Tag Archives: life and annuity

Key Tech for Life, Annuity in 2020

Data governance, edge computing, artificial intelligence (AI), machine learning (ML) and blockchain have become much more than buzzwords in the life and annuity industry—they represent areas of innovation being implemented today and examined further for the future.

I see four major trends in the life and annuity industry that will continue to be important for insurers as we enter 2020:

Simplifying business and technology architecture

We’ll see life and annuity organizations continue to modernize their technology platforms over the next 12 months. This is where life and annuities organizations will invest most heavily in 2020 from a technology standpoint. Addressing aging and limiting technology infrastructure will continue to be the highest priority for any large or mid-sized insurance company. Organizations that don’t already have a strategy in place to do so run the risk of disruption.

The industry is still hurting because of the nature of the monolithic legacy platforms that are so difficult to change. Aging technology and the aging workforce pose a great risk to insurers, now more than ever before. If these organizations aren’t already focused on this issue, they’re going to be in for a rough road in the coming year. To mitigate the risk, they need to immediately develop a strategy and identify a partner to help them get to the finish line as soon as possible, or they won’t have the agility they need to compete in the future.

Improving engagement models

End-to-end engagement is becoming increasingly relevant today. Customers, the workforce and distribution partners are all demanding easier and more effective engagement with insurance organizations. To meet these demands, life and annuity insurers will have to work on all engagement models: customer engagement, distribution engagement and employee engagement. Insurers will improve how they work on an enterprise level, gaining efficiencies and boosting productivity.

See also: Insurance Innovation’s Growth Challenge  

Engagement is really about how both internal and external consumers see and interact with an insurance organization and use its capabilities. The industry now has to deal with meeting customer demands for a level of engagement and interactivity it never needed to provide before. Many companies focus on the design of that engagement, which is very important. However, if that design isn’t coupled with modern architecture that can enable it, insurers will fail because they are merely putting lipstick on a pig.

Expanding the use of data

In 2020, insurers will see greater value from the data generated by their enterprise. As an industry, we’re still having a hard time understanding and rationalizing our internal and external data. Identifying what our goals are and who truly owns the data is a struggle for many companies. For that reason, data governance becomes pivotal for insurers trying to leverage their data.

In many cases, AI and machine learning are becoming more embedded and becoming part of the enterprise infrastructure and framework. In the next year, insurers will start to see more value from these efforts, whether for their advanced underwriting models, their implementation of advanced robotics or capabilities to create straight-through processing as well as self-service.

We’ll also start to see some large and innovative insurance organizations develop use cases of blockchain implementation. In the past few years, many technology companies have been working on uses cases around agent on-boarding and claims, for instance. In 2020, we may see some of these use cases get implemented in the industry.

Digitizing the enterprise

As companies continue to work on new architectures, we’ll see them increasingly leverage “ecosystem” thinking. Many capabilities, such as plug-and-play innovations, will have to come into, and integrate with, the enterprise’s capabilities. That ecosystem thinking can only happen if insurers begin to enable a very modular architecture and an application programming interface (API) infrastructure.

In this era of constant technological evolution and abundant innovation, it’s becoming difficult for legacy-minded insurance companies to have enough agility to implement and leverage these new capabilities. They’ll need to embrace innovations as they come and to create a unique, personalized context around the innovations that are relevant for their business models. They’ll have to learn fast, experiment fast and fail fast. All this requires a very open digital architecture enabled by API frameworks and infrastructure.

New technologies, new trends

Insurance organizations should be familiar with edge computing, which has been a heavy user of content management systems and image and workflow systems that require efficient content delivery and consumption. Edge computing will benefit our industry by efficiently leveraging and dispersing content where and when it’s needed.

Insurance is a data- and content-rich industry. As new architectures continue to become mainstream, and with the advent of technologies like 5G and IoT, life and annuity insurers will use them to learn about our customers’ lifestyles, income patterns and more so we can provide more precise, personalized and real-time advice. I see insurers playing with that paradigm in 2020.

