life insurance and annuities state of the industry 2018: The growth imperative,” insurtech drew $140 million of investments in 2011, surging to $3.5 billion in 2017. The average investment stemming from insurtech grew from $5 million in 2011 to $35 million in 2017.

More than ever, carriers need to be prepared during a recession and maintain their growth momentum by adopting technology to streamline sales and distribution, adapt to the untapped millennial market and lower costs.

See also: How to Resuscitate Life Insurance  

Streamlining sales and distribution

Deploying insurtech is enabling insurers to create and launch digital life and annuity products in months instead of years that leverage publicly available data such as electronic medical records and health claims data, enabling real-time decisions so carriers can automate the underwriting and policy application process. Additionally, instead of weeks, consumers’ applications only take minutes to complete, with instant approval notification, omni-channel payment options and policies issued directly from the electronic customer portal to the policyholder’s email inbox.

Adapting to the millennial audience

According to a report from LIMRA, there still are approximately 50 million households (about 40%) that recognize the need for life insurance. However, 37.5 million households remain uninsured. With the number of consumers who have attempted to purchase life insurance online tripling since 2011, combined with the preferences of the vastly untapped and underinsured millennial and mid-market consumers to purchase insurance online, the need for an efficient and profitable direct-to-consumer distribution channel has never been greater.

Consumers are looking to purchase insurance faster as well as with the simplicity of a single click of the button, enhancing the insurance industry’s need for an efficient and streamlined distribution channel.

Along with changing the consumers’ views on the difficulty of obtaining life insurance, deploying a simplified technology solution can help insurance carriers reach an untapped, underinsured millennial market during low economic growth.

Lowering operating costs

In the report by McKinsey, the insurance industry has shown a disappointing track record of managing costs. A poll stated that senior executives from insurance firms estimated that the insurance industry needs to reduce its costs by 35% to sustain current expense levels.

See also: Making Life Insurance Personal  

Based on risks and opportunities, companies are encouraged to identify any cost savings. Companies are assessing revenue recognition and leasing accounting standards. Along with streamlining distribution method functions and adapting to the millennial audience, technologies like robotic process automation are being used to automate back office administrative tasks. Digitizing repetitive actions can allow insurers’ to focus on new business.

In difficult economic times, it is important that insurance carriers not only bring in new business but maintain existing client relationships, as it is better to keep a client at a lower cost than lose the account (and income) entirely. Showing concern for a business’ clients during recessions goes a long way to keeping clients for life.

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About the Author

Rex Tessendorf is the CFO of SE2, a leader in digital technology-enabled third-party administration services for the U.S. life and annuity insurance industry.

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