The current uncertain economic environment has consumers reevaluating all kinds of expenses, including insurance and investments. As more financial services are transacted online with increasing ease, it has never been easier to switch providers.
Together, these circumstances are putting pressure on the insurance and annuity industries to constantly find new opportunities for revenue generation and customer retention and satisfaction, making for a more dynamic and complex business environment.
Cost reduction and customer loyalty opportunities can be found for firms that are prepared to invest in their processes, products and promotion. Firms that fail to make the necessary advances may find themselves facing slowing growth and fleeing customers.
In our view, firms that modernize to meet customers where they are, and take advantage of embedded opportunities, reexamine their legacy products, and leverage the high-rate environment, will be best placed to succeed. Below we identify six trends that have emerged in 2023 and will remain priorities for insurers, and also examine how firms can meet challenges and demands to ensure 2023 is a banner year.
With easy self-service options and market disruptors like Lemonade, consumers can buy many types of insurance online, but that self-service experience often comes to a halt when consumers look to purchase life insurance. Life insurance lags behind home and auto when it comes to purchasing online, but this year, insurance companies will attempt to close that gap quickly by focusing on reducing the time to issue.
Insurers have moved to sunset their legacy systems in favor of rules-based applications to decrease dependence on underwriting. Insurance companies are moving towards creating simpler products that lend themselves to simplified issue processing as they work to eliminate costly manual underwriting entirely, issuing a policy within minutes rather than days.
Our take: companies that successfully sell online benefits will drive down costs and increase efficiency.
Insurers are also facing challenges with customer frustration during the claims process. The most popular claims related complaint is “too much paperwork”. The claims process is also often emotionally charged for customers, making it even more delicate for providers. One misstep in the process can quickly damage a relationship, causing the client to move to a competitor. When we polled US policyholders for our 2023 survey on consumer attitudes to insurance, over 40% of respondents cited convenience, accessibility and user friendliness among the most valued features of insurance companies’ apps. This underscores an industry need for quick, seamless digital interactions.
Our take: insurers not only need to streamline the process, they also need engage claimants where they live digitally with apps that provide a seamless experience on tablet or mobile.
Instead of reinventing the wheel when it comes to data, insurance companies will creatively leverage available information, primarily through third party partnerships. For example, integrating medical information from other companies can accelerate the underwriting process and cut time to issue.
For continued risk monitoring after issue, insurance companies can incorporate data from an insured’s wearable fitness tracker. Insurance companies may even forgo the use of measured data in favor of predictive analytics to measure risk.1
Our take: Integrating data is absolutely necessary to provide the seamless experience consumers have come to expect.
The pandemic and its accompanying economic challenges have proven that consumers must protect themselves from financial calamity. Despite the mandate for action, there persists an alarming financial literacy gap, particularly concerning annuities. In a 2020 LIMRA survey, over 60% of consumers said they wouldn’t buy annuities because they do not understand them and do not know which type to buy. Moreover, 40% of consumers surveyed trust neither insurance companies or their agents.2
The initial challenge for life and annuity companies is educating these unserved consumers in a way that presents product offerings clearly and understandably. The greater challenge is overcoming cynicism; how to give consumers a reason to trust despite daily headlines encouraging them to doubt.
Our take: The life and annuity companies that successfully educate and, more importantly, build a relationship with their clients are likely to turn an underserved market segment into a loyal customer base.
Annuities have looked more favorable since the S&P entered a bear market in June 2022. The high interest rates over the past year have made fixed and fixed-index annuities particularly inviting. LIMRA predicts fixed immediate annuity sales will increase through 2026. If interest rates remain high as expected through 2023, fixed annuities will enjoy brisk sales. However, this growth could cannibalize variable annuity sales, especially if the market experiences a steep decline.
Our take: Annuity companies have an opportunity to refresh their variable offerings by adding riders to take advantage of high interest rates, such as a living benefit or guaranteed death benefit.
Moving old products to a modern PAS carries its own costs and risks, but there are key benefits to the efforts. The number of systems to maintain is reduced, lowering costs. Fewer systems to learn enables each employee to support more products, allowing for greater flexibility in staffing. A modern system empowers speed to market for new products. Finally, a standardized PAS also facilitates a standardized interface for distributors, eliminating the need for distributors to have different processes for carrier interaction based on product.
Our take: As legacy blocks of business pile up, along with the systems to maintain them, life and annuity companies will examine both more intently to unlock value.
The SECURE 2.0 Act of 2022 implements several measures to protect retirement income. One of which is increased Quality Longevity Annuity Contracts (QLAC) accessibility in defined contribution plans; allowing participants to devote a greater portion of their retirement savings to guaranteed income. Previously, participants’ QLAC purchases were limited to the lesser of $125,000 or 25% of their 401k balance.
SECURE 2.0 eliminates the percentage limit and raises the dollar limit to $200,000, to be raised periodically based on inflation.2 The act further includes provisions for increased plan access, employer contributions for student loan payments and liberalized distribution rules.
These rule changes create opportunities for life and annuity companies to engage with an otherwise ineligible market segment, increasing sales and assets under management. The changes also enable firms to keep participants' assets under management longer, increasing profitability per customer. The challenge is to get existing plans compliant. New rules require new or modified transactions, and the accounting and tax changes that accompany them, to be integrated into PASs. Policies and procedures must be updated, and staff must be trained. Prospectuses, statements, and forms must be revised.3
Our take: While the SECURE Act 2.0 is certainly a boon for retirement plan participants, it presents both marketing opportunities and compliance challenges for life and annuity companies administering those plans.
1 Memmo, F. & Conturso, N. (2014) Streamlining Underwriting Life Insurance Operations [White Paper].
2 H. Stout “Education and Awareness Will Increase Annuity Sales” https://www.thinkadvisor.com/2020/12/22/education-and-awareness-will-increase-annuity-sales/ (accessed 17 April 2023)
3 Loma, Current Market Conditions Underscore the Value of Annuities - Today and in the Future [website], https://www.loma.org/en/news/marketfacts/2023/current-market-conditions-underscore-the-value-of-annuities/
4 Metlife, SECURE 2.0 Makes Longevity Insurance More Accessible [website], https://www.metlife.com/retirement-and-income-solutions/insights/secure-2-0-makes-longevity-insurance-more-accessible/ (accessed 10 February 2023)
5 Wealth and Asset Management (2023) 2023 SECURE Act POV, Capco