The pace of change in the life and health insurance sectors

The pace of change in the life and health sector is determined largely by two things. On the one hand, you have insurtech's and innovators, creating lots of novel and interesting ideas. On the other hand, we have an industry which is highly regulated and but regionally quite diverse. And you have this tension where the innovators are trying to push their latest ideas, and the regulation and complexity acting as a barrier to adoption.

The important thing for innovators to recognize is that the newest idea isn't necessarily an idea that will be readily accepted by the industry. And that's where the pace of change comes into play. We must think about the ideas that are sufficiently advanced that they’re going to be exciting and interesting, but not so advanced that they can't be accepted. For example, if they break regulatory constraints, or they introduce too much complexity or risk. 

This is a big challenge. 

The consumer has also got to be comfortable with accepting the new idea. 

One of the most interesting things about life insurance as a product is that it's purchased once and remains with you for your entire lifetime. So, the consumer buys the product and hopefully lives another 30 - 40 years and it remains their product right up until they die. 

What doesn't happen as often is that the consumer switches product, or from one life insurance carrier to another, and certainly as often as they would with other types of products in other industries.

This characteristic acts as a barrier to disruption - but things are changing.  

Life insurers are looking at the life cycle of underwriting, not just at the upfront stage around application processing, but right through from application into the period leading up to a claim. 

If there is innovation in this area it could upset the historic stability enjoyed in the sector and expose the industry to a much faster pace of change.

The point here relates to the consumer, making it easier for them to understand their choices and to reduce the complexity of life insurance products so switching suppliers may become a part of the normal routine of life insurance, which it isn't today. 

And when that changes, it is likely the pace of industry change is going to pick up dramatically. 

What insurers want from insurtech's is help with their businesses and, primarily, to help them sell more products to support business growth. 

They want to increase their market share and to do this they're focusing on the unique market segments that they're targeting. So, they really need to engage with their consumers.

Hence, the consumer experience of buying life insurance affects market share. What we see is that many insurers are looking to enhance the consumer and distributor experience of buying insurance to make it faster and easier for consumers to buy their life insurance products.

They also want to make it easier for distributors and agents to sell products. If they can attract more of the agent community, they will sell more of their insurance products. So, they're hoping to use the overall user experience to drive product sales.

The key metric around consumer experience is straight-through processing (STP) rates. These indicate the rate at which the technology can make the underwriting decision, with no manual intervention. 

In the past, the underwriting decision was made by humans but increasingly it's done by machines and the rate at which it's done by machines is a key performance indicator for how much the consumer experience is improving.

For example, in the past, it may have taken several weeks to make an underwriting decision, but with a machine-based decision, that timeline would be reduced to hours or even minutes. It's reducing the time taken by using a machine and the higher the percentage of machine-based decisions that are made, the faster and better experience it is for the consumer.

Consumers want fast decisions and insurers want to make that happen by delegating more decisions to machines.

To make that happen, insurers need to overcome some obstacles around machine-based decisions such as the internal risk tolerance level the insurer has - how much does the insurer trust the machine? 

The only way to overcome that is to ensure that decisions are explainable. Up to now, it's been possible to do that graphically by displaying decision trees, but now it's become more challenging with AI. 

Insurtech's and data scientists must work on ways to make explainability something that insurers get comfortable with so they can overcome the risk tolerance associated with AI-based decisions and make the leaps in straight-through processing that they're looking for.

It's a complex area, but insurers want to sell more product, engage more consumers, and engage more agents by making automated processes that have high STP, thus overcoming risk concerns, both within their own companies and regulators. And that’s at the cutting edge of where the change in the sector is.