The insurance asset management landscape has been evolving for some time now, particularly as long stretches of low interest rates have pushed many insurers beyond their fixed income comfort zones. 

At the same time, the industry-wide push for digital transformation has brought glaring attention to the need for new technology to replace legacy systems that many insurers have leaned on for decades, as well as the need to master data management. 

As insurers grapple with changing times and technology, piecemeal solutions will not do. Insurers need a holistic, integrated solution to take them into the next era of asset management.

Key pressures of the insurance asset management landscape

The challenges to insurance investment portfolios stem from three major themes:

• Evolving asset mix within a low-interest-rate environment — While insurers relied on fixed income investments for years to create returns and maintain their desired ratios, sustained periods of low interest rates forced many to adapt. Many have turned to equities and alternatives. According to a 2021 survey of insurers by Goldman Sachs Asset Management, 34% are ready to take on more portfolio risk. However, as insurers take on more complex private investments, they face the inherent challenge of gaining insight and transparency into how these investments are affecting their portfolios.
• Managing more data — With a broader investment mix, insurers will confront an expanding array of data that will need to be managed and shared across teams and stages of the investment lifecycle. Moving into riskier, multi-asset strategies means data is key, but if insurers can’t capture, consolidate and unlock insights from that data, they’ll encounter major blind spots as they seek to make informed decisions while managing their portfolios.
• Adopting new technology in the right manner — The legacy systems that insurers have leaned on for decades no longer serve them as insurance portfolios continue to shift from fixed income-heavy strategies to multi-asset strategies. It’s possible that existing platforms will not be able to support alternative investments like private equity, real estate and hedge funds, requiring insurers to spread their investment operations across multiple siloed tools, further complicating the data management challenge. 

Finding the right path forward into a new era

To effectively oversee the expanded asset mix in insurance portfolios and optimize alpha creation, insurers need to adopt an integrated approach to technology and data practices. At a high level, consider how components of the investment lifecycle – the front, middle and back office – fit together into a whole office rather than viewing them as segmented, individual pieces. From front office investment decisions to middle office trade execution to back office reporting and accounting, the data from each activity feeds into the others. Because they all must integrate, viewing each activity as a separate domain will leave insurers with siloed data and operations, reducing overall efficiency.

See also: Boosting Cyber Hygiene With Insurtech

In transforming insurance investment operating models for the current era, two principles can guide decisions on how to scale up: 

• Partnerships — Insurers have a history of building their own technology, customized to their particular needs. But that is changing along with the asset mix in investments. Consider the time and resource requirements if building investment and accounting tech in-house, versus the resources needed to develop and maintain client-facing applications. Many industry partners can offer existing technology to answer insurers’ needs alongside expert guidance and service.
• Integration — Impressive fintech solutions are being developed at a rapid pace, but they need to be properly integrated with the whole office to truly optimize the investment process. Managing just a few technology partnerships for investment operations can serve the investment team better than working across numerous different platforms and solutions. With this in mind, industry partners that can offer multiple capabilities and can integrate those capabilities offer a crucial benefit to insurers as they take on a challenging transformation of their investment management model. 

Insurers have reached an important investing crossroads. Low interest rates may last for some time, and even when they do climb an embrace of alternative assets has changed how insurers are able to drive alpha in their portfolios.

It’s hard to overstate the importance of technology and data in today’s world, and getting a firm handle on both is crucial to decision making. As insurers work through investment management pressures, finding the right partners will help to optimize the whole office of their investment lifecycle.

A 'Future History' of Insurance Paul Carroll, Editor-in-Chief of ITL In the consulting work my partner Chunka Mui and I have done with senior management at major companies over the past dozen years, the most useful strategic planning tool we’ve developed is what we call a “future history.” I’d like to try to apply that tool broadly, to the entire insurance industry. And I’d like your help. continue reading > New Podcast Alert Join Denise Garth, Chief Strategy Officer at Majesco, and Bryan Falchuk, Founder and Managing Partner for Insurance Evolution Partners, in discussing his latest book, “The Future of Insurance: From Disruption to Evolution, Volume II.” Listen Now SIX THINGS Getting to ‘Amazon-Like’ Auto Claims by Stephen Applebaum Digitization of thousands of steps and integration among participants is enabling an “Amazon standard" for customer experience. Read More Pivotal Moment for Innovation in Auto by Sameer Dewan As car traffic picks up again, insurers must innovate on claims processing, offer risk management advice -- and much more. Read More Minimize Fraud, Lower False Positive Rates and Increase Automation for Low Value High Volume Claims Using Halo Based AI Sponsored by Daisy Intelligence This whitepaper explains how using Halo-based AI minimizes insurance fraud, increases automation, lowers false-positive rates and delivers excellent financial results. Read More Latest Insights on Customer Behavior by Mary Parsons Increasingly, people no longer view insurance as a transaction – instead, they see insurance as a part of their overall financial wellbeing. Read More Power of Partner Ecosystems by Denise Garth Insurers seem stuck in traditional channels rather than expanding channel choice and reach, meeting customers where and when they want. Read More How Do You Sell if No One Answers a Phone? by Marybeth Degeorgis Here are five of the best practices that insurers can leverage to rebuild trust in voice communications. Read More Policy Admin Systems Are Evolving by Martin Higgins Modern solutions, including cloud-based options and lower-cost implementations, are redefining what constitutes a policy administration system. Read More MORE FROM ITL The Right Way to Engage Customers sponsored by Statflo The right way to engage with customers is, of course, whatever they say it is – which likely means much more texting than you’re doing now. Watch Now SEPTEMBER FOCUS: Life Insurance   "...It seems to me that the lines will increasingly blur between life insurance and financial management, given that life insurance is an important financial asset; people often think about their finances, and life insurance can become a natural part of that focus. I could also see the trend toward embedded insurance expanding the life insurance market — why couldn’t a term life policy be, for instance, embedded in a mortgage when someone buys a building, to make sure the purchase is secure even if something happens to the buyer? Over the years, I’ve had people tell me life insurance is boring. I don’t see it that way at all." Keep Reading Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

Mitigating risk requires strategic planning. However, if you form a strategy, then print it on paper, toss that binder on a shelf and forget about it, that totally defeats the purpose.

With safety, in particular, we need more than just a neglected document. We need a culture that employees live and breathe. Whether that safety culture is driven by technology or policy, it should be woven into the very fabric of company operations. 

Let’s apply this to the supply chain. 

The basic intention is to move goods and services around the globe as smoothly as possible. In this industry, where so many variables are constantly changing and goods are exchanging hands, operating within a safety culture creates an environment that is less likely to have a disruption or delay. Oftentimes, when companies investigate incidents, they find that proper protocols may have been in place but were not followed. 

A proper safety culture is first and foremost about ensuring employees’ safety and well-being, but there are other benefits as well. A strong safety culture can actually save your company money if it avoids incidents and delays. Let’s dive into how exactly a company can foster a culture of safety.

Communication leads to efficiency 

A hold up at any point along the chain has a domino effect of disruptive consequences for all ensuing steps. Safety shortcuts that seem like a time saver in the moment can end up doing the exact opposite. It’s important to make efficiency a priority over speed and to support that goal through clear communication. 

