How Insurtech Can Transform the Life Insurance Industry

How Insurtech Can Transform the Life Insurance Industry
How Insurtech Can Transform the Life Insurance Industry

While it may sound counterintuitive, technology can have an immense impact in humanizing the whole life insurance industry.

Think about what has happened in the last two years of the Covid-19 pandemic. Sure, insurtech has been around for long but it has never had an impact as great as it has been since the pandemic. With social distancing and lockdowns, insurance companies had no choice but to use alternative means to reach out to their customers. In order to suit the current realities and to catch up with digitization, they’ve been pushed to tailor communications and rethink the long and difficult underwriting process. Plus, with the help of machine learning and artificial intelligence, many insurance companies have automated their data processing.

Amidst this healthcare crisis over two years, the life insurance industry has seen digital acceleration of 5 years with tangible proofs like firms raising massive funding like $2.5 billion in 2020’s third quarter and 63% increase in the second quarter.

The ‘hyper-personalization’ trend is most likely going to continue according to Vin Agarwal of Diabetes 365. Insurance companies should continue to customize offerings so as to meet individual needs.  In addition they need to continue to speed up the underwriting process.

This upward trend couldn’t come at a better time since life insurance ownership has been markedly declining for the last 30 years. In fact, in 2016, there was a massive gap of an estimated $25 trillion between the coverage held by Americans and the amount that might be required as death benefit.

It’s likely that this shortfall is due to the clunky insurance processes. Consider a process like physical examination – which is essentially a simple process, but one that’s required in most policy purchases. Research has shown that more than 80% of the respondents would be more likely to buy insurance if it wasn’t for this invasive process.

People are also concerned with all the data that insurance companies have collected about customers and what they are capable of doing with it. Insurers are rich in data but poor in information.  Artificial intelligence can help speed up the process.

With insurtech, both of the abovementioned problems can be addressed with data analytical tools that can process the data apart from collecting new data. With predictive modeling, the application as well as underwriting process can be expedited. Insurers can come up with customized products for different people while eliminating the dependence on steps like physical examinations. Plus, with improved efficiency, they can provide more affordable coverage by decreasing their own costs.

So insurtech has the potential to not only personalize the insurance industry, but also make it customer-focused with benefits for all the concerned parties – it’s a win-win for all!

While insurtechs have become more popular lately, the trend is not altogether new. Friendsurance, a German insurtech company launched a peer-to-peer model in 2010 in order to simplify and ease the process of finding and purchasing insurance policies for its customers. Lemonade, a U.S.-based insurance company also adopted a similar model.

The trend has gained traction since then and global investments in insurtech have risen from $348 million in 2012 to $4.15 billion in 2018.

This trend isn’t going away and it shouldn’t either. Here are the best practices laid out by Matt Schmidt of Diabetes Life Solutions in 2020 for insurance companies that want to catch up with the tech-trend:

  • Reevaluate the entire process

Companies need to step back and examine the whole customer experience, with which, personalization can be brought in.

  • Ensure that everyone’s on board

This could mean letting go of old practices and coordinating the process at every step whether it’s in underwriting, actuarial work or risks to compliance departments.

  • Have faith in the process

Insurers need to understand that the process of digital transformation happens over time. Corrections will be needed in order to correct missteps as they will exist. It’s about trusting the process and maintaining the momentum.

  • Keep up the short-term goals

Customers as well as shareholders need to see immediate wins to know that you’re moving in the right direction.

That’s not all. Schmidt believes that there’ll be a day not too far away, where insurance will follow a model of pay-as-you-live, where premiums for life insurance will be determined directly by the kind of lifestyle you follow, tracked by different wearable devices. With a rise in your blood pressure, expect your premiums to rise too. Hit the gym every day and your premiums will begin to fall.  Or if you improve your diabetes control, you’ll pay cheaper premiums for life insurance for type 1 diabetics.

Within insurance companies, leaders of marketing and communications need to keep reinforcing the digital transformation trend in favor of customer needs and wants. When customer wants are getting satisfied in every other sector like ordering phones and groceries, then why shouldn’t the same be true in the case of insurance?

It’s crucial to build a culture that connects customer outcomes to compensation (CX and NPS journey scores), and becomes UX-centric. When it comes to insurtech, the industry culture has the risk of becoming too tech and operations-focused with misplaced importance on promoting these functions with revenue goals and meeting deadlines. However, the emphasis should be maintained on keeping the operations customer-centric.

A marketing or UX-centric approach would mean that customer experience is priority and would involve consistent delivery with experimentation and design thinking. Execution would be based heavily on user research through behavioral tracking and reporting. Such an approach would also mean building big data and advanced analytics capabilities, and using the learnings and measurements from those capabilities. A UX-focused ‘center of excellence’ would help UX experts and marketers to include human-centered design as well as empathy in the products the insurance companies could offer while building customer solutions that are not only easy for them to understand, but are also transparent. Plus, these learnings can be used to pivot in the direction of customer wants and needs.

There’s no doubt that personalization is a much-needed aspect in the insurance industry, and insurtech promises its accomplishment. Even if it sounds strange, the fact is that machines do have the capacity to bring us closer. We’ve experienced it already and that’s going to be true even as we move forward.