Insurance companies desperately need to incorporate innovation and technology to reach a new generation of customers.
Everyone knows that, right? The difference is that this time, insurance company executives are coming out and saying it.
Executives acknowledged the need for innovation and technology in their responses to the 2015 Retail Life Insurance and Annuity Executive Survey, released this week by Ernst & Young.
“The surprising aspect of the survey this year was the amount of activity around innovation,” said Doug French, principal with EY. “When we talked with CEOs probably two years ago, there was a lot of pause around innovation and you could get the feeling that folks weren’t really thinking about it.”
The EY survey incorporates executive comments from approximately 20 leading U.S. insurance manufacturers, distributors and reinsurers. Interviews focused on the global economy, innovation, distribution, talent issues and consumer protection.
EY noted that “early adopters” of technology are reaping the benefits from increased investment in research and development.
For example, some insurers are offering discounts to policyholders who are willing to use sensors that track their movements and health activities.
“The success of such high-profile programs has made it clear that telematics in the insurance industry is no longer a futuristic scenario, but rather a here-and-now opportunity,” the survey states.
Sales and service is a major area on which technology is focused. Today’s customers are accustomed to being served through a variety of digital platforms. The traditional insurance agent sitting behind a desk meeting with clients isn’t going to work anymore.
“Whatever demographic profile you are in this country, there’s an omnichannel play just about everywhere where you interact with every other business,” French said. “How can you hold yourself out as being different? Eventually that all collapses on itself.”
However, even as new distribution models grow, in-person contact will remain predominant, according to survey results.
At the very least, insurance companies need to have a presence online because that’s where the customers are. Thanks to the Internet, customers have “unprecedented access to pricing information,” the report notes. That is feeding the rise of roboadvisors and self-service.
“Consumers seem especially attracted to the objectivity of the advice and the continuous updating of guidance,” the survey states.
Historically, selling insurance is a “low-engagement” process with customers. As French described it, “We kind of set up our businesses where we sell you a product and then we leave you alone.”
Changing that tradition will be hard, but insurers need to develop a “holistic” approach to customer relationships, he added. The report refers to this as “life-cycle selling.”
“The key is to change the role of the agent at the point of sale to unlock customer lifetime potential, not just take an order or close a sale,” the survey states.
For instance, this cross-selling could include integrating 401(k) plans with options for life, health and disability insurance.
“There are swaths of current customers on our books that are underserved,” one executive commented in the survey.
The survey also queried executives on the talent shortage in the industry. The average age of insurance agents is 59 and the industry needs to get younger.
Beyond the statistics, executives said the industry truly needs more “people” people, or those with the enthusiasm and personality required to sell insurance.
“Kids today don’t want to be insurance agents, even kids who have parents who own agencies, which would be the easiest way to get into the business,” French said. “The whole experience of building up your book of business, that’s a pretty hard process.”
Technology is a problem here, too, the executives speculate. The insurance industry reputation today is one of lesser pay and not at all cutting edge, the survey states.
Executives had plenty to say about the Department of Labor’s much-criticized fiduciary rule. The fear is it will alter the compensation model for no good reason and make it doubly difficult to accomplish the above goals.
The DOL proposed new fiduciary rules in April, including six proposed prohibited transaction exemptions, governing advice provided regarding qualified retirement employer-sponsored plans and individual retirement accounts.
DOL officials and public interest groups say the proposed rules, which would impose a fiduciary standard of care on financial advisors dealing with retirement accounts, are necessary to protect retirement investors from high commissions.
Some executives believe that because of increased litigation law firms will benefit more from the proposed fiduciary rule than consumers, whose lives and financial security may not be made better because of the fiduciary requirements of agents.
One respondent expressed a common sentiment: “Regulation is making it harder and harder for the middle class to get advice.” Another added, “Consumers without advisors will be hurt and there will be unexpected consequences.”
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org.
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