Consider a manufacturing plant where a worker is required to shut off a machine, lock it and deploy the safety shield before leaving that station, even if the person is taking a break that’s shorter than the time it takes to ensure those safety measures. There's a risk if those three things don’t happen. 

The potential consequences are a serious injury, or worse, and representatives from Occupational Safety and Health Administration (OSHA) coming to investigate the operation. That creates a bottleneck early in the supply chain process and delays future steps. 

Adopting a safety culture starts at the top. Management needs to make priorities visible so employees adjust their frame of mind accordingly. If it is perceived that the priority is to push the limit of speed at the manufacturing plant, it’s no surprise that an employee wouldn’t shut off a machine, lock it and ensure the safety shield is deployed before taking a quick bathroom break. The potential consequences of speed would actually hinder efficiency in this case.

Having signs within the plant that clearly identify a safe working environment as the top priority can help assure employees that expediency is not tied to their paycheck. This clear communication allows them to be more diligent about their work, more productive and willing to go the extra mile because there is mutual loyalty. Using safety as an incentive, perhaps offering a reward for accomplishing milestones of incident-free work, can help drive home its importance. 

See also: 4 Keys to Online Safety Training

Technology can help realize insurance savings

An unsafe working environment can come with exorbitant insurance costs that will hurt profit margins. If that occurs, it’s usually followed by a downward spiral. Lower profit margins lead to cutting corners, which leads to more accidents and more insurance claims. Stopping that vicious cycle before it gets out of control is the best strategy. 

Because those costs can be so high, forward-thinking companies are willing to invest in risk-management tools that provide a more active approach. 

For example, a trucking company could install a system on each cab that tracks speed and braking habits, accounts for speed limits and weather conditions and provides data to the company. The company needs to follow through on the data, coaching any driver who isn’t safe on the road and offering tools to develop safer behavior.

Companies also might install devices within cargo shipments that monitor the goods being shipped and immediately alert local law enforcement if the truck or cargo is somehow stolen.

Gathering data, and then using it to change behaviors that foster a safer environment, is a powerful tool. Lowering the frequency of incidents generates data that provides leverage when negotiating insurance terms and conditions. Underwriters can see that the data is acted upon and that those actions yield safer results. Companies that can prove this have an advantage, which can result in lower insurance premiums.

Engaged employees keep business going

A safety culture won’t work unless employees buy in and see a benefit beyond the company’s bottom line. Through training efforts, management can make sure that employees see the value and are engaged with the safety culture. 

Any incident is a disruption to business, and some are more quantifiable than others, but employees can help mitigate most of them. Even if an incident results in an insurance payment, and therefore doesn’t have a huge financial impact, there could be other costly ramifications. Perhaps a vendor becomes aware of an incident and chooses to stop doing business with you based on how you operate. 

While it may not always get recognition, erring on the side of safety keeps business running smoothly. It’s difficult to quantify the benefit for a grocery store that ensures non-slip flooring and has well-trained employees that are quick to clean up a spill, limiting slip-and-fall accidents and potential insurance claims. Some societal benefits may go unnoticed, but they are important valuable. If employees didn’t notice the spill in aisle five, or were too slow to clean it up, and a customer were to slip, fall and sue, the cost of liability plus the reputational harm may be enough to threaten the store’s ability to remain open. 

See also: 5 Safety Keys for COVID-Era Building

Being hit in the financial pocket, whether from legal costs or a damaged reputation, always gets an owner’s attention and usually results in a greater emphasis on safety culture. Ensuring that employees are focusing on safety before an incident happens can avoid loss of revenue and reputational hits.

If you truly make safety a part of your culture, that will flow through the organization and throughout the supply chain. Partnering with companies that value a safety culture will help ensure the supply chain operates more efficiently and with less disruption.

In brief

• The EY 2021 Global Insurance Consumer Survey explored the financial anxiety caused by COVID-19, how consumers plan to respond and the protections they want now.
• The pandemic’s powerful financial and psychological effects were felt most intensely by younger consumers and in emerging markets.
• Given increased consumer interest, there is huge opportunity for insurers that develop accessible, purpose-led solutions and update distribution channels.

For consumers, the COVID-19 pandemic has been the equivalent of a massive life event. Its broad-based and multi-dimensional effects were felt psychologically, emotionally and economically. The profound financial impacts forced people around the world to reassess their priorities, goals and needs — indeed their entire lifestyles in some cases.

Widespread health concerns, pervasive economic uncertainties and strict lockdowns bound people around the world into a shared experience of unprecedented scale. But while anxiety and psychological effects were felt universally, it truly has been a tale of two pandemics, financially speaking.

Consumers in emerging markets were hit harder than those in mature economies, both in terms of their health and finances. They faced more severe consequences such as job loss, reduction in working schedules and the need to dip into savings. Younger generations were more heavily affected financially, while older citizens faced a greater mortality risk. Of course, many of these initial effects are still lingering as the virus persists.

Recent EY research confirms how the pandemic fundamentally changed consumer needs, how they plan to increase their financial security and what insurers can do to seize the opportunity. Between May and August 2021, EY surveyed 4,200 people in seven countries (Brazil, Canada, Japan, the Netherlands, the Philippines, South Africa and the U.S.) about the pandemic’s financial impacts, respondents’ plans going forward, their interest in different types of insurance products and their buying preferences (see full methodology). We also spoke to people in cities across the world to get their perspective.

The results of our research reveal consumers’ interest in new products, with strong value propositions and specific features, and an openness to interact and buy in new ways. Insurers will need to engage consumers with empathy, develop solutions that strengthen financial well-being, innovate their product sets and optimize digital distribution channels. Ultimately, insurers must live their purpose of providing protection to those who need it most, with an eye toward bridging the protection gap.

The four key findings from the EY 2021 Global Insurance Consumer Survey:

1. The pandemic caused almost universal anxiety, which has prompted consumers to take action and increased their interest in new protections.
2. Beyond the shared psychological impacts, emerging markets and younger generations took the biggest financial hit and show the greatest interest in new products.
3. Emerging market consumers are digitally savvy, open to sharing data and ready to buy new products in new ways.
4. Because corporate social responsibility matters to consumers, insurers need to stand behind great values as well as great products.

How consumers plan to respond to universal financial anxiety — Short-term protections are the priority.

The threats of the COVID-19 pandemic were felt quite close to home. Losing a loved one earlier than expected was the top concern for consumers worldwide, with 76% of overall respondents citing concern. Clearly, this was more than an economic crisis, though the financial stakes were high, too. Financial well-being was the second-highest concern, cited by 73% of all respondents. 

Consumers around the world also have much in common in terms of their reaction to the pandemic. Three out of four (75%) anticipate making financial preparations in response to the pandemic. Specifically:

• 50% plan to save more
• 30% expect to develop emergency plans
• 23% plan to speak with a financial adviser

The implication is clear: Nobody wants to be caught out like this again. Recovery and preparation for another crisis are the immediate priorities, rather than retirement or estate planning.

Significant percentages of respondents are interested in new types of insurance products. They expressed the greatest interest in policies that pay for hospitalization expenses (94% in emerging markets and 64% in developed markets are interested), followed by an add-on feature for life insurance that allows access to funds in case of emergencies (91% in emerging markets and 56% in developed markets are interested). They are also thinking about short-term income protection products, like insurance that funds college education plans or pays for credit card bills in the case of a job loss. 

