ReFocus the Life Insurance conversation around the impending longevity change

title

Last week I attended ReFocus 2018, Life Expectancy and Longevity: Beyond the Numbers, hosted by the American Council of Life Insurers (ACLI) and the Society of Actuaries (SOA).

It was a great conference, gathering 732 participants (18% of which came outside of the US).  This was the largest number of attendees the event had ever had. The event took a deep-dive look at the past, present and future of Life Insurance from the lens of the C-Suite, technology and regulation.  

The conference started with opening remarks from Bill Press of CNN and Governor Dirk Kempthorne, President and CEO of ACLI.  

Mr. Kempthorne set a great opening tone to the conference by saying our industry needs to ‘anticipate revolutionary change’ rather than just ‘innovating.’  

He described that approximately 70% of the ACLI members have been serving their customers for over 100 years and that in order to continue to do so then these carriers would need to address their customers’ needs for revolutionary change.  He broke this down into 3 primary areas:

  1. Connected global population – with mobile devices and the internet, people are connected more than ever before.  He provided many examples how this has revolutionized emerging markets like Africa.
  2. Customized consumer experiences – similar to the above, the internet has changed the way that companies interact with their consumers and they expect a more tailored, customized experience in whatever industry they purchase products and services from.
  3. Longevity – the biggest impact/challenge for the Life Insurance industry will be on the increases in human life expectancy.

While many of the topics were specific to the US (primarily on the regulatory side), many of the concepts and ideas discussed can be applied globally.  

In this week’s article, I summarize this event by looking at:

  • Longevity and the retirement crisis in America
  • Why education is just as important as engagement
  • Why distribution of complex products will still require a human
  • Macro trends that are impacting the Life Insurance industry

Longevity and the retirement crisis in America

As the theme of the conference was around Life Expectancy and Longevity, there was a lot of debate about what this means for our industry.  

The initial focus was on the impending retirement crisis that many Americans will face (while the conference was focused on the US economy, I would argue that this is an issue that many will face globally).  

The fact of the matter is, retirement will not be the same as it is today.  

c-suite

The first three panels of the event featured a set of current CEOs, past CEOs and current CFOs

Barry Stowe, Chairman & CEO, Jackson National Life Insurance Company painted a great picture of this early on in the conference.  

He stated that “Conventional thinking is ‘I will reach age 65 and retire’…however, the generation of people who had this idea traditionally retired at 65 and died at 72 and had a defined benefit scheme.”

He’s right.  This is the traditional belief and we are not living in a traditional world anymore.  

The chart below was shared by Mark Winham, COO, Wamberg Genomic Advisors during his presentation (more on his presentation later in the article)

Screen Shot 2018-03-14 at 1.29.29 PM

Source of above statistics

As people live longer lives, they will need more money during their retirement.  

Carolyn Johnson, Chief Executive Officer, Annuities & Individual Life, Voya Financial, shared that ‘the median savings for retirement by individuals in the US is $75,000 and that this is an emerging crisis.’  

For most Americans, they rely on primarily two sources for their retirement – Social Security and their 401(k).  The problem with both of these is that the future of Social Security is unclear and there is a maximum amount that individuals can contribute to their 401(k) (which is based on how much the government is willing to let you contribute without paying taxes, not the amount that one needs to save for retirement).  

Mr. Stowe gave a great example of how individuals currently buy Medigap as a supplement to Medicare.  He argued that individuals need to start looking at a similar supplement to Social Security.

Annuities have traditionally been one of these solutions.  As someone who used to sell them personally, I would agree that these are a great product to help with this impending crisis and there are likely to be more products developed in the future that can help too.  

All the panelists vehemently agreed that the Life Insurance industry is well positioned from a capital and risk pooling standpoint to give people guaranteed income in retirement, but that we also need to step up our game and give them tools and education to help manage it.

Why education is just as important as engagement

While having the right products to tackle the retirement crisis mentioned above are important, so too is the engagement and education that we in our industry provide to customers.  

On engagement, the topic of technology and Insurtech was discussed plenty.  

Interestingly  most of the panelists from the C-Suite as well as those who presented technology solutions that could help, all agreed (to my personal delight) that the education for customers is equally, if not more important.

innovators

Panels/presentations by innovators from Wamberg Genomic Advisors, Eko Devices, Hearsay Systems and the B3i Initiative

Again, the focus of engagement is two fold:

  1. How do we engage customers and policyholders in a friendly, convenient and comfortable way
  2. How do we educate potential customers on the need of insurance and savings

Phil Waldeck, President & CEO of Prudential Retirement (a unit of Prudential Financial, Inc.) stated, ‘The industry might be great at math and science of investing income and longevity protection, but we are not so great at digitally engaging, driving those costs down and making the experience easier like Amazon.’

