Life Insurance Market Trends

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Life insurance markets have been evolving in recent years. It is critical for life insurers as well as actuaries to keep trends shaping the life insurance on their radars and take practical action that responds to these and put the insurers ahead of the curve.

From product angle, we have been hearing that life insurance is a death benefit and not a living benefit and so insurance is always sold not bought. This is the key reason why distribution is so important in insurance and why it takes a large portion of revenues from insurance. This is indeed a hard coded reality but if we only focus on what ‘is’, we lose sight of ‘what can be’ and how a change in our thinking can lead to actions that can change this situation gradually over the long run. 'Insurance is always sold, never bought' has become a self-fulfilling prophecy. A self-fulfilling prophecy is the psychological phenomenon of someone "predicting" or expecting something, and this "prediction" or expectation coming true simply because the person believes or anticipates it will and the person's resulting behaviors align to fulfils the belief. Instead, we should focus on highlighting the innate value of insurance which is that mutuality is at the heart of contribution by many to serve those few facing unfortunate circumstances which can happen to anyone of the pool members (sickness, death, disability, accidents etc.) that serves to strengthen the social contract between a society and its citizens by providing this protection net.

Key trends and how life insurers are adapting to these

One major trend is the shift towards more personalized and flexible policies. Insurers are increasingly using data analytics and AI to offer customized coverage and pricing based on individual health metrics and lifestyle factors. This allows for more accurate risk assessment and potentially lower premiums for healthier individuals.

Another trend is the growing popularity of hybrid life insurance products that combine death benefits with living benefits like long-term care coverage. These policies appeal to consumers looking for more comprehensive financial protection. Additionally, there's been a rise in simplified issue and accelerated underwriting processes, making it faster and easier for consumers to obtain coverage without extensive medical exams.

Digital transformation is also reshaping the industry. Many insurers are investing in online platforms and mobile apps to improve customer experience and streamline policy management. This includes features like digital policy applications, online claims processing, and virtual assistance for customer queries.

The integration of technology in the life insurance sector, known as Insurtech, is revolutionizing the way policies are underwritten, sold, and managed. Digital platforms and mobile apps are streamlining the application process, making it quicker and more convenient for consumers to obtain coverage. Artificial Intelligence (AI) and machine learning algorithms are being used to assess risk more accurately, leading to more personalized and competitively priced policies.

The potential solutions are to simplify the product, delivery mechanism, digitization, increasing awareness, focusing more on claims payment than on distribution costs and other ideas mentioned in this article. The mass market retail focuses on high frequency low severity claims and so these claims should be seen as a cost of growth rather than losses. As claims is the actual product and premium is just the promise, claims payment can be the biggest marketing driving factor for customers to see value in insurance and encourage others through word of mouth which can lead to exponential network effects. Claims when paid quickly and frequently generate more promoters than detractors and that in turn helps grow revenue and profits.

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But the approach has to be long term. All too often we see new initiatives launched with high expenses and generous benefits but high losses and expenses plus just 10% of projected sales materializing leading these initiatives to be closed within one or two years. Any new initiatives need to be frequently monitored using data analytics to keep underwriting losses in check and need to be developed without requiring high expense base. That way, even if sales perform exceptionally low, these initiatives can remain active in the background as seeds that might or might not sprout to become large acorn trees in the future. Insurance requires a long-term approach to succeed, not one or two years.

Insurance is all about thinking about worst-case scenarios, and it is uncomfortable to think about the bad times. Hence, insurer should strive to become a partner in both good and bad times by bundling life insurance protection with other products like health insurance, wellness, telematics, or other financial products like payments, banking, saving, buying assets like cars or houses. The digital technology aspect should be used to make insurance as seamless as possible. There shouldn’t be a long list of forms to fill and a lot of bureaucratic hurdles to cross. Flexible on-demand coverage that is highly price effective and rewards the good risks is what a number of insuretechs are providing to the millennials by listening to their expectations. But it should also not be a micro-transaction hell so that comprehensive protection is not given to customers.

Additional Core Trends

There are various additional core trends reshaping life insurance sector:

• Shift to younger demographics: Insurers are increasingly targeting millennials and Gen Z consumers, who traditionally have been underserved in the life insurance market. This has led to more digital-first approaches, simplified products, and marketing strategies that emphasize financial security and lifestyle protection rather than just death benefits.

• Focus on wellness and prevention: Many life insurers are incorporating wellness programs into their offerings. These programs often use wearable devices and health apps to track policyholders' fitness activities, sleep patterns, and other health metrics. Insurers may offer premium discounts or other incentives for maintaining healthy lifestyles, which can benefit both the policyholder and the insurer by reducing health risks.

• Increased emphasis on financial education: Recognizing that many consumers find life insurance complex and intimidating, insurers are putting more effort into financial education. This includes providing online resources, interactive tools, and personalized advice to help consumers understand their coverage needs and options.