Compared with a similar study EY conducted in mid-2020, these findings show a remarkable consistency. Despite the hopeful signs in the late spring and early summer of 2021, financial worries do not look likely to abate anytime soon. Consumers are keenly interested in avoiding what we call “long financial COVID-19,” a sustained state of financial anxiety due to overall uncertainty and a sense of not being prepared for another highly disruptive event. 

See also: 3 Tips for Improving Customer Loyalty

The intense impact on emerging markets and younger consumers — Financial distress drives new demand.

Our survey results quantify the varying financial impacts across markets. Consumers in emerging markets felt more severe impacts, but consumers in developed markets were not unscathed. In fact, significant proportions of the latter group dipped into savings or lost income. 

Interestingly, consumer responses to financial distress show the differences across markets: 93% of respondents in emerging markets plan to make at least some type of financial preparation, compared with 61% in developed markets. About one in four, or 23%, of consumers in emerging markets plan to purchase new forms of insurance, and nearly 42% plan to speak with their adviser about an emergency plan. The desire to prepare for future disruptions is surely prompting these actions.

It’s important to note how demographics correlate to these findings. Typically, emerging markets have younger populations, as reflected in our survey design. In emerging markets, 75% of the respondents were under the age of 45, compared with 35% in developed markets. Among our respondents, only 10% in emerging markets have more than $100,000 in investable assets, versus 37% for developed markets.

The varying levels of concern across different markets can also be attributed to the relative strength of healthcare systems, social safety nets and access to vaccinations. For instance, in emerging markets, where vaccination rates are considerably lower than in developed markets, concerns about losing a loved one and financial well-being were notably higher. That anxiety remains high more than a year after the onset of the pandemic speaks to the severity and extent of the psychological trauma. 

The word cloud below includes the most common comments from our survey respondents in emerging markets, demonstrating the diversity and intensity of their fears. Facing threats of economic instability, along with increased crime and delinquency, this population may require even more protection of their assets.

Our analysis of these findings confirms that there is a huge and largely underserved segment of the market that needs — and is ready to buy — new forms of protection. For example, 61% of respondents in emerging markets are interested in purchasing life insurance in response to the pandemic. Consumers in developed markets also want more life coverage, as evidenced by the significant uptick in sales and applications during the last year. Research and markets estimates global life insurance market growth at 16% from 2020 to 2021.

It’s no surprise that the greatest opportunity is with the consumers most affected by the pandemic, both in terms of health and finances. Historically, this has been a tough market to serve profitably. But insurers should view the scope of the growth potential in terms of greatly expanded and intensified consumer interest in their products. The opportunity to bridge the protection gap and build lifelong customer relationships has never been greater. 

See also: Digital Solution for Income Protection

A new wave of digitally savvy consumers emerges — Desire for new solutions in new ways

In considering how to take advantage of the demand spike, insurers will of course consider the most cost-effective ways to serve consumers in emerging markets. In this sense, our survey presents good news in that this digitally savvy demographic vastly prefers online channels: 80% are likely to purchase health insurance, and 73% are likely to purchase life insurance digitally. Nearly 60% prefer contacting their agents or brokers digitally. 

Further, they are ready to share more data, with more than half of emerging markets respondents willing to share personal information in exchange for meeting savings goals or individual health-related goals. They are also open to new buying options — 47% are comfortable purchasing an embedded insurance policy from a healthcare firm or hospital chain.

To connect with these consumers, insurers will need stronger digital capabilities, in addition to accessible and affordable products. Those are the necessary elements to satisfy these customers efficiently and prepare for potential competition from healthcare firms. Insurers will also need to communicate more effectively, demonstrating that they understand what consumers have been through and what they need now.  

Some forward-looking insurers are already taking steps in this direction. One Asian carrier developed a new policy with clearly defined benefits — coverage for up to three months of expenses in the case of a pandemic-related hospitalization. 

The offering was targeted at younger consumers, with whom the carrier had limited previous engagement. The business case was founded on a few strategic principles: that the firm’s network of advisers would gain access to new customers, that these relationships could be expanded and grown profitably and that the new offering aligned to the firm’s purpose of promoting financial security.

Our conversations with consumers highlight the demand for innovative products and distribution channels, along with strong customer relationships.

Why great values matter, along with great products — Social commitments count with consumers.

The pandemic, along with other events of the last year, advanced consumer interest in corporate social responsibility (CSR) and raised expectations about how companies contribute to society. A full 59% of consumers worldwide know their insurers’ CSR stance at least somewhat well, with consumers under the age of 45 more aware of social commitments. An average of 56% took at least some CSR-related action involving insurance or other financial products. Reputation is the most critical factor, with a quarter of respondents saying that they have chosen one insurance brand over another due to its CSR reputation.

Consumers in emerging markets are more actively engaged around CSR than their counterparts in advanced economies: 73% say they are aware of the social responsibility stance of companies they do business with, versus 48% in developed markets.

These numbers are consistent with our 2020 consumer survey findings, where we found the most financially affected consumers are both highly concerned about social justice causes and place a greater value on an insurer’s social efforts in their purchasing decisions.

Other EY research supports these conclusions. The latest edition of the EY Future Consumer Index suggests 43% of global consumers want to buy more from organizations that benefit society, even if their products or services cost more. Nearly two-thirds, or 64%, are prepared to behave differently if it benefits society.

More and more, consumers are choosing brands that share their values, especially regarding urgent societal issues, including climate change, diversity and inclusion and income inequality. By articulating a purpose beyond profits and amplifying their CSR efforts, insurers can gain traction with a socially active, energized audience. That their products can directly improve financial well-being and facilitate the transition to a greener economy demonstrates how insurers are uniquely positioned to show leadership and differentiate on CSR.

See also: How to Use AI in Customer Service

What’s next for insurers: implications and takeaways

The powerful effects of the pandemic will be felt for a long time, at both the level of the global economy and within individual human lives. The lockdowns and social isolation; the fear of contracting the virus and of losing a loved one; the disruption of jobs, careers and everyday activities; the yearning for a return to normalcy and greater financial security — these are the universal truths of the COVID-19 era. Insurers can respond and help people recover in meaningful ways.

1. Communicate with empathy to build trust: Our research, along with other studies, provides a detailed understanding of the new challenges that consumers face, their interests in specific products and how they intend to prepare for future shocks. The first thing insurance companies need to do is show that they understand all the impacts — from financial to physical and mental health.

Next, carriers should connect to their customers on a human level, with warmth and empathy, acknowledging the trauma of the last year. Language matters, especially in the digital channels younger consumers prefer. A human touch is the prerequisite to building trust and becoming a partner in strengthening financial well-being.

2. Innovate around customer value: The huge demand for new protections and financial well-being solutions cannot be ignored after a decade of sluggish industry growth. It must be seized vigorously and creatively, with new solutions and distribution options closely aligned to consumer needs and preferences. The key is to provide relevant guidance and scalable solutions now that will help consumers navigate the pandemic’s lingering financial impact and restore their financial well-being.

