“Life insurance is a product that is sold and not bought”
This quote has been the mantra of the insurance industry for generations and somewhat an excuse for a lack of innovation. Life insurance is perhaps the most difficult financial product to sell and by far the most painful to buy. It’s also the reason that commissions are extremely rich while those who don’t specialize in it such as Independent Broker-Dealers and RIA’s often don’t even touch it. (so much for giving “Holistic Advice”!). But the financial services business is undergoing transformational change driven by new regulations, digitization of everything and huge demographic shifts. And the life insurance industry is not exempt from these forces of change. Here are some influences shaping the life insurance business going into the future…kind of a “Life Insurance 2.0”
The purchasing process has to change
The life insurance buying experience is in the dark ages. The buying experience for most every product is moving digital through social media that is real time and on the mobile phone. Contrast that to the way life insurance is sold…think Groundhog Day . First, you have to find someone who needs coverage. Anyone want to talk about dying?…not an easy discussion to initiate. Then if you do find someone who will listen, the primary method for helping a prospect find the right coverage is by thumping multiple 20 page+ illustration’s on their desk complete with numbers they won’t understand and legalese they can’t comprehend. At this stage, perhaps after several meetings weeks apart, if they do trust your recommendation you have to fill out a very detailed multi-page application digging into some very personal and private information. Then comes the bleeding and peeing in a cup part scheduled whenever the paramedic can get to the client. Finally after requesting all their doctors information (APS) which can take months to secure, the underwriter mulls over all the information and if the history matches the underwriting guidelines, a policy is approved. It takes up to another month before the actual policy is issued and ready for delivery. All told, the buyer will have endured a 2-3 month process with very little communication along the way. Could we make this any more difficult? It’s the very opposite of how today’s buyer wants to transact…anti-social, the opposite of real time and totally paper driven.
Investment in InsurTech is hot
As noted below where you can see the huge growth in FinTech, the clear laggard is in the insurance industry known as “InsurTech”. But that is changing. While investment in FinTech is beginning to show signs of maturity, InsurTech is just getting started. A highly respected consulting firm in the space estimates that investment in P&C insurance technology lags banking (ie.FinTech) by up to 5 years and Life and Annuity lags by another 5 years. But with the increased investment and new technology players entering the space, that lag time will close. Tell someone you’re in the insurance business and nobody wants to talk to you. Tell them you’re in the InsurTech business and everyone wants to talk with you. Technology makes a relatively staid and boring industry a bit more exciting. The insurance industry is beginning to attract tech talent like never before which will drag the industry into the digital age, albeit kicking and screaming.
Mortality and underwriting meets bio-technology
At this year’s AALU meeting, one of the speakers was Dr. Craig Venter who runs the human genome project in my neck of the woods here in La Jolla, CA. Dr. Venter has been instrumental in sequencing human DNA and like all things technology, the advances over the past couple years have been astounding. Sequencing a human genome now costs just $1,345 compared with the $95 million it cost in 2001, according to the US National Human Genome Research Institute. In a few years, you could possibly get your complete DNA for a fraction of today’s cost. Having your DNA tested can give you tons of valuable information that can prevent a health catastrophe. Not only can it help prevent a life threatening disease, but it presents valuable information to an insurer. What if you knew that in 20 years you would have a high likelihood of getting Alzheimer’s disease? There are measures you can take today to prevent that from happening if you knew it. The same with various cancers and other life threatening diseases. My son recently fought and won a battle with leukemia. If we had his DNA, it would have told us about the translocation of a particular gene that caused the cancer and we could have prevented it from happening in the first place. Armed with this information digitally, an insurance company no longer needs you to bleed and pee. They may no longer need to access volumes of medical information from your doctor. And having this information in advance helps the insurer get to “yes” faster rather than “no” longer. Underwriting for life insurance is about to be changed forever…for the better.