He expanded on this point more with me after the panel by sharing the following:

‘By expanding our engagement with clients, we aim to learn more about them and develop a deeper connection with them, especially online, to help these individuals achieve financial well-being.  For the last several years, for example, Prudential has been collaborating with top researchers of human behavior to better understand the unconscious habits that can jeopardize financial security, and develop tools and resources that motivate people to take action to improve their financial wellness and achieve better outcomes. In particular, these insights and tools help clients better manage their budgets and debts, including student loans, and help them plan more effectively for unexpected emergencies. All this builds on the work that Prudential has done for many years to work closely with 401(k) plan sponsors to help workers and retirees achieve financial wellness.’

Jackson National and Voya Financial described slightly different approaches, whereby teaching financial literacy at a young age is the key to building the habits from the start.  

Mr. Stowe described both the partnership that Jackson has with Junior Achievement as well as it’s extension of the Cha-Ching program which has been a huge success through Prudential Corporation Asia (a program started during his time out there).   

Voya also has a partnership with Junior Achievement.  Ms. Johnson described that these sorts of programs help to provide senior leaders with ‘insights of future buyers of insurance’.

For me personally, it was very refreshing and inspiring to hear such a focus on education.  I personally feel that the focus of many Insurtech initiatives is simply on engaging the customers more and giving them a quicker, more efficient experience and not so much on educating them on what they are actually buying.  

The lack of understanding of Insurance products and what they cover is still a huge problem for our industry.

The rubber really hits the road in Insurance during the claims process.  If individuals don’t understand what they are buying upfront, then when the time comes to claim, or in the case of annuity take a withdrawal, they could be in for a massive surprise.  

This led to a number of discussions around the importance of the agent/intermediary in the process.  

Why distribution of complex products will still require a human

A few months back, I wrote an article entitled Helping rather than replacing the Insurance Agent may be the Insurtech game plan.  

Having been an agent myself as well as a recent purchaser of Insurance through an agent, I believe the agent is still going to play a massive role in the years to come.  

However, in the digital age, agents need to be equipped with the right tools that will help them to engage, connect and educate with their customers in a more on-demand and efficient format.  

Clara Shih, CEO and Founder of Hearsay Systems gave a great presentation on how digital engagement and buying products has evolved over the past few years with Facebook, Google and Amazon.  She described WeChat as being one of the most interesting use cases in Insurance and payments, entailing that WeChat is the ‘Primary payment method for 87%+ users both both offline and online purchases.’  

The way people are engaging with their providers is changing and the expectations of customers are changing too.  

She described that individuals are willing to pay a premium for experience, values and expertise.   For agents and financial advisors, the expertise aspect is going to be more important than ever when individuals decide whether to purchase direct from a carrier or through a financial advisor or agent.  

She provided some tips below which carriers can adopt from tech companies in regards to their distribution methods to consumers.

5 things

C. Robert Henrikson, Former CEO, MetLife, Inc. echoed this sentiment in a conversation I had with him after his panel and said that ‘we need to let them tell us what they want’.

He sees that there is a specific demand/need for products such as mortgage, auto and health Insurance, however many (especially Millennials) do not see the need for Life Insurance.  For this population, it is hard for them to see the immediate value and they need to be educated on the need for it. This can be done through education and agents, but it needs to be done in a way that is most comfortable for them. The only way that we as an industry will know this is by actually asking them, rather than making an assumption of what they want.

Startup

The conference was primarily attended by members from incumbent carriers and reinsurers.  However, I also had the opportunity to catch up with a few Insurtech start-ups to get their view on the topics being discussed during the event.  

Jane Wang, CEO of Optimity shared with me ‘from veteran CEO of MetLife to current CEO of Voya, there was ubiquitous support for customer-centric value propositions from Insurtech start-ups (like Optimity). There were heavy endorsements from leaders of direct carriers and reinsurers alike, for adopting digital technologies that work alongside with agents to enhance sales, improve policyholder experience and deliver more value…especially on health and financial wellness.’

Bryan Padgette, SVP of Sales at Sureify echoed similar comments by saying ‘It’s exciting to see the focus on leveraging and improving experience engrained throughout the topics.  The topics of discussion here validate the work we are doing (at Sureify) and demonstrate how much impact technology can have in delivering more value to carriers and policyholders alike.’

