The Many Futures of Life Insurance

There is only one past but there are many futures. Which one of the many possible futures develop is impossible to predict for certain but that should not stop us from speculating. Besides, the best way to predict the future is to invent it. So, what can we invent, or at least prompt into being?

We are in a time of great disruption and I could pick several drivers of that but in this blog I am going to concentrate on just three: demographics, consumer expectations and evolving technology.

Demographics

There is significant societal change under way. According to the UN population growth is set to reach 11 billion by the end of the century. There is growing wealth, and not just in the West. The proportion of society classified as middle class is growing across the globe; the Brookings Institution estimates that there are 1.8 billion in the middle class, which will grow to 3.2 billion by the end of the decade. By 2030, Asia will be the home of 3 billion middle class people. It would be 10 times more than North America and five times more than Europe. The Middle Classes are responsible for the greatest consumption of financial services. Insurance products, particularly health, accident, illness, replacement income etc. are predominantly the province of the middle classes.

The shape of society is changing too; we are all getting older. One third of babies born in the UK today are expected to live to 100 with the global number of centenarians projected to increase 10-fold between 2010 and 2050. An older generation will require a different set of insurance products, both protection and wealth related, than a younger one.

We also have increasing urbanisation. In 2007, for the first time in our entire human history the tipping point was reached when more people lived in cities than outside. This brings burdens in exposure to greater pollution, more demand for social services and the greater threat of spreading pandemics.

The societal changes mean that new demands are growing for a new range of insurance products in the wider Life sector. Health, longevity, support for illness and disability, time out of work and a wider range of assets to grow and protect mean that the Life industry will have massive opportunities to create products that serve this new range of demands. The way in which these products are structured, delivered and serviced will have to change to keep pace with rapidly evolving consumer demands; and this will bring a range of threats to accompany those opportunities. New, consumer and service-oriented businesses will be able to invade the Life insurance sector with innovative modes of engagement and collaboration that insurers have traditionally shied away from or stumbled over.

Consumer Expectations

Consumers have got used to a world in which always-on, direct access to personalised service is seen as normal, not something they should be grateful for. Consumer demands – for accessibility, transparency, responsiveness – will form a baseline for expectations for insurance products and services. Where traditional insurers are unable to meet these demands, new companies will step into the life insurance value chain with supplementary services that enhance and even obscure the older, more traditional insurance business models of engagement. If insurers are not to lose out on new revenue streams and value components they will have to compete, form alliances with or buy these new organisations.

Technology is an obvious participant and driver in this process. It’s common knowledge now that we all have far more power in our smartphones than the whole of NASA had when it sent men to the moon. That massive rise in capacity creates an almost unimaginable, exponential rise in capability. The Digital phenomenon will enable and drive capacity and expectations. The general insurance sector is already making use of personalised, real-time data to create dynamic policy premium calculations with such wonders as telematics in cars that can detect driving habits as well as distance and the type of roads used. The rise of personalised digital devices that can record health and activity measures will be used by life and health insurers to create innovative protection products that can take into account more and more detailed aspects of an individual’s personal circumstances. Insurers may be able to underwrite individually based on thousands of variables.

Life, disability and health products will be able to take advantage of a range of immediately accessible on-line services and mobile apps that bring the consumer directly in contact with the service provider, be that the insurer itself, one of its agents or collaborators, or the third-party service providers that the insurance pays for, such as home helps, physiotherapists, doctors etc. The consumer will expect these and the insurer – if it wants to stay in the game – will either provide them or facilitate them, becoming the hub for the delivery of services arising from a claim.

Brave New World

So, which future will we see evolving? As I said, we cannot be certain – at least of the detail, which remains a little blurred – but the broad sweep of history unfolding before us is coming into focus.

In my view the characteristics of this new world, brave or timid, will include the following:

We will see much greater commoditisation and transparency, alongside increasing personalisation. There will be tighter margins driving business models to control costs with automation, digitisation, prevention through wellness programmes and incentives. Insurers will develop new products for ‘seniors’ and other affinity groups will arise – self-selecting niche groups which negotiate terms for their members. We will see more flexible products; the GI sector may lead but Life will follow with looser subscription based products whose coverage fluctuates according to changing circumstances.

There will be a heavy reliance on data and analytics with much greater automation and use of algorithms.

I have avoided the Brexit Elephant in the room. No doubt the deals that are negotiated will bring all sorts of challenges: over passporting rights, data protection equivalence, solvency parity, etc. It makes the future, at least in the UK even more uncertain, but that is a topic for another day.

One thing we can be sure of is that change is the only constant. As the philosopher Heraclitus said as long ago as the 4^th century BC, “No man ever steps in the same river twice”.

Written by Graham Newman, Independent Insurance consultant.

The views expressed are those of the author and not necessarily of SAMI Consulting.

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