The future of life insurance: How does the industry look next 10 years

April 6, 2022

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RHI Agency Team

Life insurers are about to step into a decade that looks a little hard. However, those who postpone the change or try to maintain the status quo may experience mixed results as fixed-line telecom providers whose business models were shattered by technology and social progress. Therefore, it is now paramount for insurers to take significant steps to adjust their strategy, operations, and organizations to new realities if they are looking forward to thriving and succeeding in the coming years.

Changes and challenges so far.

Life insurers will face tough competition from a swarm of new entrants seeking market share in the 2020s. Asset managers, industry specialists, conglomerate owners, private equity sponsors, multi-line financial institutions, and insurtech businesses are all competing for a slice of the life insurance pie. As a result, boundaries are getting more blurred. Insurers will be under pressure to restrict their battlegrounds and concentrate on specialties where they have a long-term edge. Many life insurers are already positioning themselves as investment managers, protection experts, or next-generation distribution powerhouses.

Over the last decade, there have been substantial developments in the global life insurance sector. Developing economies—predominantly developing markets in Asia that were once minor contributors- have become international growth drivers and account for more than half of global premium growth. Data availability has increased dramatically, and insurers have made sophisticated analytics and artificial intelligence strides. Customers may now submit claims, access agents, insurance quotes, and policy information in a few seconds with just a few touches on a screen, thanks to digital and mobile technology developments.

As a result of these developments, data analytics and AI will no longer be regarded as particularly innovative. Instead, they will be an integral part of how business is conducted along the whole value chain. For example, life insurers will have to change to be competitive, despite their risk-averse corporate cultures and sophisticated legacy IT systems. China has already demonstrated how rapidly these changes can occur, with the country hosting many early digital adopters like Ping An and Zhong An, with conventional businesses also adapting swiftly.

People will continue to be protected against risk, which will remain at the heart of the sector. But, some irresistible trends are currently altering the industry and will continue to drive change through 2030; how organizations accomplish that goal will appear dramatically different. Changes in consumer requirements and tastes and increased pressure on government pension systems will drive the most significant transformation expenditures, breakthroughs, and the most ambitious new business models.

Better focus on the financial health

​​Financial well-being — or the ability to manage day-to-day spending, absorb an economic shock, and have the confidence to reach financial objectives – is becoming increasingly relevant to more people worldwide. However, such stability will be more challenging if public pensions and retirement schemes become less sustainable.

Value propositions for insurance and retirement planning firms will emphasize how they can help individuals live the life they desire, with high levels of financial stability and overall health. Offerings will be more adaptable, forward-thinking, and “goal-oriented,” focusing on proactive preventive rather than downside protection. They will also reflect that more people are self-employed or engage in the gig economy.

Offering long-term value

As the insurance industry’s purpose remains under the limelight in the aftermath of the pandemic, insurers need to think in terms of delivering long-term value to customers, workers, society, and shareholders. Investors and analysts are broadening their valuation methodologies to incorporate more comprehensive, long-term variables rather than short-term financial benchmarks.

Intangible assets, including intellectual property, talent, brand reputation, innovation, and environmental, social, and governance (ESG) consequences, are increasingly critical. The change towards inclusive or stakeholder capitalism will be essential for fostering trust among younger generations and igniting more extensive public-private partnerships to address societal concerns such as the cost of future environmental harm or social inequality.

Better Cooperation with regulators and governments

Challenging macroeconomic conditions, underfunded government retirement schemes, and rigorous regulatory scrutiny (particularly regarding consumers’ best interests and data privacy) will drive insurers to engage with government authorities on numerous fronts. As a result, the sector has an enormous potential to collaborate with governments to create and market solutions that customers want and need.

Priorities will include improving financial education, promoting product innovation, influencing governmental policies, tax breaks, and issuing long-term bonds. In addition, more robust consumer protection and data privacy regulations, including economic reporting frameworks, will be implemented to ensure financial stability.

Diverse Ecosystems with omnichannel engagements

Ecosystems will seek to grow and mature, eventually becoming the primary way businesses interact with customers across media. Advances in technology, notably in application programming interfaces (APIs), microservices, and data fabrics, hold the key to enabling quick integration and seamless data sharing.

Insurance companies will form their networks of partners to provide complementary services. They will also participate in events that are coordinated by others. Ecosystems will enable insurers to focus on their capabilities (for example, providing specialist services to niche sectors) or to innovate more generally (e.g., subscription models). They are also appropriate for insurers wishing to update their distribution and transition to hybrid advisory models that include Robo-advice and human engagement. Partnerships developed now will provide the groundwork for future ecological success.

New solutions for life stages

The sector will see the rise of new forms of coverage and increased flexibility in product coverage and payment throughout the next decade. Household debt in most OECD nations is more significant than 100 % of net disposable income, divorce rates continue to grow, and employment instability, fueled by technology developments, can generate anxiety for consumers. However, despite a decade of global economic growth, over half of the consumers are somewhat or highly apprehensive about losing their job or that of a family member. New plans that alleviate such fears while expanding coverage and premium flexibility are expected to gain traction with customers.

 

Flexible options that allow the consumer to alter coverage throughout the policy’s term have been well received in Japan. A renowned Japanese insurer, for example, combines asset accumulation, medical, and protection against dread sickness and death into a single package, allowing customers to increase or reduce coverage as their circumstances change.

Nonmonetary advantages and value-added services

Product innovation will most likely spread to adjacent services during the next decade. For example, life insurance companies, which compete with their peers and industry alternative options, including pure wealth and asset managers, would increasingly differentiate themselves through value-added services and other nonmonetary benefits, especially as life and health insurance coverage converge.

Life insurance businesses in Asia and Europe are already providing administrative assistance for doctor visits, health monitoring, and telemedicine. In addition, these organizations may collaborate with rideshare companies and hotels to provide transportation to doctor appointments or lodging for loved ones in times of need.

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