EY’s Future Of Life Insurance: Diverse, Lean, Omni

Protecting people against risk and preserving their overall well-being will remain at the core of the life insurance industry. But the way life insurers fulfill that purpose will look vastly different in the future.

That was the word from the EY NextWave Insurance Report, which described the major forces reshaping the life insurance and retirement market and how they will play out during the next 10 years.

The industry will see significant new products, services and value propositions, as well as richer, omnichannel experiences for all customer types, the report said. Workforces will be considerably leaner and feature new skills and talents. Distributions networks will be remixed. And there will be more sophisticated use of advanced technology.

The persistent low-interest rate environment continues to challenge life insurers, EY said. “Interest rates have remained too low for too long for past strategies to be effective now,” the report read. In addition, EY said the product-driven business models of the past will not be sustainable in the future, mainly because they can’t adapt quickly enough to changing consumer needs as well as to broader social and economic trends.

“We do anticipate low interest rates will continue to be a factor,” Nicole Michaels, EY global insurance business transformation leader, told InsuranceNewsNet. “That will mean as carriers evolve, they must continue to be focused on cost pressure, and being very efficient in their operations, if they want to continue to grow and evolve to meet customer needs and expectations, as well as put out new product.”

Society also needs something different from the life insurance industry in the face of the large and growing gaps in protection and savings, the report said – life insurers must redefine their role if they want to help address these issues and opportunities.

EY said that in the U.S., life insurance premiums have remained flat during the last decade and the customer base has declined by 14% since 2011. Trillions of dollars have migrated away from U.S. life insurers, and low interest rates make it difficult for insurers to take advantage of opportunities created by regulations such as the SECURE Act.

Insurers must adapt to changing consumer desires, the EY report said. The product-driven and distribution-centric models of the past will not be sustainable in the future, primarily because they no longer reflect what customers want.

But life insurers that can master transformation will see a potential upside, EY said. The U.S. faces a projected $240 trillion retirement gap and a projected $160 trillion protection gap in 2030, pointing to the industry’s growth potential and its ability to make a huge contribution to the overall well-being of individuals, families and society as a whole. And the industry will need to engage governments and regulators, as well as other financial services firms, to develop strategies to close these gaps.

The retirement gap is one opportunity for the life insurance industry to step up, said Chad Runchey, EY Americas insurance financial performance and risk leader.

“As we roll forward the next five to 10 years, fewer and fewer people will retire with a pension. That will result in a tremendous gap for guaranteed income that the industry is uniquely positioned to help address.”

The EY report called for innovation to seize this opportunity. For example, insurers may want to offer products build on sharing biometric data from wearable devices and electronic medical records to ensure more accurate pricing. In addition, investment products will need to be redesigned and repriced to reflect market realities.

Six Megatrends

The report identified six megatrends reshaping the life insurance market. They are:

1. Financial health and wellness. Insurers must show how they can help people live the lives they want, with high degrees of financial security.
2. Long-term value. Investors and analysts will expand their valuation approaches to include more holistic, long-term metrics, rather than only short-term financial measures.
3. Collaboration with governments and regulators. Difficult macroeconomic conditions, underfunded government retirement programs and intense regulatory scrutiny (especially around consumers’ best interests and data privacy) will force insurers to collaborate with public authorities on multiple fronts.
4. Ecosystems and omnichannel engagement. Technology advances will enable rapid integration and smooth data sharing. Insurers will create their own networks of partners to offer complementary services.
5. Capital optimization and convergence. Beyond the ongoing challenges of low interest rates, macroeconomic and competitive factors are driving the quest for higher levels of capital efficiency. With more capital available from a wider range of sources and increasing clarity about the need for well-being, convergence will accelerate among life and health insurance, retirement planning and wealth and asset management.
6. Commoditization and customization. Life insurance and retirement products have become commoditized for many reasons, including conduct regulation, competition from asset management and increasing customer preference for simplicity, transparency and comparability. Insurers can use technology to combine simpler components into personalized solutions, provided they have the necessary digital and analytics capabilities.

The EY reported noted that four generations of consumers are in the marketplace, and recommended ways insurers can connect with each of them.

Generation Z

• Starting relationships with bite-sized products (term, accident, critical illness and flexible savings).
• Articulating purpose to boost brand awareness and provide a “reason to believe.”
• Offering balance of robo-advice and human interaction.
• Financial education and outreach on the importance of financial well-being.

Millennials

• Increasing engagement through digital channels, evolving ecosystems and financial education.
• Developing solutions for both protection and income that support alternating phases of asset accumulation and use.
• Developing solutions for dependents (especially elderly parents).
• Expand in-plan income options and reduce costs in plan-managed accounts.

Generation X

• Expanding relationships and share of wallet with attractive protection and income solutions.
• Creating hybrid advice channels, with both digital and human support.
• Developing in-plan income options and automated decumulation models.

Baby Boomers And The Silent Generation

• Promoting hybrid channels for advice, education and guidance.
• Developing intergenerational well-being solutions (e.g., retirement income, elderly care and annuities, and other solutions for multiple family members as part of inheritance strategies).

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].