3. Strategically engage younger consumers: Personalized communications and new solutions are not only for mass-affluent and high-net-worth consumers. The pandemic opened a door to connect with younger and underserved consumers, a segment that insurers have long struggled to engage. It’s a moment of truth to introduce these individuals to the value of insurance as a means to prepare for future financial shocks and as the basis for long-term financial security. By providing relevant solutions now, insurers can lay the foundation for lifelong relationships.

4. Demonstrate purpose and commitment: Many carriers showed their purpose in the immediate aftermath of the pandemic, offering premium discounts and holidays and supporting local communities. Going forward, all operations — starting with products, communications and customer interactions —must be infused with such purposeful commitment and humanity. By linking their products to their core values and purpose, insurers can demonstrate they are good corporate citizens sincerely invested in delivering the protections that individuals, communities and society need now.

In this webinar, ITL Editor-in-Chief Paul Carroll interviews Scott McArthur, Chief Revenue Officer at Statflo.

They cover:  

--How texting enables the sort of easy, two-way conversation that customers want, getting away from email blasts and snail mail. 

--How other industries can serve as a model for insurers on leveraging front-line employees, rather than expensive call centers. 

--How texting (with its 90%-plus read rates) can combine with emailing and calls to let insurers learn about key life events for customers. 

---

Speakers:

In the consulting work my partner Chunka Mui and I have done with senior management at major companies over the past dozen years, the most useful strategic planning tool we've developed is what we call a "future history." I'd like to try to apply that tool broadly, to the entire insurance industry. And I'd like your help.

A future history is a narrative written as though we're living five years, 10 years or even further in the future. A group -- usually a team of executives -- picks a point in time so it's close enough to today to be useful for planning purposes but far enough out that their thinking can go well beyond the three issues that most strategy discussions generally wind up focusing on: this quarter, next quarter and the quarter after that. The group then imagines what a perfect form of its business or industry might look like at that point in the future. This isn't done as an exercise in fantasy: The idealized form needs to be plausible based on trends in technology, in the economy in general, in behavior by customers and competitors, etc. Once the group narrows in on a plausible vision of nirvana, someone writes a "history" set on that date in the future that describes how the company or industry got there from here, as though it's already happened.

The future history not only gives executives unusual license to raise their sights but also gives them a story that organizes their thoughts and that they can easily remember and rally around -- one CEO, of a major insurance company, brought out his future history every year at his leadership meeting so they could track progress. Turning a vision into a narrative also can point out flaws in the logic -- "We need HOW big an increase in market share?"

Having published bits and pieces of a vision for the insurance industry for eight years now with ITL, I've taken the liberty of writing a future history for the insurance industry, set 10 years from now. I attach it at the end of this piece and very much hope you'll read it and react to it. You can reach me directly at paul@insurancethoughtleadership.com, or you can contribute to a public discussion at our page on LinkedIn. You can follow the discussion on LinkedIn; I'll also report back once the idea has taken more shape based on feedback.

First, some background on some general technology trends that I believe are in play, beyond what we're seeing about digitization, artificial intelligence and more in the day-to-day coverage of the insurance industry. Some of these may seem a bit far-out, but I assure you that I can back up what I'm about to say -- and, as I said, future histories are about really raising our sights and thinking big.

The trends are seven of what I call the Laws of Zero, which I've developed with Chunka and another longtime friend and colleague, Tim Andrews, in a book being published today. The book -- A Brief History of a Perfect Future: Inventing the World We Can Proudly Leave Our Kids by 2050 -- is set much further in the future than what I've written about insurance and focuses on how to tackle broad, societal issues such as healthcare, climate change and disinformation, but the Laws of Zero apply to all industries and will have major impact long before we hit 2050.

By a Law of Zero, we're referring to anything on an exponentially declining cost curve. When you look at that curve over a bit of time, the cost seems to be headed toward zero -- and anything that costs nothing is an infinitely(ish) available resource to throw at problems and opportunities.

Computing power is the area we're all most familiar with, because we've been experiencing the benefits of Moore's law ever since Intel co-founder Gordon Moore posited in the 1960s that the number of transistors on a computer chip (roughly a proxy for its processing power) would double every year for at least a decade. As those doublings have continued (sometimes faster, sometimes slower), we now have iPhones that would have been able to manage sending 120 million Apollo missions to the Moon and back -- at the same time. A gigabyte of memory cost more than $300,000 in the early 1980s; today, a gigabyte costs a fraction of a penny, and you'll soon be able to buy an iPhone with a terabyte of memory (1.024 gigabytes).

But that's all in the past. Now, as strategists, we need to imagine the future. What will computers, phones and other electronic devices look like in a decade when they are perhaps 30X to 50X as powerful as they are today, at no increase in cost? Surely, something new will arise for us as individuals, beyond texting and TikToks, but what will it be? And what new business models might become possible for insurers?

Computing is just the first Law of Zero. We also argue that communication will follow a Law of Zero (providing infinite(ish) bandwidth at zero(ish) marginal cost). Information will, too. The tiny satellites being launched by the dozens by SpaceX and others will blanket the globe with cameras and with communication capabilities, meaning everywhere will be within reach and can be monitored continually. Sensors and cameras, which just need a little solar power, a battery and a small antenna, will be capable of reporting from anywhere. Sensors on and even inside our bodies will let us and our doctors monitor our health in startling new ways.

Genomics is declining in cost and increasing in capability far faster than even Moore's law would suggest. Some 25 years ago, techniques would have required 86 million years to sequence an entire human genome. Today, that can be done overnight. And progress won't stop there, either -- an attachment is being developed for smartphones that will allow for sequencing a genome anywhere, any time, almost instantly. The implications go way beyond healthcare, too, reaching into almost every area related to biology.

We also posit Laws of Zero for energy, water and transportation. These are a bit squishier than those for computing, communication, information and genomics, but they're real and important.

Solar power costs, for instance, have already come down so fast that it provides the cheapest electricity. Soon, it will be cheaper to build new solar and wind capability than to buy coal and gas to fuel existing plants. Solar and wind will always carry a cost -- as will the batteries needed to store the power, and the reimagination of the grid that will have to occur to incorporate so much more renewable energy -- but carbon-free energy sources will be abundant and very cheap. So, people will be able to be profligate with their use, much as people now think nothing of using once-expensive bandwidth to watch football games on their phones.

Once energy becomes extraordinarily abundant and cheap, much of today's problems with water disappear. Some major cities, including Capetown, South Africa, have gone through water crises even though they sit cheek by jowl next to an ocean, but infinite(ish), carbon-free energy will make desalination feasible at scale. Some technologists have even made progress at using solar power to condense water out of the air and may be able to do that at enough scale to supply individual households -- as a demonstration, one company set up a water fountain in the middle of the Atacama Desert in Chile, the most arid spot in the world outside the polar deserts.

With transportation, even though autonomous vehicles will never be free -- they'll still need to be built and managed -- they will take away so many considerations of time and distance that they, too, can be seen as following a Law of Zero.

Some of these Laws of Zero are recursive. For instance, computing power has improved so much that it is enabling artificial intelligence that is designing specialized chips for AI, which will make it more powerful and let it design better chips... and so on. Many are mutually reinforcing: For instance, AI is allowing many genomic processes that used to be done in the lab to be done just as accurately on a computer, meaning that testing and progress can occur at the speed of silicon.

