Insurers evolving from payers to protectors

The life and health insurance industry is about to enter a new decade, carrying with it many of the same cost and consumer demand pressures that have plagued it through much of the 2010s. To survive, industry players have to take on a new role that encompasses multiple functions — and that means fully embracing the benefits of technology.

“I think the main message for the industry is that there’s going to have to be a shift from payer to protector,” said Chad Hersh, Vice President at Capgemini Leading Life & Annuities and Group Benefits for North America. “There’s always been this notion that insurers’ role is to pay a claim, and that they’ll do everything they can to avoid paying that claim. But through technology, insurers can now stay away from payouts by becoming trusted partners who’ll help consumers stay healthy.”

That’s a major thematic thread that runs through Capgemini’s Top Trends in Life Insurance 2020 report, which highlights areas of technology and business-model disruption that insurers around the world are exploring as they seek to survive and thrive.

Not surprisingly, wellness programs topped Capgemini’s list. Just as sensors are allowing insurers in the P&C space to minimize auto and home claims, fitness trackers and wearables are increasingly used by life and health insurers to encourage healthier lifestyles. Beyond that, insurers around the world are starting to offer apps that help people keep track of check-ups and medication schedules, as well as full-blown wellness programs.

“That also helps create streams of alternative data that insurers can get insights from using AI and analytics,” Hersh said. “There’s lots of ways they might want to leverage that not only to mitigate costs, but also to help underwrite policies in the first place. We also see reinsurers stepping in with data initiatives and real-time underwriting guidance based on more third-party data, especially as the bigger claims that hit life-insurance companies are going to hit them as well.”

AI and analytics, Hersh added, could allow a smoother experience for customers by reducing the sheer volume of information that they have to provide themselves. By allowing insurers to access data on them through third-party sources, customers can benefit from dramatically reduced processing times from application to approval of life insurance policies. AI could also speed up certain aspects of established information-gathering processes, as shown by one tool built by Capgemini.

“We developed a capability called Cognitive Data Processing, or CDP,” Hersh explained. “Traditionally, insurers that accept scans or pictures of paper documents have had to get someone to index the information manually, which is understandably time-consuming. But with CDP, you can have a machine that can learn what data is on a page, where it might be indicated, and what it’s used for.”

Incentives that keep policyholders engaged are also becoming more of a reality in the life-insurance space. Some insurance companies that bundle fitness trackers with their policies sweeten the pot by offering rewards — a discount on premiums or a lower monthly instalment paid for the device, for example — to individuals who comply with specific fitness regimens. Aside from encouraging people to get healthy, it also lets insurers stay on their customers’ minds rather than be forgotten until a policy has to be renewed or a claim has to be filed.

Flexible products are also another potential path forward, particularly to access new and emerging client bases like millennials or gig workers. But as Hersh pointed out, it’s not that easy for insurers to move into.

“A lot of life insurers have not upgraded their core systems yet,” he said. “Their policy administration, billing, and claim systems are still running on legacy platforms, so flexible products are often difficult for them to develop. And even after they create the product, there’s the challenge of underwriting for different types of workers because of a lack of data.”

Because of their relatively short record of claims experience, the pool of underwriting data specific to millennials is still quite shallow. Gig workers are an even more challenging segment; aside from representing an entirely new job category, these individuals may even be taking on more than one occupation, which makes it difficult to arrive at estimates of longevity, stress levels, injury rates, and other variables affecting mortality.

“Building core systems and products is challenging at the moment, but there’s certainly a need to develop and support more flexible policies,” Hersh said. “A gig-based company like Uber, for example, may be interested in offering individuals coverage only when they’re engaged in that gig job. Can those companies issue a short-term disability policy by the day, or even by the hour? What if for a certain number of dollars per mile, drivers or passengers could choose to get accidental death and dismemberment coverage for their journey? Those are good ideas, but implementation and pricing are the main sticking points for these products right now.”

Understandably, life insurance agents and brokers may feel that their place in the ecosystem is being threatened by technological disruption. But given the gap between the need for advice on life insurance and the number of professionals who are qualified to supply it, Hersh argues that a lot of the trend toward digital is not about displacing humans, but about enabling them to process more applications, find more leads, and ultimately get more business.

“A lot of insuretechs are realizing that brokers aren’t going away,” he said. “There might be fewer of them, they may do fewer things with humans and more with automation, but their role in educating customers on insurance is still the same. Saying that, I think there’s a long way to go before we move from digital and direct for simple products like term life or simple supplemental health products to complex wealth-building or saving products that require more guidance.”