Digitization of everything
Blockbuster has given way to Netflix, K-Mart/Sears have yielded to Amazon and Tower Records was beaten down by iTunes. Everything is moving to digital and the insurance industry is not an exception. While the insurance industry has been slow to adopt new technology there are signs that this is beginning to change. By using data integration, cloud technology and new digital formats, technology today allows insurers to digitize the purchasing experience without having to change their legacy systems (which will continue to be a drag on progress). Imagine a digital lead nurturing program that, through analytics, targets customers based on specific demographic information along with life events that trigger the needs for life insurance. Perhaps through Facebook or other social media, a client clicks on a message that seems personalized to them and their particular situation taking them to a landing page educating them on the features and benefits.(Side note: when you explain the features and benefits of permanent life insurance without first saying it’s life insurance, the product sounds amazing. Of course, compliance folks don’t let you do that...nor should they). Once the prospect has been educated online through various mediums such as video, storyboards or a Khan academy styled explanation, they then fill out some personal information online which begins to populate an illustration and application. If they chose to do so, they can talk to an agent or advisor unless they prefer to continue on their own (most will likely choose an agent/advisor). With the data input about name, age, face amount and premium, multiple illustrations can be simultaneously run and rendered on a simplified policy comparison chart (like above) with visual graphs viewable on any device of their choice (with the compliance approved illustrations attached via pdf should they want to review them). Once a product is selected, an electronic application is filled out and electronically signed, medical underwriting is streamlined by using online DNA information and a policy is issued almost immediately. Technology today can tackle the two most difficult things in the business which is finding a qualified prospect under a favorable circumstance and making the purchasing process less time consuming and confusing.
Non-traditional channels will be compelled to address life insurance needs
The big story lately in financial media has been the margin compression in the wealth management space. The DoL and the advent of robo’s are moving the dial on that even quicker. With the AUM fees expected to be cut from today’s standard of 1% to about 25 basis points, and commissions fading away, RIA’s and Independent Broker-Dealers will need to find revenues from somewhere else. There is a general belief that fees for comprehensive financial planning (as opposed to investment management) is one place to go whether it’s a flat fee, hourly charge or baked into a higher % of AUM. But one of the tenets of financial planning if memory of my CFP training is correct, is life insurance. How can an advisor meet their fiduciary requisite and not address their client’s life insurance needs? I don’t think they can. But why don’t advisors address it today? …you guessed it…it’s freaking complicated! And it makes the advisor look stupid if they don’t have it mastered. But what if the process to address it is digitized and made seamless? That’s where I see the advisor stepping up and making life insurance part of their value proposition. At the same time, life carriers are actively looking for alternative lines of distribution since the traditional agent with an average age of over 60 is a dying breed. Look to see new forms of permanent life insurance priced for the advisory marketplace so the conflict of interest over commissions are taken away. And technology will enable the RIA and Independent Broker-Dealer to address the needs in a far more consumer friendly way.
Robo-advisor as a proxy for robo-insurance
Not surprisingly, the majority of FinTech investments early on went towards B2C direct models trying to disrupt the space through what we know as the "Robo-Advisor". Now that we’ve seen a couple of them crash and burn, there seems to be a reorientation towards using technology to enable rather than replace the advisor. In InsurTech, we’re likely going to see the same. The majority of InsurTech investment is currently going towards B2C models attempting to go around the current distribution channels following the theme of “disruption”. But following the FinTech trend, I think within a couple years just as we’ve seen the robo-advisor shift, we’ll see the same with InsurTech. Technology in insurance will reset from attempting to bypass the traditional channels to enabling them. (that is…until all the agents age out of the business!)
There is no other industry as ripe for a technology overhaul than the life insurance industry. Paper driven legacy systems have been like a ball and chain on technology progress. However, the dynamics impacting the industry are creating opportunities to change that. The painful process of finding a prospect and the multi-month purchasing process is on the cusp of changing through new technology. It will be the carrier or distribution firm who finds a way to change the buyer experience through new technology that will win in the future. However, as life firms have been in cost containment mode the past several years, the talent to create a digital platform is slim. I see carriers and distributors more likely to partner with InsurTech firms to create the future platform while using their current resources to keep the lights on with legacy systems. Imagine if we could flip the old quote around and say, "life insurance is a product that is bought and not sold" ...Life-Insurance 2.0 is almost here.
"The secret of change is to focus all your energy not on fighting the old, but on buillding the new" -Socrates