That's enough for now on the Laws of Zero. (If you want to read more, I'd encourage you to read this article that Chunka wrote for the International Insurance Society, a sister organization with ITL, or, of course, to grab the book, where we spend some 50 pages exploring the topic.)

The question now is: How do those Laws of Zero combine with other innovations in insurance to help us design a near-perfect form of insurance by 2031?

In another article for the IIS, Chunka suggests questions, including the following, to help guide our thinking on where to focus our innovation thinking:

• What are the most pressing protection gaps in the communities you serve? The candidate list is not short. Natural catastrophes like wildfires, heat waves, earthquakes, pandemics, flooding and other extreme weather events loom large. Long-term climate disruptions such as a rise in sea level, temperature shifts and droughts will be more severe. Additionally, technology-related risks like cybersecurity and large-scale technology failures could be more disruptive.
• How might those protection gaps evolve, especially for the most underserved?
• How might leading-edge tools enabled by the Laws of Zero be applied to better model risks?
• How might these tools transform every aspect of the insurance value chain, including product development, marketing and sales, underwriting and pricing, claims and customer service?
• How might early lessons from innovators and early adopters around the world be adapted to your community’s evolving challenges?
• How might your organization evolve to help markets and customers better understand their risk profiles and increase resilience, mitigate risk and reduce losses?
• How might your environmental, social, governance (ESG) strategy evolve, and what progress should be made in the allotted timeframe?

When I combined those questions with the capabilities of the Laws of Zero and other innovations, while trying to break free of the constraints we all know the industry faces and confront in our daily work, here is how I imagined an article on a near-perfect insurer appearing in a newspaper (electronically, of course) in 2031:

Insurer Sets Record for Market Value

PHILADELPHIA – Sept. 21, 2031 – The stock price of Transformative Insurance (better-known as TI) rose 3% today, making it the first insurance company to surpass $1 trillion in market value.

“They were the first in the insurance industry to figure out that nobody wants to buy insurance, while everybody wants to be safer,” said Steve Bern, a securities analyst at XYZ Research Corp. “For decades – actually, centuries – insurance promised people peace of mind and indemnified them after a loss. Well, nuts to that. Why not prevent that loss in the first place?”

Loss prevention has been the key at TI for a decade now. It basically aggregated the property/casualty industry’s data and sold services that helped car owners avoid accidents, let homeowners spot leaks before any damage could occur, warned business owners about situations that endangered employees and much more.

Sam Conroy, an analyst at ABC Consulting Group, said, “It wasn’t easy getting insurers to share their data. They aren’t known for sharing. But TI offered insurers a two-fer. Insurers would reduce the size and number of their claims by letting TI aggregate risk-related data, and – this was the big one – insurers got a chunk of equity in TI. TI basically operates as an industry consortium.”

TI, in conjunction with all the major players in the insurance industry, has drawn on the Laws of Zero to deploy a wide array of technology in pursuit of risk reduction.

For instance, TI worked with auto insurers to spread technology pioneered by Nauto, which has tiny cameras mounted in the windshield that monitor both the road and the driver at the same time. These devices were initially deployed by fleet owners, who wanted to be able to check on drivers while going beyond measures such as hard braking – that hard brake might be a sign of inattention, or it might be a sign of an alert driver who saw a deer darting across a road. But the devices now do far more, because of the data and connections that TI provides.

The devices know where blind intersections and other trouble spots are, based on insurers’ accident data, and can warn drivers as they approach, especially if the camera shows the driver being inattentive. The devices now communicate with each other and can even create warnings in real time if a car up ahead hits an ice patch.

“Remember all those 30-car-and-truck pileups in the Tule fog in Sacramento in the winter?” Conroy asked. “No more. As soon as a crash happens, every car behind it gets warned to slow to a crawl and avoid the accident. Your car can now see around corners, too. No, it can't really, but a car around the corner from you can see that a car is about to run a red light or stop sign and instantaneously tell your car to halt until the bozo clears the intersection.”

TI also helped spread technology developed by Notion, which allowed for smart homes without all the installation costs that came with many early devices. The technology allows for a homeowner to place an inexpensive sensor (now costing only a few dollars) anywhere there might be a leak or at any door or window that the homeowner wants to monitor. The sensors communicate wirelessly with a hub in the house or apartment, which then connects with an app on the homeowners phone and, perhaps, with a professional service if the sensors are being used for home security.

“Uptake was swift for a reason that didn’t even occur to me,” Conroy said. “I figured people would like being able to spend a few dollars to prevent a potentially catastrophic leak, and they do, but they really liked that they could be notified when that front door opened and shut at 3:15, so they knew their kids were home safely from school. People wound up using these devices way more than they used any insurance app I’ve ever seen.”

TI has begun to expand into offering home maintenance advice – but very much as a trusted adviser and not, like some other companies, as a front for selling appliances or repair services. TI sensors monitor key pieces of equipment, such as a water heater, to watch for potential leaks. The company also recommends other home maintenance when it can present an argument that the homeowner will likely save money. In addition, TI has drones that can provide annual or semi-annual inspections that look for problems with gutters, roofs, etc., and has access to satellites that can monitor homes daily.  

On the commercial side, TI offers a service that uses cameras -- now so cheap that they can be anywhere -- to evaluate workplaces for situations and practices that pose dangers to customers or employees, drawing on its definitive, continually updated data on previous claims. TI advises clients on how robots could take on dangerous tasks or can be used to make environments safer for customers – such as by using ultraviolet light to disinfect hotels or restaurants. In addition, TI steers clients toward exoskeletons that workers can wear to take over lifting tasks and prevent soft tissue injuries, which used to afflict so many workers.

“TI basically pulled off an Uber or an AirBnB,” said Debbie Colker, president of DEF Research Inc. “TI is a classic example of what Silicon Valley would call an ‘asset-light’ company. It doesn’t have to carry all the risk capital that the insurers and reinsurers have on their books. TI just manages the data and provides services that customers value very highly.”

TI’s success comes at a time when the entire industry is undergoing a technology-driven transformation that, among other things, has pushed operating costs down more than 50% in the past decade.

“I think the last fax machine just got crushed and dumped in a landfill,” Colker said.

Simply moving to a digital form of the business – accelerated greatly by the COVID-19 pandemic in 2020 and 2021 – took out much of the cost. Artificial intelligence, including robotic process automation, accomplished most of the rest. Blockchain contributed mightily, too, by providing an easy way to securely share masses of data that previously required waves of phone calls and emails.

"Lo and behold," Colker said, “making operations so much more efficient greatly narrowed the protection gap. Customers now get maybe 80 cents of each premium dollar back in a claim paid, rather than 60 cents, as they used to, because all those unnecessary costs are gone. Customers are still paying for peace of mind, but only about half as much as they did – now giving up only 20 cents of each premium dollar, rather than 40 cents. And they like that change. A lot.”

The transformation began in distribution but quickly moved into claims, then took over in underwriting – and now is cycling through the industry again.

Simple digitization drove the initial change in distribution because it allowed for reaching customers in more efficient and even new ways – including through comparison sites, through social media and through platforms where brokers could place applications for insurance and have multiple insurers quickly bid on the business. Insurers could not only make their offerings more broadly available, far beyond the reach of a series of small offices in strip malls, but could allow customers to do research and begin the buying process online on their own – an especially important feature for younger prospects.