See also: The Behavioral Science on Buying Insurance  

Another paradigm that’s becoming buzzworthy in the industry is around no-code platforms. In reality, there’s no such thing as no-code—even no-code platform requires code. However, when you spend most of your time coding the framework and capabilities but not focusing on business functionality, the level of configurability you drive in these platforms limits the amount of actual physical code that’s required to implement business capabilities. This decreases the cost and time to market while enhancing the quality and reducing technology change-related disruption. This will be a trend that will influence the industry’s digital architecture implementations in the future.

At a high level, the life and annuity industry will continue to make progress in 2020 thanks in large part to technological advances. The key is to view what may seem to be common buzzwords not only as trends, but also as technologies and concepts that will push the industry forward.

Key Technology Trends for Insurers in 2019

In 2019, we will see many of the 2018 technology trends continue but with an added focus on business transformation and value.

Innovation

In 2019, we will see continued investments in insurtechs and fintechs, as more companies realize the value of technologies that enable the delivery of next-generation digital experience, especially in the area of customer engagement. Consumers’ demands are driving the need for better self-service capabilities, mobile capabilities and engagement tools.

As with John Hancock’s use of Vitality and with SE2’s investment in Life.io, we’ve seen the creation of next-generation customer engagement platforms that leverage wearables and other social and industry data to get unique insights into prospects’ and policyholders’ lives. That allows these companies to offer better needs-based, more personalized products. As insurers are able to access higher-quality data, there will be more experimenting with analytical models and algorithms to transform the underwriting, sales and marketing paradigms. Additionally, the ability to access consumer data in real time will continue to drive innovation in the insurance industry.

Companies like Human API and Clareto are bridging the gap between heath information exchanges, healthcare providers and life insurance carriers, enabling them to fine-tune underwriting, claims and other business processes. Helping consumers live a better life and have a holistic approach to manage both their mortality and income risks is the way to go rather than sell point solutions with aggressive sales tactics.

See also: 3 Insurtech Trends Accelerating in 2019  

Artificial Intelligence/Machine Learning

While there continues to be excitement and conversation around artificial intelligence and machine learning, the fact of the matter is that the insurance industry as a whole continues to struggle with adoption. Issues around data governance still need to be solved, data rationalization is not complete and data quality continues to remain a major challenge for insurers.

Looking ahead in 2019, there will be more work in this area as insurers make progress in putting into place the foundational elements needed to create a strong data paradigm that will enable AI and ML adoption as well as generate real business value. There will be progress made in creating and enhancing data repositories, data lakes and other foundational infrastructure technologies. This year will see a refocus on AI and ML — especially in conversational AI — that will enable insurers to streamline and augment the work of their own employees and distribution network, ultimately providing a superior experience to policyholders.

Digital Transformation

Driven by customers’ market needs, digital transformation continues to remain a key priority in 2019. Many insurers remain constrained by the complexity of their back-end systems, resulting in very real concerns around agility, value and delivering the right consumer experience. Consumers are demanding more simplified products, as well as a growing preference for bundled products with the overlap of income and mortality risk. Without a nimble, flexible architecture in place, many insurers struggle with launching products fast enough to capture new customers with these preferences and gain market share.

The year 2019 will see an increase in insurers looking to create effective and efficient direct-to-consumer distribution channels or other digital distribution channels to reach the vastly underserved middle market and millennial customer segments. Additionally, there will be increased pressure by the market for lower pricing, leading insurers to create cost efficiencies through digitization of back-end processes, increasing usage of RPA (robotic process automation), STP (straight-through processing) and digitized operations processes throughout the entire lifecycle of the policy.

There is not only a price play but a consistency and a quality play that our industry struggles with, as well. At SE2, we call this moving from a “high touch” to “low touch with hugs” operating model.

