After the financial crisis in the European Economic Area (EEA), life insurance business was significantly influenced by volatile market conditions, low interest rates, pressures from regulatory bodies, changing customer demographics and investment patterns.
These undesired economic conditions caused a dramatic increase in the protection gap. The insurance protection gap or underinsurance shows us the difference between the amount of actual need for insurance coverage and the amount that is purchased. This significant gap reached $21 trillion in the U.S. 58% of American families would not be able to cover their expenses just a few months after a loved one from their families passed away. European Union countries are in a similar situation. Sadly, the coverage gap reached $17 trillion in the EEA. Moreover, inequality is widening faster than ever. Current social security systems are strained because people live longer lives and job security is not a given anymore.
When we look at other contributors to the protection gap, we see the negative perception about life insurance among customers. Life insurance is found to be very complicated and requires very bureaucratic processes to acquire, and policy premiums are not affordable. So, simplifying life insurance, especially for the new generation of insurance buyers, will be crucial for insurers’ future. The key of success is definitely insurtech!
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When we examine the classic life cycle of a life insurance product, we see five main steps. These are:
- New business and underwriting support
- Agency and distribution management
- Policy admin support
- Claims management
- Shared services
With insurtech, these steps will be converted to standardized, efficient and optimized processes. The necessity for new product introduction will be performed while maintaining consistency and maximum quality in customer services.
With insurtech, buying a life insurance policy will be converted to a digital customer experience, and this is a brand new business model. With insurtech, life insurers will:
- create easy-to-understand and non-advisory life products,
- have customer-centricity for creating life products,
- have automated UW (underwriting) decision processes that enable instant decision,
- reach target customers via different distribution channels,
- use predictive analytics to transform business with measurable variables easily and
- provide a high level end-customer satisfaction.
Creating a straightforward and informative online journey for life customers, via insurtech, will be the unique solution for the penetration problem that life insurers face.