The pandemic in 2020 and 2021 accelerated the need for digital interactions, and the industry later settled into a hybrid, with digital increasingly carrying the load but human agents available whenever they were needed. Chatbots expanded the range of digital interactions, beginning by handling routine inquiries but gradually developing a more sophisticated range – again, always with human experts as a backstop. Robotic process automation now handles most of the coordination of the sales work, and e-signatures and e-payments removed a huge chunk of the paperwork. AI, meanwhile, makes agents much more accurate at identifying prospects.

The digital fervor spread soon enough to claims, where AI caused an even bigger change in the early 2020s than occurred with distribution. In the vernacular of the time, the claim became the boss of the process. Rather than think about a claim as a sort of folder passed down the line from person to person to person as it went from first notice of loss to payment, AI made the claim the central point and sent queries off to people and data bases – including a blockchain – as required to keep things moving along as quickly as possible.

The AI also continually sorted through claims in a sort of triage, paying some immediately because they seemed clean and because the cost of paying was lower than the cost of assigning an adjuster, while referring others to experts or fraud investigators. Parametric insurance, which is increasingly popular, requires that some claims be paid instantly, if, say, rainfall is below a certain level in a farming area.

“There was a lot of focus in the early 2020s about having AI generate an estimate on something like an auto claim, and that was certainly cool,” said Ruth Sze, the leader of the auto consulting practice at JKL Corp., “but the AI maybe saved an adjuster half an hour, and, truth be told, the estimates weren’t initially very accurate. Letting those involved in an accident take pictures shortened the process a lot more. And the really important change was putting the AI in charge; that cut many days out of an auto claim and slashed costs. In 2020, there were a billion days in the U.S. between when auto claims were filed and when they were paid. Now, we're down to single-digit millions.”

Underwriting came next. Based on the Laws of Zero for computing, communication and information, underwriters can now pull together information almost instantly, greatly accelerating the process, while AI has expanded access to lots of new sources, including unstructured information like photos and videos, as well as old, handwritten documents. Many types of commercial insurance can now even be initiated on a self-service basis by the customer, a la auto insurance starting in the 2010s. Customers can get an instant quote online and adjust coverages themselves to see the effect on price, before a broker gets involved to answer questions and review the coverage.

“Now the renewal process is starting back at distribution,” Sze said, “because the traditional part of the industry is finally stripped down to its digital essence. When you think of indemnification, there is a customer, a yes/no mechanism for deciding whether someone gets paid and, finally, capital. That’s it. Just those three elements.

“And now we’re free to pull capital from anywhere — insurers, reinsurers, the capital markets, wherever. We can have any kind of yes/no mechanism, whether that’s an adjuster, a parametric trigger or anything else. Distribution can be anything – and we’re seeing that. Traditional barriers are breaking down between, say, health and life insurance sales – both want to keep you healthy, right? Life insurance can be part of wealth management. Auto insurance can be sold along with an auto, home insurance along with a home. And so on.

“I’ve always thought the truest form of synergy was, ‘Do you want fries with that?’ Well, now everybody is asking on the industry’s behalf, ‘Do you want some insurance with that?’”

***

I realize this is far longer than my usual missives, but I didn't see any way to do this more succinctly. There's a lot going on here. I hope this stimulated your thinking and really do hope you'll either offer thoughts on how this hypothetical TI might be even better -- don't worry, I have a thick skin -- or suggest other avenues to pursue.

We have almost immeasurable capabilities that we can use to transform insurance, and, if we get the vision pretty much right, we can start planning now for 2031 rather than just waiting until we get there before really figuring out how to take advantage of what the Laws of Zero will deliver.

Cheers,

Paul

Over the last 18 months, insurers were pushed to communicate, service, process manual payments and win new business without risking the health and wellbeing of those accustomed to an in-person operating model. 

With mail systems under significant pressure amid severe weather and a notable increase in volume, the need for safe, efficient, user-friendly digital payment options has skyrocketed. Individuals and small businesses have faced immense financial stress due to the global disruption and economic downturn of the last 18 months, only amplifying the need to simplify payments. 

Payments are at the center of the insurance industry, both for customers paying premiums and insurers disbursing claims. Yet in 2019, 52% of payments were made by check versus 22% across other sectors, signifying the need to overhaul payment processes for insurers.  

Policyholders expect carrier interactions to mirror the same level of experience that leading online vendors have achieved, and insurtech can deliver the secure, easy-to-use digital payment options customers want.

Insurtech also improves policyholder retention by simplifying carriers’ most frequent engagement point with insureds — premium payments — and increasing customer satisfaction, while driving significant expense reduction. Most carriers report that more than half of their incoming calls are billing-related. Providing various, easy-to-use payment options and self-service capabilities reduces calls dramatically, freeing call center personnel to focus on more valuable activities. 

To reduce expenses, accelerate collections and meet customer demand, insurers must integrate intelligent payment communication engines with dynamic reminders and personalized customer interactions. This will help reduce late payments and costly cancellations for non-payment of premiums. Some of the principal features to look for in an insurance platform include:

• Auto-renewal
• Omni-channel payment options (ideally offering the same superior user experience across each channel)
• An engaging policyholder interface
• Intelligent communications
• Innovative agent portal tools
• Secure payments

Why Now?

The unexpected challenges driven by the pandemic demonstrated that companies that had already made significant investments in digital transformation were far better equipped to pivot and adapt to new operating conditions. Insurance companies that are slow to digitize and modernize their customers' experience will lose policyholders to more agile, customer-centric competitors. 

See also: Did You Use the COVID Down Time?

One customer that chose to leverage payments technology experienced a 151% increase in online payment adoption, higher customer satisfaction, a 15x increase in paperless enrollment, an average decrease of 15 hours per week spent on payment reconciliation and a decrease in mailed payments, all within 12 months of implementing insurtech. 

Even if many insurance policies don't ever result in a claim, all policies involve billing, payment and collection—customer-facing moments of truth shared by every agent and company. Insurance providers that create a compelling and practical customer experience during these significant moments will emerge with notable competitive advantages in a fiercely aggressive industry.

Within the insurance industry, the personal lines sector has frequently been the pioneer in building and enhancing digital capabilities. With increasing demands from both policyholders and distribution partners for digital solutions, technology innovation was and remains imperative to both staying relevant and increasing market share. Simply put, insurers that do not continue to prioritize their digital capabilities risk being left behind or, even worse, becoming obsolete. Distribution partners, including retail agencies, brokers, wholesalers or MGAs, are currently focused on two key areas – user experience and ease of doing business. They are looking to partner with insurers that reduce friction points, increase efficiencies and provide self-service digital offerings to both agents and policyholders.

Furthermore, the channel strategies of personal lines carriers are continuing to evolve. A recent SMA Research report, “Channel Strategies and Plans for P&C Personal Lines: A View of Today’s Environment and What’s to Come,” highlights key channels that insurers plan to expand over the next several years, including insurtechs, agents/brokers and affinity partnerships. To examine the digital capabilities required to both support and expand these channel strategies, SMA recently surveyed carriers focused on the personal lines market. The research looked at the current state of digital capabilities offered to distribution partners, the technology and business/cultural roadblocks to digital adoption and insurers’ plans for building or enhancing new digital capabilities.