End-to-End Platform Modernization

Driven by the need to reduce or eliminate outdated legacy technologies and address business and technology architecture complexity, an end-to-end platform modernization focus will be a very high priority for life and annuity insurers this year. Insurance carriers are realizing that the investments they’ve made in front-end digital capabilities are not giving them adequate return on investment without a fully digitized, modern and simplified back-end system. These delay the time it takes to launch products and hamper the ability to streamline business models. With a digital, open architecture platform, insurers can easily integrate systems and plug in APIs to extend their capabilities.

See also: 8 Key Insurtech Trends for 2019  

Overall, 2019 should be yet another interesting year for our industry and SE2, as we see billions of dollars of innovation spending led by tech giants like Google, Amazon and Microsoft, and the L&A industry finally beginning to reposition itself.

Why L&A Insurers Are Now the Smartest

In many quarters, the above title could be fighting words! Because I can’t even watch an Olympic boxing match, much less an all-out fight, let me explain.

For as long as I have been in the insurance industry, life and annuity insurers have been thought of as being significantly behind P&C insurers in terms of technology adoption and innovation. L&A insurers hung on to “build, not buy” strategies long after P&C insurers were advancing “buy” strategies. Technology providers with potentially cross-segment capabilities frequently did not even have a road map for selling to L&A insurers because, in their view, the front door was nailed shut! When STP (straight-through processing) started to become table stakes in personal lines operations, many life insurers seemed to feel that STP was simply a good motor oil. Every application for life insurance needed manual review.

Let me enthusiastically state that those days are gone. L&A has most certainly caught up – and sometimes surpassed P&C – on many fronts. One of the measures of being “smart” is learning from prior mistakes. L&A insurers have had opportunities to learn, and not necessarily from their own mistakes. They have learned from P&C insurer mistakes, as well.

See also: How to Insure the Gig Economy  

SMA recently issued two research documents based on L&A insurer surveys:

Many exciting insights are revealed through the survey data. Not the least of which is that, in 2018, 43% of L&A insurers indicate they are transforming. Eight short years ago, only 13% indicated this to be the case.

While this blog cannot hope to recap all the findings contained in the two SMA research papers, what did jump out quickly was the differences between how L&A has approached some things versus P&C – lessons learned:

  • Digital isn’t all about fancy front ends and apps. When it became apparent that insurers needed to respond to the reality of a digital world, many P&C insurers ran headlong into introducing apps – most usually first notice of loss (FNOL) apps. Click to pay with a credit card on websites was another common feature. More examples could be cited. But to cut to the chase, the problem was that these digital capabilities stopped right at corporate walls, dropping into legacy technology and manual processes. They ceased to be digital. P&C insurers learned the hard way – through disconnected customer experience – that core modernization was necessary! L&A insurers have seemingly learned that lesson, with 55% having policy admin projects in 2018 – the No. 1 project overall.
  • Love the hand that feeds you. The mantra across most all insurer segments, and strongly for P&C insurers, is customer experience. “We Love Our Customers” T-shirts are on every desk. This is absolutely critical, but for many P&C insurers this focus went to the exclusion of distributors. Agent and broker technology fell to the bottom of the top priority lists at many insurers. Given that agents and brokers have not disappeared, and, in fact, are critical as advisers for many consumers, this created a gap. L&A insurers do want to show some “love” to the distributors who play a critical role in customer acquisition and service. 55% of L&A insurers are executing distributor portal projects for both sales/submissions and service.
  • It’s not all about BI. SMA research shows a historical trend among P&C insurers to invest in BI technology. In fact, in relation to other components of data and analytics such as dashboards, data and text mining and predictive analytics, 71% of P&C insurers indicate they are advanced users of BI tools. This is certainly good, but for many years P&C insurers have invested in BI and have not invested to the same degree – or at all – in other capabilities, which stalls advanced execution in this area. L&A insurers are investing in BI, as well, but, in 2018, 22% are investing in behavioral analytics, big data and AI. Getting into the game in these advanced areas is imperative, and L&A insurers understand that.

