Future of insurance: Life and annuities

As featured on BusinessMirror:  Future of insurance: Life and annuities

The life insurance and annuity (L&A) industry can create significantly more value for both shareholders and consumers, but only if it can motivate millions of people to understand and fully embrace these products and their potential benefits. The industry is evolving, and insurers will need to navigate a sea of change including demographic shifts, technological innovation, resource challenges and regulatory demands to engage with these new consumers, and deliver a personalized experience tailored to their specific needs.

Organizations that encourage the integration of technology and tailored messaging will leave behind an industry that traditionally has been relatively slow-moving in adopting innovation. And non-traditional entrants, flush with talent and unburdened by lethargic legacy systems and old-school mindsets, have an opportunity for their voice to be heard on the right channels at the right time, to better serve customer needs while remaining relevant and competitive. So, what does the future of the life and annuity landscape look like?

In this latest report, KPMG spoke with over more than 425 industry decision-makers to discuss the key signals of change across the industry, from recruiting and underwriting to distribution and claims handling. We detail how leaders in the life insurance and annuity space can better serve customers and gain lasting competitive advantages, by knowing where they can play and how they can win and describe four business models likely to characterize the industry in the years ahead.

In the Philippines, life insurance and annuities play crucial roles as financial products for individuals. Many Filipinos perceive life insurance not only as a means of protection but also as a form of savings or investment due to the cash value it offers, which can be utilized for loans or as collateral. This makes life insurance an appealing choice for long-term wealth accumulation. Conversely, annuities serve as a reliable income source for retirees, particularly in a country with limited social security benefits. By providing regular payments throughout the annuitant's lifetime, annuities help mitigate the risk of depleting savings in old age.

The COVID-19 pandemic is also one of the drivers of this mindset shift that resulted in an increased interest in life insurance and annuities in the country. The pandemic has highlighted the need for financial protection in the face of unexpected events. Many Filipinos are now more aware of the importance of having a safety net to protect their families and loved ones in the event of untoward incidents.

Consumers’ interest in life and annuity products rose during the pandemic, but signals of change across the industry are starting to show the need for fresh approaches to seize new opportunities.

Consumers looking for life policies and annuities online expect a personalized experience and increasingly compare this to other online shopping purchases. The "old-school" advisor-led sales model will likely feel increasingly alien to people entering the marketplace for the first time, but human interaction and empathy at the right moments remain essential, meaning the advisor model should evolve.

Leading insurers are developing one-stop shops for end-to-end protection and services that fit the needs of customers at every stage of life, retaining them as customers for decades. These players will likely look to feature new actuarial and pricing assumptions, accounting standards, and channel selling strategies for market opportunities across new areas of focus as the industry evolves.

As consumer preferences and shopping behaviors evolve, new partnerships and evolving technology may disrupt distribution channels. Large non-insurance digital marketplaces are entering the market, and purchases of life insurance products are becoming embedded within the wider purchase ecosystem.

Regulators are likely to respond to the demands of investors, including some of the largest institutional and mutual funds, that insurers report more fully and uniformly on their ESG standards. Regulators may also see longer life expectancies as new opportunities to impose requirements that meet societal needs.

Leading insurers are investing in emerging digital technologies to achieve strategic business objectives. These organizations can begin to generate value as they modernize their data architecture with the ability to integrate real-time data from multiple sources to accelerate a shift towards fully automated continuous underwriting and a new wave of personalized offerings.

Keeping pace with consumers' needs or the advances of leading competitors will be fundamental. Leading insurers will likely look to review and transform business models and organizational cultures to improve processes, product development, and portfolio management in different ways. In the years ahead, we expect business models to fall into four main categories:

A.    Embedded solutions

Organizations that develop new partnerships across the wealth, health, and some non-traditional sectors to meet an integrated set of end-to-end customer needs. These use a wider array of channels and marketplaces for flexible, fast, convenient service, especially to new entrants and less affluent consumers.

B.    Continuous product development

Organizations that will speed through product innovation and improve pricing flexibility with high-quality data and powerful data architectures, leading to high-end, autonomous experiences.

C.    Effective education and clearer value propositions

The key to connecting with today's buyers is simplicity. Those who successfully embed simplicity in product design, educational materials, and marketing DNA will consequently drive those same principles across the front and back-office processes, creating nimble and dynamic organizations that can respond rapidly to change.

D.    M&A and capital management

Driving more efficient and effective service lines, these players will look to review and remove capital-intensive and non-core, suboptimal lines of business, redeploying capital in more sustainable, higher-growth core business segments. These organizations intend to acquire asset managers and asset management capabilities in varied asset classes to supplement in-house capabilities in driving scale and asset class diversification.

• Keep close to what your consumers want. The ability to think "outside-in" is key to building a customer-centric business. Ensure you know and act on what your consumers want, need and value; keep looking up and outside of the organization and industry to help ensure alignment with the best consumer experiences in day-to-day life.
• Do things in an agile way. Break changes down into specific steps and sequences and then implement them. Stand back to assess whether the change has been successful in a "test and learn" approach. It's about a series of small changes that together add up to a significant and impactful transformation.
• Build resilience. Take on today’s challenges with resilience and determination, and be prepared to expect the unexpected, fail fast and learn along the way. By developing a connected enterprise architecture, you will find your ability to change course at speed can be significantly enhanced.
• Keep it human. While embedding new technologies, such as artificial intelligence (AI) and automation, is likely to be critical in developing more seamless interactions for consumers, remember that you also need to keep the experience “real.” Great organizations remain defined by the quality and passion of their people and their sense of purpose.
• Make use of new technologies. Continually look at what new technologies are becoming available that could help you serve consumers better or connect your business more seamlessly. Experiment with the opportunities available through cloud, machine learning and advances in data science.

_{The excerpt was taken from the KPMG Thought Leadership publication: https://kpmg.com/xx/en/home/insights/2023/02/future-of-insurance-life-and-annuities.html}