SMA’s research tracked 14 different digital sales-oriented capabilities and 18 servicing capabilities. Starting with a carrier’s satisfaction with the current state of offerings to their distribution partners and subsequently examining their future tech investment plans, this report provides an in-depth look at where the personal lines industry is today in terms of digital capabilities and where it is headed.

See also: Pandemic Reshapes Personal Lines Plans

With respect to sales, insurers reported the least satisfaction in the areas of appetite and submissions. On the servicing side, where many personal lines insurers have historically focused on enhancing digital capabilities, satisfaction was higher. But satisfaction still varied based on capability, indicating that insurers recognize the need for further enhancement. When looking at future investment areas, self-service capabilities and the user experience of both the agent and policyholder are front and center.

The flurry of new channel strategies and digital projects clearly indicates that the pace of innovation within the personal lines distribution space is not slowing. Insurers must remain close to the evolving market and to changes in the needs and expectations of distribution partners. It’s an exciting time because there are numerous opportunities for growth, the potential to truly increase efficiencies and the need to transform the user experience.

For more information on personal lines distribution expansion strategies, see our recent research report, “Distribution Technologies for Personal Lines: Carrier Progress and Plans.” SMA is also introducing a new research series with perspectives from the distributor viewpoint. A regular series of research reports will be published based on surveys and interviews of agencies, brokers, MGAs, and others in the distribution channel, including insights from ReSource Pro’s large footprint of distribution clients.

Much of life happens at work. Even if employees are more transient than ever, swapping jobs for greener pastures, they are still working eight-plus hours a day, committing the greatest part of their waking hours (and their most productive hours). While at that company, most have a sense of loyalty. They will do their best to make sure that their employer does well.

While they are loyal, working hard and identifying themselves with the company, they also are looking for “what the company can do for them” – including what benefits are offered to them. The crazier life gets, the busier employees become, and, as they adapt to life changes, the more interested they are in benefits that will provide them what they want and need, save them time and not take too much time to research or purchase. What they want are benefits that make sense for them and can be purchased in ways that make sense. And that gives group and voluntary insurers a whole new challenge. Create relevant products that make sense on every level. Offer products that fit each unique life. Then offer them where life happens — at work.

How to do all that?

Celent recently released a report commissioned by Majesco, Next-Gen Platforms in Group and Voluntary: Exploiting New Opportunities Across the Worksite Ecosystem. At the same time, Majesco started a series of blogs and conversations that are yielding some truly fascinating insights, not only about why insurers should consider entering the Group & Voluntary market but why Group & Voluntary current market opportunities may be a sufficient motivator for insurers to adopt a next-gen platform approach to technology. Once we have examined the research, I think you’ll agree with me that there has never been a more opportune time to develop a Group & Voluntary strategy and an accompanying platform strategy.

Timing and approach and data

In my last blog, we listed out a number of reasons that Group & Voluntary Benefits are like the new “Wild West” of insurance; it seems like anything and anyone can get involved because the territory is opening up. A market shift, generational shift and technological advancements have changed how an insurer can develop and market their products through the worksite channel. Let’s look at a traditional example for comparison.

Celent’s report discusses traditional “life-event” marketing. (See Figure 1)

“…many of the life events that ought to trigger an opportunity to engage, such as a promotion or the birth of a child, often get missed when using traditional methods. Employer systems, when coupled with other data, can be a great source to identify and then tailor a solution that meets the exact need at a point that counts.”

Figure 1

So, where traditional insurers rely on agent fact-finding or on less-detailed data from market lists, employers know the facts and, in many cases, are already using those facts to establish patterns of wellbeing for the employee. In fact, it’s in the wellbeing area that Group & Voluntary Benefits insurers may find their best product opportunities.

See also: What Is Happening to Life Insurance?

The wellbeing at the end of the rainbow

Instead of just asking the important question, “What do customers want,” the more relevant question in Group & Voluntary Benefits is, “What kinds of wellbeing are companies promoting these days?” Insurers need to follow the wellbeing rainbow to figure out just what sorts of products and hybrid services employees might find useful as they pursue wellbeing across physical, mental, financial and lifestyle.

As Celent points out, this search for wellbeing fits most employer benefit portfolios.

“Today, most employee plans extend beyond insurance to provide more holistic wealth, health and protection services. Increasingly, these services promote wellbeing, reward loyalty (through retail store discounts etc.), and serve to increase the employee's purchase power (such as leveraging government tax-efficient plans in some territories to purchase healthy living equipment, such as ‘bikes for work’).”

By looking at the benefits portfolio, in line with employee wellbeing and a new source of excellent data for life event-driven marketing, Group & Voluntary Benefits insurers should consider the types of innovative products that will be demanded. Many times this product looks less like a simple standalone product and more like a hybrid product that may include multiple coverages, multiple partners, incentives, data-linked pricing and some element of lifestyle wellness. Celent calls this a diversified play.

“Increasingly, it involves not just a converged product set tailored to meet a specific customer need but also a mechanism to drive regular engagement (via an associated rewards program) or active wellbeing with the associated risk mitigation benefits (such as an incentive program driven by IoT-based devices designed to drive active lifestyles or nudge financial prudence, such as IRA top-ups).”

Which way is the door to entry?

Once an organization has established that it has a product concept that might fit the employee benefits landscape, it’s time to understand the distribution landscape. In most cases these are the doors to entry. According to Celent, “Group & Voluntary players have the opportunity to extend their reach through either staking out a position in distribution or partnering with these players in addition to broadening their relevance through diversified plays.”

The Celent report illustrates several partnership models that range from partnering with adjacent group and benefits providers and connecting through application programming interface (API) integrations through becoming the center of a voluntary benefits ecosystem, with various options in between. Insurers need to consider what role they will play as they consider an array of partnerships that will deliver the products demanded by customers. It all boils down to strategy. Where can a Group & Voluntary Benefits insurer positively contribute to and succeed in the overall benefits scheme?

A very long engagement — the opportunity to keep the customer

In traditional Group & Voluntary Benefits products, portability wasn’t much in demand.  As I pointed out in my last blog, people stayed at their jobs longer – often their entire career – and, if they didn’t, most insurers and systems weren’t prepared to turn a group or voluntary product into an individual product with the flip of a switch. Today, if a benefit works for an employee, they may wish to keep their coverage when they leave – or if they operate as a gig worker for the company. This is pushing Group & Voluntary Benefits players to figure out how to engage employees and then help them make seamless transitions between jobs or gigs.

This is where the idea of partnership becomes a vital element for capturing Group & Voluntary Benefits opportunities. In many or most cases, insurers that are looking to create products in the well-being space may find their best partnership opportunities within the realm of insurtechs and well-being platform startups. (See Figure 2)

Celent states that, “Partnering is a rational alternative response to deliver a more rounded customer proposition fast and is the dominant strategy being adopted by firms active in the employee benefits market.”

Figure 2:

This kind of partnering requires cloud-based, real-time services, facilitated through API integrations and normally in touch with both the worksite plan orchestrators (Benefits Plan Administrators) and the insurtech wellbeing and engagement players. This is a real hurdle!

According to Celent, “For Group & Voluntary insurers operating in this market, operating models are often hampered by legacy infrastructures where different underlying systems service different products are then glued together at the front end, resulting in an inconsistent customer experience depending on the product sold…. Longer-term investment in technology and the adoption of an open ecosystem mindset are essential to really take advantage.”