And there is one lesson that L&A insurers have learned from themselves:

  • Building it yourself is a long and painful road. Over time, L&A insurers have attempted to tweak internally developed technology to step up to new market requirements. Given the rapidly shifting technology landscape, most insurers are not positioned to keep up, both from an IT capacity perspective and in terms of general skills levels. When it comes to emerging technology, 43% of L&A insurers are partnering with others that have emerging technology solutions. Only 29% continue to leverage their own capabilities.

See also: 3 Ways to Keep Training Fresh  

Many exciting things are happening at L&A insurers in 2018. Both of the SMA research reports, which can be found here and here, provide insight into strategic initiatives and projects. Clearly, there are opportunity areas that are challenges, but there is little evidence that L&A insurers are content to support the status quo. Smart L&A insurers are looking over the fence to see what they can learn from P&C insurers. Over time, the opposite may be the trend!

Blockchain: What Role in Insurance?

Blockchain is a revolutionary technology that could fundamentally change the way business is conducted and result in the restructuring of major industries. At least, that is the view of some prognosticators. Others believe that there are important implications for the technology, but that it will not be truly disruptive. What about insurance? Will blockchain be a major force in the industry, and, if so, when?

New research by SMA sheds some light on these questions. The short answer is that blockchain is likely to play a major role in the reshaping of insurance – but the big implications are two to three years out.

Blockchain has burst onto the scene. Many in insurance are still just becoming aware of its importance and are in learning mode. At this stage, slightly more than half of property/casualty insurers are aware of blockchain and are beginning to understand its implications, while only about 20% of life/annuity insurers surveyed know about the technology. What makes blockchain so powerful is the wide range of potential use cases. As a foundational technology, it becomes an enabler for peer-to-peer insurance, micro-insurance, digital currencies/payments, smart contracts and the exchange of all manner of sensitive documents. None of these require blockchain, but, in every case, blockchain makes the transactions more secure, improves efficiencies and makes new business models more feasible. L&A insurers see the exchange of sensitive documents with prospects and customers as the top potential use case for blockchain in the next few years. P&C insurers are looking to a wider range of use cases with high potential, such as micro-insurance, peer-to-peer insurance and digital payments.

See also: How Will Blockchain Affect Insurance?  

All sectors of the insurance industry increasingly see blockchain as important and potentially transformative. However, the level of investment and projects are still relatively low. About one in eight P&C insurers are developing strategies with blockchain in mind and moving to pilot projects. Only 3% of L&A insurers claim to have any activity regarding blockchain. Several of the global insurance players are participating in blockchain consortiums, investing in startups or implementing live projects with blockchain. Another important consideration is the emergence of more than 20 insurtech firms anchored by blockchain.

Blockchain does show great promise for the insurance industry. There are likely to be more projects, investments, consortiums and production implementations based on blockchain over the next two to three years as the industry gains experience with the new technology. Then it will not be surprising to see a wave of many blockchain-based initiatives ripple across the industry and become a contributing force to industry transformation.

For more information on the insurtech startups, business use cases and insurer blockchain projects, see the new research report Blockchain in Insurance: Insurer Progress and Plans, which is available at this link.

Are You Ready for the New Customer?

In our new consumer research report, The Rise of the New Insurance Customer: Shifting Views and Expectations, we captured the views and expectations of today’s consumers in the midst of the disruption and change rapidly unfolding in the insurance industry. Insurers, MGAs, reinsurers and others must embrace this shift by understanding changes at play and accept that everything we have known about insurance was good for yesterday, but not good enough for today or tomorrow.

The trends are fueled by the insurtech movement that wants to take advantage of the disruption and by a rapid, perpetual shift in customer expectations. Our research took a deeper dive into the people component, to understand 11 key insurance industry perceptions across the spectrum of researching, buying and servicing, consumer response and the implications for the insurance industry. Specifically, the research dives into this shift with more insights on the move to digital, an expected shift by millennials and Gen Z — and highlights that Gen X is often dramatically aligning with the Millennial and Gen Z consumer behavior.