All of this is great and focuses on the micro in terms of how we do business.  There were also a few macro trends mentioned throughout the conference that are important for our industry to be aware of.

Macro trends that are impacting the Life Insurance industry

Aside from the points mentioned above, the four macro trends that I noted during the conference that will also impact the Life Insurance industry are:

  1. Blockchain technology
  2. Genomics
  3. Reinsurance
  4. Regulation

On Blockchain technology

blockchain

The beginning of the panel on the B3i initiative had the survey above (which was answered by the audience participants).  It was interesting to see how blockchain was being discussed within organizations.  

B3i members Paul Meeusen, Head Distributed Ledger Technology, Swiss Re, Ed Deuser, Technical Architect & Developer, RGA & Andrew Flasko, Global Chief Technology Officer, SCOR discussed some of the updates of the initiative.

They shared that many of the use cases being looked at through the initiative are more focused on B2B (mainly in terms of efficient, secure transfer of data and fraud detection).

I was most inspired by Mr. Dueser’s comment of the ‘network effect’ that the B3i initiative is having and seeing ‘everyone coming together to solve systemic issues that industry faces…  regardless of what do, that underlying fact is very impactful.’

I would agree with that whole-heartedly and am very excited to see some of the outcomes that come from this initiative.  

On Genomics

genomics

Tom Wamberg, CEO, Wamberg Genomic Advisors & Mark Winham, COO, Wamberg Genomic Advisors gave a very interesting presentation on the increased impact of genomics in our society.

I must admit, I am still learning a lot about this, but their summary of the two core applications of Genomics in Life Insurance was quite compelling:

  • ‘The first is to improve medical treatment of disease. This represents an immediate opportunity for the life insurance industry; extending longevity and delaying claims incidence.’
  • The second is to predict disease propensity. This represents a potential threat to the life and health insurance industry. Anti-Selection!’

This is an area for us all to pay close attention to (not just for our industry, but also our own health!)

On Reinsurance

Reinsurance was a topic discussed by all panels as well.  All agreed that reinsurers play a crucial role in solving this problem.  

Mr. Henrikson gave a great summary of why this is the case by saying ‘Primary carriers look to reinsure for intellectual capital and have a better understanding of the underwriting concerns that others might not have.’  

Reinsurers have access to data that many of the primary carriers don’t have (because they serve many carriers).  They can take this data and other sources of data from the primary carrier (on the specific customers) to give a much more integrated and customized customer experience.   This can help in not only the experience but also the risk and assessment process.

I mentioned in my article about Softbank buying Swiss Re why I thought reinsurers were so active in Insurtech.  The overwhelming response from these C-Suite panels on the importance of reinsurance has slightly changed my views on this and I can see why some reinsurers can still operate in a similar style that they are currently. However, I still feel as if they will need to level up a bit and offer new strategies and solutions to the carriers they work with.

On Regulation

Daily Fintech is not a political site and this section is not intended to be political. However, I did find the presentation from Andrew Friedman, Principal and Founder, The Washington Update to be very interesting and apt for the overall conversation too.

Mr. Friedman shared that individuals need to ‘be wary of tax volatility (taxes change year to year) and need to have products that help to modulate income, especially in retirement.’  He shared that the Life Insurance industry and the products that we provide, both in terms of pure Life Insurance as well as annuities can help with this.

Summary

Having been to a number of conferences, I found this one extremely educational and close to home.  

It was inspiring to hear a myriad of topics being discussed around Life Insurance and seeing how they all connect together.

At the end of the conference, I could understand why Mr. Kempthorne stated in his opening that carriers need to ‘anticipate revolutionary change’ rather than just ‘innovating.’  

Engagement, education and macro trends are having such a massive impact on the Insurance industry as a whole.  

In the personal lines space, Auto and Home are being transformed by telematics, connected devices and autonomous vehicles.  

In my mind, these are small changes in comparison to looking at how we tackle the problems and opportunities we will face when individuals start living to 150 years old and using genome sequencing to tackle diseases.  

There are plenty of opportunities to enhance, innovate and even disrupt Life Insurance now and into the future.  I am very excited to see how the future of this unfolds as we are only at the beginning of this ongoing journey.

Stephen Goldstein is an experienced Insurance executive and Insurtech dealmaker with a core focus on growing revenue, launching go to market initiatives and advising industry leaders.

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