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Technology Driving Disruption in Insurance

(Editor’s note: During the summer of 2015, EY interviewed executives at approximately 20 leading US insurance manufacturers, distributors and reinsurers as part of an ongoing effort to understand how the life insurance and annuity industry can surmount current challenges and move forward.

The objective was to understand the views and concerns in the eyes of industry executives and stakeholders and to outline the industry opportunities and challenges from the perspectives of customers, distributors and manufacturers. The interviews focused on the global economy, innovation, distribution, talent issues and consumer protection. This is the second article in a five part series, where we will walk through our key findings. You can read the first article here.)

Innovation in the era of permanent disruption.

As we continue to do business in an era marked by a continuous disruption and new competitive threats, the insurance industry, which has never been considered leading edge or particularly nimble, must work to increase the pace and scope of innovation.  “Innovate or die,” was the succinct description of one survey participant.

The impact of shifts in product focus and different customers on distribution cannot be overlooked. That’s why some carriers are providing advisors with new, proprietary tools as well as systems for underwriting, digital applications and for managing customer relationships. Carriers are also evaluating their distribution models as a whole, including their compensation models.

It’s clear that technology will be the driver of innovation. Carriers can leverage considerable advancements in digital technology to make step-gains in their ability to engage customers consistently, across more channels, with richer experiences. But it is important to recognize that innovation is the job of every function of the enterprise, not just product development. One respondent put it this way:

“As an industry, we confuse innovation with product development. If we don’t learn the difference—and don’t learn how to become far more innovative much more quickly—we run the risk of being disintermediated by those that can run faster.”

True, some executives believe their organizations have already done much in the way of innovation, and more than a few consider the focus on innovation to be something of a fad. But overall, survey respondents emphasized their readiness to embrace the new market realities and resulting innovation imperative. To an unprecedented extent, the industry accepts that it must rethink everything about the way it operates or face dire competitive—even existential—consequences.

In terms of recent progress, early adopters of technology have been making significant investments in research and development. For instance, some insurers now offer discounts to policyholders willing to utilize sensors that track their movements and well-being. The success of such high-profile programs have made it clear that telematics in the insurance industry is no longer a futuristic scenario, but rather a here-and-now opportunity. Thus, the fast followers are doing just that, and hastily re-allocating resources toward R&D.

New competitive threats are driving insurers forward on the innovation front. Any company, from any sector that possesses large amounts of data about people and their relationships, could become a player in the financial services arena. As such, the industry faces a diverse and daunting range of potential competitors from banks and credit card companies, to makers of wearable technology and personal devices, to search engines and big online retailers.

That is why forward-looking insurers are considering partnerships with such companies, as well as entirely new business models and dramatically re-engineered customer relationships. It is important to note that respondents did not unanimously accept that view. Some pointed out that data aggregators did not necessarily “have the expertise to tie data to mortality and morbidity.”

Rising consumer expectations are another driver. Today’s buyers look to interact with companies through new devices (such as smart phones and tablets) and new channels (like video chatting and text). One respondent commented on customer expectation for “a seamless high-tech experience.” Self-service tools that are optimized for mobile devices are being developed at many carriers with some executives predicting the IT function will become one of the largest and most important functions at insurance companies.

It’s no surprise that improving the customer experience is high on the strategic agenda, according to survey results. Specifically, several respondents spoke of working to improve the experience through which consumers access advice. The good news is that providing guidance through new channels (such as video chatting) would be less expensive than a traditional over-the-table and in-person sale.

So where should innovation come from and what form should it take? Survey respondents cited a few main areas:

Sales and service: The focus will be on driving customer engagement with well-integrated, personalized and meaningful digital experiences and a streamlined application process. Here again, insurers are focused on empowering agents with better tools, including mobile, tablet and video platforms  to connect with consumers as they build out more robust channels for research and self-service.