See also: Designing a Digital Insurance Ecosystem

The next-gen ecosystem — an opportunity enabler

The timing is right. The opportunity to partner with benefits distribution players is better than ever. The ability to engage customers with better data and then keep them with portability is a real opportunity that will continue to grow through innovation. The whole premise hinges, however, on one decision. Are insurers ready and willing to adopt a next-gen ecosystem approach and prepare their organization with the platform architecture and cloud-supported strategy that is necessary to move ahead?

In the not-so-distant past, group and voluntary benefits were known for their stability and consistency. The players were known. The products were established. Benefits packages didn’t vary much from year to year. The employee was simply concerned with the cost of premiums, particularly for medical, versus their annual pay increase. Group and voluntary benefits insurers lived in a semi-blissful state as brokers working with HR teams acted as agents, bringing in cafeteria-sized groups of policyholders.

The market wasn’t easy to enter. There were far fewer voluntary products than there are today. The top insurers cornered the market. They knew how to please employers, how to make a profit and how to protect their turf.

Then, a dam broke. First the ACA changed healthcare. Then came insurtech. Now, the convergence of talent competition, tech advancements, wellness initiatives, wealth management and multi-generational employees with varying different needs and expectations has made group and voluntary business into a new land of prospecting and opportunity.

Boardrooms started buzzing with rumors of gold in the hills, only they weren’t rumors. Voluntary and group benefits were and are a real area of financial opportunity. The top players still exist, but a growing number of insurers are entering the market, expanding the products they are providing and creating options in how they are packaged to meet the unique needs of a highly diversified and competitive employee base. 

What’s so wild about group and voluntary benefits markets?

Majesco recently commissioned a Celent report to assess the opportunity as a part of our thought leadership and strategic marketing to provide another point of view on the future of insurance. We wanted insight on the opportunities, the technology platforms and ecosystems required to capture the market opportunities now unfolding. What is shaping the new need? What is today’s employer looking for? What is different about life for today’s employee? How do any of these answers relate to core platform development for next-gen group and voluntary benefits?

See also: Benefits of Deploying a Hybrid Cloud

Next-gen core platforms as an answer to channel expansion (and everything else)

At Majesco, we talk a lot about convergence and its impact on insurance. Real innovation happens at the point of convergence. Right now, all of the factors we list below are real pressures and opportunities creating points of convergence. These points all touch on issues that can be solved with a next-gen platform approach.

• New generation of customers – Millennials and Gen Z can shift ownership. This new generation of customers has the potential to turn the downward tide of insurance ownership over the last few decades. From a high in the mid-1970s with 72% of adults and 90% of households with two parents owning life insurance, that figure has fallen to a 50-year low; LIMRA’s 2010 life insurance study found only 44% of U.S. households had individual life insurance. Our health, wealth and wellness customer research highlights the demands from this new generation of employees. But do insurers have the products, value-added services and customer experiences they demand and expect?
• Employees shifting jobs. A Forbes article highlighted that the recent Prudential Financial’s Pulse of the American Worker survey noted that one in four workers are looking for new employment post-COVID. Nearly 80% are looking to employers for solutions to alleviate financial stress with benefits such as retirement plans, health, disability and life insurance, paid family medical leave and emergency savings programs. 40% of workers were more likely than a year ago to consider a job that offered better benefits. Is there a disconnect where employers could provide a broader set of benefits that meet this new expectation?
• Employers' desire to broaden benefits packages without increasing the HR workload. Talent is in short supply. Unemployment is the lowest it has been in over 12 months. Employers are in recruiting mode. With only so much they can offer in wages, they are moving to benefits and perks to make their companies look attractive and family-friendly. This means channels are opening for new and existing products.
• Employers' desire to hold on to their most valuable asset – employees — while keeping them safe and healthy. Whether an employer is self-insured (using large health insurers for repricing) or relies on employee population health to keep corporate premiums down, all are looking for ways to use perks and benefits to keep their employees healthy and foster wellbeing. Telematics and digital engagement are necessary to measure and make improvements.
• Benefit platforms in expansion/transition mode. Digital open enrollment, online benefit experiences and umbrella apps that contain all of an employee’s benefit information are on the rise. Add to this the demand for different plans to meet the diversity of employees – sometimes across four generational groups. To get invited to the platform party, insurers must be ready to play in the digital ecosystems that have already been created by some of the large benefits consultancies. Platforms and partnerships are lead players in the future of group and voluntary benefits insurance.
• New types of insurance. The economy is changing. Supply and demand are inconsistent. COVID-19 is still affecting customer behavior. Global politics seem unstable. Cyberattacks are frequent and disruptive. Individuals are looking for some stability for their finances. According to Aon, in 2020-2021, voluntary insurance offerings among employers grew 27%. Accident insurance, legal, identity theft, hospital indemnity and auto/home insurance all grew over 30%. This is astronomical year-over-year growth — a true Wild West scenario! And don’t forget about the gig employee ---where benefits could be gig on and gig off. Insurers can now look at any area of financial risk and consider where they may be able to create a product that will sell — if they are prepared to plug their systems and processes into platforms and ecosystems.
• Insurance purchase through employers. Even traditional products, such as auto and home insurance, are seeing an uptick in the group and voluntary benefits channel. The draw isn’t just a better group rate, but that premiums can be taken from paychecks. Employees can enroll and “forget about it.” It helps them manage their overall financial and risk needs, rather than working with multiple insurers or agents. This, in turn, drives up loyalty to employers. The more attractive services that the employer can provide, the more difficult it will be for employees to job hop. Who is out there creating the next new insurance hub or employer aggregation tool for P&C and other traditional products?
• Advanced data analytics. An employee is already a “known” person. They are somewhat vetted by their employers to be stable, reliable and less prone to risk. Product design and mix are in constant flux as insurers add more attractive products and product features to their portfolios, driving the need for more advanced data and analytics to understand what employers, sponsors and participants find appealing and to drive greater participation, enhance customer experiences and enable new products and services.
• Digital engagement. The importance of digital capabilities is now core to insurers' offerings, regardless if they are group benefits or individual products, to drive simplicity, participation and growth. The promise of digital engagement is a two-way channel — better communication into the insured employee and more informative data coming in from the employee. Digital engagement and data analysis can create another loyalty bridge between insurers and employers as they both begin to see the positive effects of understanding the employee population.

There are dozens of additional reasons that next-gen core platforms are going to rewrite group and voluntary benefits insurance, but the most basic is this:

Technology has advanced to the point that it fits the gaps created by convergence issues.

Every customer, employer and insurer need can now be met with next-gen insurance systems that are designed to fit. Insurers needed systems to be adaptable enough to create products and flexible enough to stand alone or fit into partner platforms. They needed solutions that would provide the same high-level digital experiences that they may be giving to individual policyholders who purchase through agent, broker or online channels. They also needed systems that could effectively move from “group” underwriting and purchase to “individual” underwriting, purchase and administration. This would allow for policy portability and a greater degree of population understanding and control.

Is there a formula for group and voluntary benefits success?

The answer to the Wild West in group and voluntary benefits is to digitally prepare for rapid flux.