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Life & Annuity Companies Must Embrace Modern Digital Platforms to Boost Direct-to-Consumer Capabilities


To simplify operations and improve profitability, life and annuity carriers need hosted, rules-based platforms to bring more innovative products to market, improve the customer experience and increase administrative efficiency.

Life and annuity (L&A) insurance companies want to drive top-line growth through enhanced customer experience and innovative products. But this is easier said than done. Many consumers see life insurance as confusing, expensive and difficult to buy. Meanwhile, insurtech companies — start-ups offering new, digitally native approaches to products and distribution — are seeking to simplify the process and meet rising consumer expectations. To avoid getting “Uberized,” traditional insurers need to dramatically improve the customer experience that they deliver and develop new solutions based on timely, accurate information drawn from consumers’ specific needs and preferences. Doing this requires a deeper embrace of artificial intelligence (AI), big data and predictive analytics to better understand and then more precisely target customers based on their hyper-personalized needs.

Appealing to today’s consumer: Convenience plus support

An attractive way to spawn growth is expanding direct-to-consumer (DTC) distribution, while leveraging the latest technologies to provide customers with the convenience they have come to expect in other industries. Simplifying systems and operations is an essential first step to support direct-to-consumer selling as well as other potential distribution channels that are likely to offer a simpler transactional approach. Figure 1 offers a snapshot of the key elements of a successful DTC strategy.

Consumers accustomed to one-click ordering often want to compare L&A products easily and purchase them online. This is especially true for cost-focused younger adults, who don’t know how life insurance works and believe it’s more expensive than it actually is.

Given the complexity of life insurance products, it makes sense for insurance companies to support direct-to-consumer sales. Nevertheless, some insurers, such as Germany’s Allianz, have moved beyond human support by deploying self-learning chatbots to assist consumers.

Modernizing distribution models and upgrading technology capabilities is vital for insurers if they are to compete effectively against insurtechs that are dramatically streamlining the sales process. Recent innovations by L&A insurers and their insurtech competitors in this area include the following:

  • Haven Life, a digital start-up, uses machine learning to offer real-time underwriting, allowing customers to buy life insurance online in just minutes without a medical exam.

  • The Savings Bank Life Insurance Company of Massachusetts (SBLI) eliminated the need for invasive medical tests typically required for underwriting by employing predictive modeling based on available public data.

  • European micro-insurer BIMA sells pay-as-you-go life insurance to low-income people in emerging markets. Customers pay for policies by deducting prepaid airtime on their mobile phones, working with agents who handle every sale.

These and other L&A innovators are providing highly personalized service through a variety of channels — direct to consumer, remote/call center, face to face and even robot to human. Customer relationship management (CRM) systems that aggregate data in real time create more relevant and engaging interactions. Robotic process automation (RPA) streamlines business processes, allowing insurers to take on more clients and serve them more efficiently.

In many cases, technology is supporting humans, not replacing them. Robo-advisers can lower costs, improve productivity and reduce turnover time. They can also decrease human bias and provide consistent, rules-based advisory services.

We believe virtual assistants and robo-advisors will merge over time, becoming increasingly smart through machine learning. By asking follow-up questions, they can provide highly customized advice based on specific needs, while eliminating human biases. After a machine learning solution recommends coverage to the customer, a more robust underwriting process determines the actual quote.

Figure 1

Building modernized systems to power growth

While some L&A insurers have made progress in addressing the requirements for a successful direct-to-consumer strategy, many others have been stymied by legacy systems that lack the flexibility and digital capabilities necessary for success. L&A companies will need to simplify and modernize their administrative systems if they are to succeed in their efforts to create innovative new products and distribution channels.

Currently, most insurers employ different technologies employed on a variety of platforms, making for a complicated integration landscape. This fragmentation and a lack of uniform technologies prevent them from creating the outcome-based business models and new capabilities required for direct-to-consumer distribution.

The benefits from a simpler administrative architecture can be substantial. Our analysis of eight of the largest U.S. L&A companies found that those which had largely grown organically, and thus tended to have simpler IT environments, had higher stock valuations than those that had grown through acquisition, which typically results in a multiplicity of separate systems (see Figure 2).

Figure 2

Insurers are often dissuaded from consolidating old policy administration systems onto a modern, hosted policy administration platform by the large capital investments required. We believe insurers should consider using a software as a service (SaaS) or business process as a service (BPaaS) solution. This allows them to leverage the experience of the platform provider with policy administration conversion projects and avoid technology upgrades and unpredictable technology costs over time while making sure that the technology stays modern and competitive.

Under a SaaS or BPaaS approach, a company only pays for what it uses, on a per-policy basis, thus avoiding a major upfront capital investment. Our LifeAdmin Core™ provides L&A companies with a scalable platform that supports the full range of activities — from underwriting and policy issue through billing and claims — while offering all the digital capabilities needed for direct-to-consumer distribution.

Insurers that employ LifeAdmin Core with an end-to-end BPaaS solution can expect to save between 20% and 40% in operating and technology costs over seven to 10 years (based on projects from one ongoing engagement). They can also gain the capability to support nontraditional distribution channels and roll out new products more quickly.

Unleashing the power of data

Increasing direct-to-consumer sales and enhancing customer satisfaction depends on timely data and analytics. Every online action a consumer takes — each click, search, purchase, etc. — creates a unique virtual identity that we call a Code Halo.™ Research conducted by our Center for the Future of Work reveals that companies that mine and derive business meaning from this robust data are best positioned for market success. Insurers that can decode customer needs, preferences and complaints can reinvent their business models.

Closed-loop analytics can lead to continuously improving effectiveness with cross-sell/up-sell efforts, measuring the success of previous marketing efforts and guiding efforts to optimize future marketing initiatives. Closed-loop analytics can also be used for continuous process improvement in underwriting and other process areas. For instance, analytics should determine the minimal external data needed to guide accurate underwriting decisions and match the data requirements to the particular risk.

Looking Ahead

L&A insurers need to move quickly to create a modern digital ecosystem that will position them for success well into the future. We believe that the path to success requires the following elements:

  • Simplify back-office operations by consolidating outmoded legacy policy administration systems onto a modern, hosted policy administration platform using either SaaS or BPaaS.

  • Seek a partner that can provide a single point of accountability for reducing costs by a targeted 20% to 40% to fund direct to consumer and other growth efforts.

  • Employ micro-segmentation of the customer base.

  • Take an outside-in, design approach to modernizing all processes that affect the customer experience.

  • Use AI, machine learning and other new technologies to continuously improve performance -- both for the customer experience and for back-office operations.

  • Develop digital and omnichannel technologies and capabilities (such as portals, chatbots, robo-advisors and peer-to-peer insurance).

  • Invest in innovation (such as innovation labs, start-ups and partnering with insurtech firms) to enable long-term competitiveness.

To learn more, read the full report “How Life & Annuity Companies Can Embrace Modern Platforms to Boost Direct-to-Consumer Capabilities,” visit the Insurance section of our website, or contact us.

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