Product and market: The industry must develop offerings that reflect the real-world needs for consumers, from affordable annuities for the middle market to more sophisticated health policies that leverage the Internet of Things. As providers of historically “low-engagement” products, insurers are challenged to build and maintain strong and flexible client relationships. As one respondent stated, the industry “must learn to engage with consumers on the basis they determine and figure out how to lock-in and re-engage with customers” at different points of their lives. Failing to do so does a “disservice” to both customers and shareholders.

Operations: The industry is finally updating or retiring old legacy systems (especially those for policy administration) that can be 20- to 30-years-old. It’s the end of the capital cycle for big systems that were put in place in the 1980s or 1990s. Accelerated or automated underwriting, the use of electronic forms, and straight-through processing are new ways insurers are seeking  to modernize and enhance operations. For underwriting, the goal is to make underwriting decisions in seconds, not hours or days. Even as these cycles shorten, new data sources—including Big Data—will be brought to bear to enhance the accuracy of decisions.  Data aggregators are playing a role at some carriers already. Lastly, the development of straight-through processing, especially in the transfer business, is seen as a potentially large source of cost savings as it would help simplify the process of IRA rollovers and 1035 exchanges.

Technology: Better mobile apps, more advanced analytical capabilities and better data integration are pointing the way forward. Advanced carriers are using data mining and predictive analytics to help determine when policies will lapse and how products are being used. Others are partnering with makers of wearable technology to track consumers’ health behavior, a potentially revolutionary development for insurers. One respondent pointed out that “EKG data from smartphones is as good as a medical office EKG.”

Many respondents reported significant progress on several of these fronts, however the industry must also recognize that customer expectations move in only one direction—upward. For example, high net-worth consumers want their data quickly and in a usable form; they want to view information on their annuities just as they see data on their stock portfolio.

For insurers, this means innovation and customer experience enhancements are a continuously moving target. Now that early adopters have demonstrated success with a few high-profile programs, more insurers identify themselves as fast followers than in prior years. Investments in innovative capabilities are likely to be significant, but insurers can build substantive business cases based on badly needed performance improvements. Improved understanding and better harvesting of lifetime customer value is one way to achieve such ROI.

It is likely that cross-functional teams will be established with the sole purpose of driving innovation.  Cultures that accept experimentation and failure as necessary components of innovation will be more likely to remain relevant and, ultimately, succeed in the next innovation-driven era of life insurance. As one respondent described the way to drive innovation, “We must fail fast and fail forward.”

What respondents say:

  • “In today’s world, everything has to be mobile first. Not desktop, not email, but mobile first.”
  • “You just have to suck it up and pay for [innovation] as an additional cost.”
  • You have to make it so that [innovation] is a team of people’s primary responsibility, rather than just a good afterthought to their other responsibilities.”
  •  “If someone finds a real simple, painless, almost fun way to buy life insurance that would change the world of the insurance industry.”
  •  “Those that can use and make the most sense of data will have a competitive advantage going forward.”
  • “Everyone’s saying ‘customer-centric,’ but it’s one thing to say it and another thing to do it.”
  • “We put in accelerated underwriting tools you couldn’t have done 10 years ago because the processing speed and algorithms hadn’t been built.”
  • “Automated underwriting offers a better process, lower cost and increased traction but we need to be sure that our clients are comfortable with the risk.”
  •  “Predictive analytics will be an effective tool in the middle market because of the number of risk classes and low concentration of risk.”
  • “I don’t know that technology is the limiting factor or all alone the enabling factor … I think the missing ingredient is getting people to view life and disability insurance as critical as auto and home insurance.”
  •  “[Technology] is fundamentally upending, and allowing new competitors to come into and interrupt traditional business models… [None of us] are safe.”


The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP, the global EY organization or the Insurance Technology Association. Doug French is the managing principal of the Insurance and Actuarial Advisory Services practice within Ernst & Young LLP in New York. He can be reached at 

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