• Environmental, Social, and Governance (ESG) considerations: There's a growing trend of integrating ESG factors into life insurance products and company operations. This includes offering "green" policies that invest premiums in sustainable projects, as well as insurers themselves adopting more environmentally friendly practices and socially responsible investment strategies.

• Micro-insurance and on-demand coverage: To cater to changing consumer needs, some insurers are offering micro-insurance products with lower coverage amounts and premiums, making insurance more accessible to a broader range of consumers. Additionally, there's experimentation with on-demand or pay-as-you-go life insurance models, allowing consumers to activate coverage only when they need it.

• Integration with broader financial planning: Life insurance is increasingly being viewed as part of a holistic financial planning approach. This has led to more integration between life insurance products and other financial services, such as retirement planning, investment management, and estate planning.

• Insurers are also leveraging big data analytics to gain insights into customer behavior and preferences. This data-driven approach allows companies to tailor their products and marketing strategies, enhancing customer engagement and satisfaction. Additionally, blockchain technology is being explored for its potential to increase transparency and security in policy management and claims processing.

• Regulatory changes continue to shape the life insurance landscape, with a focus on enhancing consumer protection and transparency. Governments and regulatory bodies are implementing stricter guidelines to ensure that insurers provide clear and accurate information about their products, fees, and claims processes.

• These changes aim to build consumer trust and confidence in the industry, ensuring that policyholders fully understand their coverage and rights. Insurers must stay abreast of these regulatory developments and adapt their practices to remain compliant while maintaining a competitive edge. Financial reporting standards like IFRS17 and from US regulator’s LDTI (Long Duration Targeted Improvements) are recent examples of such push from compliance to improve life insurance financial reporting.

The Grey Wave

Life insurers are increasingly focusing on the youth to sell their life insurance policies. This is a much needed initiative to bring the youth into the financial inclusion net as it’s never too early to save or plan for contingencies. However, life insurers should also keep their eyes on the prize of the old-age segment which is from 60 years and above. With life expectancy increasing continuously worldwide, chronic burden of diseases increasing (we are living longer but living with chronic health problems not in good health) and falling birth rates, the old age segment will start dominating the financial landscape within a decade or two. And products for this key segment suffers from a lot of drawbacks that insurers need to overcome over time then. Long term care coverage, critical illness riders, assisted living and so on products need to be comprehensive, easy to understand and accessible enough to fulfill financial life insurance requirements after retirement instead of seeing this segment as a least attractive segment. The life insurers that will ride this silver or grey wave will be those who unlock considerable growth in the future.

Impact from COVID19, climate change and Wellness on life insurance industry

The COVID-19 pandemic has heightened awareness of mental health issues, leading to a greater emphasis on mental well-being in life insurance policies. Insurers are expanding coverage to include mental health services, such as counseling and therapy, recognizing the importance of comprehensive health support for their policyholders.

Green life insurance policies, which invest premiums in environmentally sustainable projects, are gaining popularity. Additionally, insurers are being more transparent about their corporate social responsibility (CSR) initiatives, showcasing their efforts to reduce carbon footprints, support community development, and promote ethical business practices.

A growing trend in the life insurance industry is the integration of health and wellness programs into policy offerings. Insurers are incentivizing healthy lifestyles by offering discounts and rewards to policyholders who engage in regular physical activity, maintain a healthy diet, and participate in preventive healthcare measures. Wearable devices, such as fitness trackers, play a crucial role in this trend, providing insurers with real-time data on policyholders' health habits.

This focus on wellness not only benefits policyholders by encouraging healthier lifestyles but also helps insurers reduce the number of claims, ultimately lowering costs. It reflects a shift towards proactive risk management, where the emphasis is on preventing health issues rather than merely providing financial protection after they occur.

Moreover, there is a growing recognition that mental health is closely linked to physical health and overall quality of life. By offering mental health support, insurers can help mitigate the impact of stress, anxiety, and depression, which can, in turn, reduce the likelihood of severe health conditions and associated claims.

Conclusion

The life insurance industry in 2024 is characterized by innovation, customization, and a heightened focus on health and well-being. Insurers that embrace digital transformation, prioritize customer-centric approaches, and align with evolving consumer values are well-positioned to thrive in this dynamic environment. As trends continue to evolve, the industry will undoubtedly face new challenges and opportunities, shaping the future of life insurance for years to come. The insurers that are ready to take on these challenges and actively lead in innovation will secure their future in the industry.

At its most basic, insurance is a promise where customers trust the insurer to cover their risks. The need for this risk mitigation insurance will always exist but it’s not clear whether current insurers will exist or not if they continue to ignore technology and needs of their largest emerging customers of millennials. Technology shouldn’t be used to increase distrust like making a shiny new app but not changing underlying product and operation features and so on. Technology is a tool that can either bridge the gap between insurers and consumers or widen it, depending on its application.. It’s hope that this article furthers the dialogue that exists to reduce the gap between insurers and their target segments.