Actuaries will have to adapt to survive in the digital age, say Eoin Lyons and Matt Oldham
If Amazon sold life insurance... it would probably be very successful at disrupting the industry, thanks to the company's strong ability to connect with its customers.
Most life products available today - through good product development and regulation - are relevant to customers' needs. However, in order to understand the benefits, a customer must decipher jargon-heavy policy documentation, and have the time and patience to go through the long application process.
At a recent industry conference, a major insurer was congratulating itself for reducing the application process for one of its policies to 20 minutes. That may well be an improvement, but it is so off the mark for its target audience, who could organise their social life, catch up with the news, buy a new outfit and research their next weekend away in the same period of time.
The concept of customer-centricity is not new or unfamiliar to consumers, but it seems to be anathema to a protection industry that puts distribution at its core. This may be a factor in the low penetration of products such as income protection in the UK, where only 10% of workers are covered (the 'protection gap').
There are currently 16m mortgages in the UK, but only 8m are protected - and that number is dropping. How much of this could be solved if insurers were just a little better at looking at life products through the customer's eyes?
Millennials now make up the largest part of our workforce, and yet it is this segment of the population that the industry fails to engage. To appeal to millennials today - and their children tomorrow - we need to look at the delivery of protection products. The way we presented our products to their parents is unlikely to be effective for people who do not simply go online, but live online. Almost 50% of millennials want to do their financial planning on a smartphone, 85% would choose web chat to communicate with a financial institution over any other channel, and the only relationship in which they would rather call than message is with their parents.
"Millennials expect their customer experience to be seamless at every node," Deep Patel wrote in Forbes, July 2017. "The simpler and more intuitive the experience, the sooner the end user is likely to repeat that process - establishing brand loyalty. Focusing on the user experience of a product garners exponential returns in user retention."
The Amazon model
The chances are you have bought at least one product through Amazon. In fact, it is not chance at all, but the culmination of the efforts of a business that is actively looking for you. Through tracking activity and data capture, Amazon delivers multiple personalised adverts relating to articles you are interested in purchasing, convincing you to make the purchase. Financial services companies have incredible richness of data, but don't seem to use it as effectively as businesses selling, for example, razors or bicycles.
On Amazon, a customer can buy products at point of purchase using 'one click', because the relevant information has previously been stored in the system. This makes it easier, and therefore more likely, for the customer to buy a product - and sometimes even pay a little more. If you think this smooth customer journey is impossible to achieve for complex products such as life insurance, consider this: someone applying for a mortgage provides virtually all the information required to generate a life insurance quotation. The mortgage provider knows basic details about the customer, their creditworthiness, the property being bought and the size of loan they are taking out. Imagine how much easier it would be to sell this customer a life insurance policy, on the same internet window, by showing a pop-up and providing indicative quotes for a suitable life insurance product - without the need for them to key in much additional information. Furthermore, the additional data can improve profitability, since there is a strengthening correlation between credit score and health outcomes.
We have seen both traditional and fintech mortgage providers offer life quotes at relevant points within the core mortgage journey. The additional data necessary to provide more than an indicative price, such as smoker status and body mass index, are incorporated in an engaging way to give a reliable price, and existing digital tools can be used to complete policy fulfilment efficiently. We expect to see this model appearing more in online journeys on property aggregator websites and estate agents for the purchase and rental of properties. It is already well established for some general insurance products like travel, home and electronics.
To appeal to consumers who were born in the digital age, traditional protection players will need to find ways to collaborate with bright young things and their engaging ideas. Actuaries will need to speak their language and solve their problems.
Designing products that are relevant and that protect millennials - who generally own fewer assets than their parents and are more likely to work in the gig economy - is an exciting challenge. New skills will be needed in order to profile and model mortality using new types of data that have been gathered using modern methods.
Complex algorithms, data science, and automation through digital tools are changing the day-to-day working lives of actuaries. The challenge of disrupting the protection market by connecting risk with capital in new ways creates opportunities for the profession to get involved in innovation.
Technology has not replaced surgeons, but it has given them tools and techniques that have allowed them to develop new therapies and provide better outcomes. Something similar applies to the actuarial profession. Integrating sophisticated digital rules engines into the customer journey will deliver more automated eligibility and rating results. The actuary will need to learn how traditional and non-traditional data can be used.
Moving underwriting and claims technology away from the traditional advice setting and towards different digital 'moments of truth' will require analysis on how changing cycle times affects product development, reserving and, indeed, anti-selection.
Customers will already pay a premium price for 'buy it now' or rapid fulfilment. Future actuaries will not deliver competitive advantage through pricing or product, but by using technology to find and price risk when people are engaged and thinking about it. Insurance innovation will also be about when and how, not just what.
The key to the emergence of scaled solutions is their adoption by banks - both heritage and challenger alike. As banks return to promoting products, they will leverage their customer base, capital and brand while also using relevant individual digital offers at the 'moment of truth' in order to protect customers.
Market disruption is an overused phrase, but there are plenty of sectors where technology has enabled significant market growth, with businesses moving up the value chain by providing 'one and done' solutions across a range of products and services. Take travel, for example: we do not hesitate to book flights, hotels, car hire and other accessories within the same online journey. This may save us time or money, while the seller reduces the cost of sale for products. High street travel agents still exist, but now focus on more specialised or bespoke holidays that command a higher margin for the retailer.
It is likely that smaller, technology-charged businesses will challenge the norm in the protection market. The winners will use data already gathered to connect consumers with protection at a point when it is relevant for them. Large-scale players such as banks and insurers may skip a step and acquire innovation through their accelerator programmes or through investment in tech start-ups. The losers will continue to serve up analogue products in a digital age.
Will the actuary of the future be a programmer, a user experience and behavioural economics expert, or a probability modeller? Trick question - they will probably need to be all of the above.
Eoin Lyons is chief executive at the OPAL Group
Matt Oldham is group commercial director at OPAL Group, including his role as chief executive of Synergy Financial Products