We had a great round of discussions on business and technology trends in the life/annuity space at this year’s annual Novarica Insurance Technology Research Council meeting. Organizations operating in the life and annuity space are facing many of the same challenges businesses throughout the economy are, like demographic shifts and regulation. Business models are adapting and so is technology, with innovation at the forefront of connecting with the consumers of today and tomorrow. In addition, carriers are facing a range of issues associated with aging technology platforms and challenges with finding the requisite talent to be able to support these environments in an increasingly dynamic business climate. All of this is taking place in an environment of persistent low interest rates and some uncertainty about future economic growth, given how late we are in the current expansionary period.
Demographics
One key challenge companies in the life and annuity space are facing stems from demographic trends. Millennials will make up 50% of the workforce next year and are projected to hit 75% by 2025. Concurrently, carriers are part of an employer base that are watching Baby Boomers reaching retirement eligibility at a rate of ~10k people per day. The results include a bifurcation of markets, for both consumers and workers, where there are significantly different expectations around both engagement models and outcomes. For example, younger market participants expect products to be digital and personalized, with direct engagement capabilities being the norm. They also expect to be able to switch communication channels at their own discretion, allowing experiences with companies to be flexible enough to accommodate their preferences. Engagement models designed for a different era may still be satisfactory or even preferred by certain cohorts, but a “one size fits all” model introduces a variety of risks that carriers are only now beginning to recognize.
Innovative ways of communicating with current and potential customers will increase the likelihood that they will engage with life and annuity providers. Over the longer term, providing these customer experiences will mean upgrading core capabilities, since there is an array of product implications that carriers will need to consider in order to be attractive to younger consumers. Legacy platforms will be increasing problematic. In the interim, emerging solutions like RPA can integrate modern front ends with legacy backends to facilitate the provision of a seamless digital experience.
While framing go-to-market strategies is a key consideration for carriers, being able to concurrently tap into the largest living generation as employees is a high priority, particularly with accelerating retirements threatening support models and institutional knowledge repositories. Coordination between HR and IT organizations is critical to addressing this emerging concern, particularly in tight labor markets.
Regulation
Another key challenge arises from the regulatory environment, in particular as it relates to rising concerns over privacy. One carrier at the meeting expressed the fear that privacy compliance with emerging regulations like the California Consumer Privacy Act (CCPA) could become “like the Y2K problem”: something that distracts from progress in business models and innovation. The good news on that front is that there is an increasing number of tools available to help companies become and remain compliant. Adapting to privacy regulations can also provide impetus for data innovation. More granular insights from breaking down product profitability data, for example, can boost profitability and aid product design. It is also an opportunity for companies to consider what can be done with consumer data and how to design systems around openness and security to more easily adapt to future regulatory shifts.
As the North American markets move to adopt more GDPR-like regulations, carriers will need to carefully consider how and where data is stored and approaches to effectively managing their own data retention policies. Lessons learned from prior data-related regulatory changes, including e-mail rules promulgated a decade ago, can provide insights into what may need to be done now. In addition, given the heightened level of interconnectedness between companies (e.g., the ecosystems associated with both Broker-Dealers and Group Insurance), carriers may need to be more proactive in developing contractual relationships that protect their own interests.
Evolving business models
Products are being refocused throughout the economy around customers, with mass-customization a reality consumers have become very comfortable with. Such customization requires a heightened level of insight into customer interests, preferences, and communication styles. In financial services, banks have historically been aggressive about the use of focus group and other data sources to understand their world from the “outside looking in,” the exact opposite of what insurance carriers have used as a general operating model. To be successful in this emerging environment, carriers are increasingly using similar insights to develop product and service offerings.
For example, more carriers are at least considering adding a direct-to-consumer channel to complement their current reliance on agents to support the traditional face-to-face selling model for their products. In addition, some are exploring tiered strategies that allow for greater consumer choice in how they engage. In addition, voluntary benefits are an increasingly attractive market segment for both individual- and group-focused carriers as they look to find better ways to engage customers at key inflection points when they are making financial decisions. As this implies, the traditional lines that separated individual life, group life, and group health carriers into conveniently separated “lanes” are starting to break down, as all these carriers look for ways to increase market access and improve margins.
Another reality associated with the evolving business models is that it highlights the shortening useful life associated with technology investments. An interesting implication of this is the increased pressure it creates on carrier IT organizations to move from a CapEx to an OpEx funding model on future state investments. To accomplish this, CIOs and their organizations will need to work closely with their finance counterparts, since this represents a fundamental shift in practices. CFOs will also need to be convinced these practices are appropriate.
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