The Life Insurance Industry Has Four Ways to Survive

To survive over the next 10 years, life insurance companies must take advantage of emerging opportunities and cope with major social, technological, environmental, economic, and political issues, according to a report by PwC.

The following factors could have a drastic effect on life and pension insurers:

• An increasing demand for retirement income and pension solutions among an aging population.
• Advances in analytics that allow insurers to design products that minimize complexity and meet consumers’ need at different life stages.
• Continued risk of government welfare cutbacks, which could shift retirement and benefit decisions back on consumers.
• Shifting economies across the globe in developed and emerging countries.
• Increasing medical advances coupled with rising medical costs, which are increasing risks for consumers and highlighting the need for well-being and other pro-active health management programs.

Life and pension companies will need to identify threats as they emerge rather than responding passively to market changes, said Jamie Yoder, PwC’s US insurance advisory practice co-leader. Insurers will need to focus on simplifying the presentation of products and features to customers and advisors while overcoming complex processes at the back end.

The report identifies these four key themes and related risks that insurers need to address:

Two-speed global growth: The life insurance market is growing in emerging economies and decreasing in the developed world, particularly in the U.S. and Europe. In the United States, life insurance assets have been decreasing steadily over the past two decades as a percentage of household financial assets. Before the 2008 financial crisis, life insurance was viewed as more of an investment than a protection product, though guarantees and protection have been viewed more favorably since that time. In addition, demographic changes, such as aging Baby Boomers, are creating a growing market for retirement planning and retirement income. Growth for insurers in the life and retirement market will come from expanding into new customer segments, such as middle markets. Growth will also come from alternative distribution channels, such as worksite and direct, by offering more comprehensive advice and developing innovative solutions. Insurers have to compete with other financial service providers to capture this market, so they must be able to reach a broader part of the market. With these new markets, insurers will need to spend more time educating consumers on the value of life insurance and pensions.

Distribution disruption and the customer revolution: There is a risk that government entities will push the responsibility for retirement planning and ancillary benefits on to consumers. Product distribution has changed rapidly as customers have become accustomed to the convenience of digital education, research, and transactions. Customers demand more information and convenience from many channels when choosing life and pension products. Customers are demanding advice about a range of financial products as opposed to a narrow set of insurance products. With the uncertainty surrounding the economy, customers expect honest advice for their life insurance planning. Consumers aren’t sure whether they need life insurance anymore. Since the product is complex, they need dedicated advisors who can tell them exactly how to spend their money at every stage of their lives.

Information advantage through big data: Leading insurers are turning to advanced analytics and external sources of data, such as social marketing, to understand customers. The challenge is using that data when developing new ways to tailor products to customers. “We will see financial service providers use ‘big data’ analytics to design products that adapt to the changing needs of the household as they move through different life stages,” said Dr. Anand Rao, principal overseeing innovation in analytics within PwC’s US insurance advisory practice. Advice will be tailored based on age, making it simpler for consumers and advisors. Automation and analytics will hide the complexity of insurance products.

Evolving business models: Advancements in technology allow new players to enter the market with lower cost business models. To compete, traditional insurers need to reinvent their operating models to reduce costs, simplify offerings, and organize around customer interactions, said Yoder. Companies will also need to streamline their procedures and reorganize their talent to focus on high-growth markets and customized solutions. For more information, visit www.pwc.com.

Last Updated 9/8/2017

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