See also: Dare to Be Different: New Ways to Communicate With Customers

The Rise of the New Insurance Customer compares insurance against nine other industries across the spectrum of consumer experience. The resulting perspective is that insurance is not “easy to do business with.” Some key insights from the research are:

  • Insurance is “dead last” in terms of industries that are easy to do business with and are a good value. Life and annuities is significantly lower than P&C compared with the other industries/businesses with which consumers regularly interact.
  • The Net Promoter Scores across the industries/businesses show insurance as relatively low.
  • No industry is perfect when it comes to creating customer experiences for research, buying and servicing, but online and national retailers set the standard for all industries. We refer to this as the “Amazon effect.”
  • Millennials and Gen Z clearly show different expectations than the silent generation and baby boomers. Gen X often aligns with millennials and Gen Z, highlighting the gap between traditional insurance over the last 50 years to insurance today and looking forward.
  • The generational gap reflects an insurance industry steeped in tradition, where business models, business processes, channels and products are becoming rapidly irrelevant for the younger generations. The result is an open door to fresh, culture-savvy competition.

The implications for insurers are enormous. Over the last decade or so, many insurers have focused on transforming their businesses by replacing their legacy core systems with modern solutions surrounded by digital and data solutions. But the rise of new customer expectations does not necessarily align with these transformations. Why? Because many insurers did not anticipate the needs of the rise of the new insurance customers by transforming their business models, channels, products, services and engagement to meet the new generation of buyers. The result will be a potential shift in market leadership, with customers selecting insurers that best meet their needs and expectations. In North America, for both P&C and L&A insurers combined, this puts $1.4 trillion of premium at risk.

The large differences between the generations on many aspects of the insurance experience highlight that established insurance companies (decades or centuries old), were built for the two older generations, the baby boomer and silent generations, which are declining in size and revenue power. In contrast, the two younger generations, Gen Z and millennials (and increasingly Gen X) have different experiences and behaviors that are at the core of why insurers need to redefine and reinvent themselves. Loyalty is now influenced by how well insurers meet their needs and expectations for products, engagement and value.

The five generational groups underscore a shift that insurers must make to be relevant and competitive. It is a fundamental shift of a decades-old traditional business model, products, process and technology that were built to support the focus on products, mass standardization, operational efficiencies and automation. These are no longer effective in a market that demands customer-driven, personalized engagement, innovative products, simplification, transparency and everything digital. It’s time for “it’s always been this way” thinking to go away.

Each company must ask itself strategic questions, such as: “How do we bridge between the past, today and the future? How do we keep current customers loyal and engaged as we redefine our business for a new generation?” If traditional insurers don’t ask these questions and act, others will.

Both existing insurance companies and new entrants are responding, as evidenced by the large amount of activity in the insurtech space. Many think there is a better way for insurance to work, and they are acting on this belief and getting significant capital to make it a reality. In so doing, they have the opportunity to steal substantial market share from those companies that don’t ask themselves and act on the same questions.

See also: How to Get Broader View of Customers

And while many of these are in the early stages and are yet to be proven, consumers are very interested in these efforts, as demonstrated by the early results of Haven Life and Lemonade. Consumers are looking for fresh alternatives to age-old formulas. They will note whether an organization is completely new, with an innovative idea, or whether the organization is established but progressive in its approach. They will also know which organizations may be established, but not willing to cater to their preferences. In all cases, they will be looking at value, service, ease and understanding.

How should insurers proceed? There are alternative paths that insurers can take depending on their strategies and resources. But the bottom line is that, based on the perceptions, reality and implications outlined in the research, companies must stop talking about the opportunities and being digital, and start doing something about it by using the disruption and change as a catalyst for “real change.”

This change requires companies to rethink their business model and realign it with the customer needs and expectations of those who will be their customers for the next 10 to 20 years, not those from the past 10 to 20 years. There needs to be a renaissance of insurance to capture the revenue growth potential presented by the rise of the new insurance customer.