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Life insurance #insurtech innovation Part I: No longer an oxymoron, expect an uphill climb

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This is a guest post by Amy Radin. It is a two-parter. The second part is tomorrow. We have also posted it onto the Fintech Genome to stimulate discussion there. You can find Amy’s profile on the Fintech Genome here.

While most insurance technology startup activity in the US is concentrated in health and auto, there are signs of life (pun intended) in the life insurance sector. Given the business model challenges reported in my April post, optimists will see upside and big commercial white space throughout the ecosystem.  People with the skills, smarts and guts to envision how life insurance could work can lead the sector in new directions.

Life insurers ignore the facts at their peril. According to the 2014 Insurance Barometer survey cited in AM Best – Buying Insurance: Evolving Distribution Channels, 83 percent of consumers would use the Internet to research life insurance before purchasing a policy if they had the option. While face-to-face contact with an agent remains the preferred purchase channel, nearly one in four said that given the option they would prefer to research and purchase online.  This year’s Insurance Barometer update reports an improving marketplace for life insurance, citing favorable millennial generation attitudes, and people’s willingness to share data in exchange for better product pricing.

A check-in on what is happening suggests three groups of potential innovation generators emerging:

This post assesses these the three sources of innovation. Tomorrow’s post will highlight players across these categories.

New entrants can change the game … and that will take time

A big beef with the traditional life insurance model is that it is not client-centric.  Nonetheless, even the most change-resistant executives will at least nominally agree that a focus on the client is now essential.

From that consensus, though, all bets are off with regard to incumbents’ ability to transform from a model where many of the industry’s own employees believe that the agent is the client, to one where the client (i.e., the person purchasing the insurance product) and his or her needs drive the business strategy.

It is almost impossible for a time-tested, embedded culture to accomplish a 180-degree pivot, so I am more optimistic that successful models of client-centricity will more likely come from outside.

New entrants who succeed will:

Start up companies will provide B2B carrier and distributor solutions, aiming at resolving automation, speed, productivity, technology, compliance and client experience pain points.

When I began to take a close-up look at the insurance industry four years ago, it was exciting to see the low-hanging fruit that could have positive impact with limited downside.  Carriers lacked digital and multi-channel capabilities, big data analytics, and technologies that had been introduced in consumer financial services at least a decade prior.

There are signs of progress. Entrepreneurs are honing in on specific problems, and executives are more open to outsiders. Consider as a starting point three buckets that are filled with pain: Agent, Client, and broader Capabilities.

Emerging agent solutions can successfully focus on reducing sales funnel inefficiencies especially in the areas of:

Startups offering B2B solutions will succeed by:

Carriers are innovating to connect directly to the people who own their products, and also to motivate agents to sell 

The goal of client-centricity is on top of the list for US life insurers. The challenge is translating what starts off as an intellectual abstraction into resource allocation, structure, governance, talent, prioritization, investment and daily tactical delivery… not to mention demonstrable financial impact that will satisfy boards and investors.

The pressure is on. Carriers are choosing a variety of areas for focus, and stepping beyond expense reduction to shore up results.  Commonly on the short list:

The business model and culture that enable results to happen, along with the distractions of running a business of such high complexity, will compete with carrier-led efforts.  Without restating the obvious challenges, two worth noting are:

A 2015 World Economic Forum research study entitled The Future of Financial Services concluded that while, “the most imminent effects of disruption will be felt in the banking sector … the greatest impact of disruption is likely to be felt in the insurance sector.” For entrepreneurs and investors who see the upside and can tackle the complexity, life insurance is territory that appears, at least for now, to have considerable reinvention white space.

Daily Fintech Advisers provides market development services to Fintech ScaleUps, Financial Institutions and Investors and operates the Fintech Genome P2P Knowledge Network.

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