Life, P&C Insurers in Harmony
Historically life and property casualty insurance companies have typically had different investment themes, even though they have had access to all the same technology building blocks. There are many reasons for this – the difference between coverage duration, the impact of interest rates on product innovation, the fact that property casualty coverage is often mandatory as well as the frequency with which the different types of products are bought, updated and used. Nevertheless, in 2017 these two industries have converged in concert with each other and both types of insurers are singing a few more common choruses than they ever did in the past.
1. Investment in Core Transformation is a good thing to get done now
The major drivers of growth and efficiency are analytics, omni-channel service and product innovation. The low interest rates of the past decade have resulted in more property to insure and more ways in which the insured object can self-report its behavior for pricing, loss control and claims. Note the use of the term object – while some insurers have introduced better pricing for applicants who perform monitored exercise, most of the investment today is in commercial insurance. How does that relate to Core Transformation? Simply stated, it requires a modern configurable IT platform with robust data and communications capabilities to participate in this new world of shared economies. Life insurance companies cannot live on mortality alone – it takes investment spread income and now that interest rates are rising, life insurers are initiating the wave of core transformation investments that property casualty firms embarked on 10 years ago.
2. Analytics increasingly drive new investment in risk selection, pricing and the rapid issuance of new policies and complex endorsements
Generally speaking, this trend is far more prevalent in property casualty insurance than life for the simple reason that there are more objects being insured and there’s much more data about loss events. With that in mind, there are many more ventures aggregating, analyzing and using data-driven insights in property casualty. The use of geo data, drone data, IoT data and other sources to micro segment pricing decisions and deliver KPIs to drive new business, are now becoming mainstream in home, auto and specialized risk pricing and claims.
Following this classic “S” curve of adoption, the life insurance industry has also moved to using non-traditional data and making the necessary investments to analyze it. For example, if you are a marathoner and run in proctored competitions, that public data can now secure you an underwriting class with lower prices. While Fortune 200 firms and life reinsurers drive the largest investments, small life insurers can access the benefits of those investments via reinsurance arrangements or the purchase of scoring data. These investments have led directly to recent innovations such as Accelerated Underwriting that delivers a policy immediately at only a modest increase from common fluid-based fully underwritten coverages.
3. Customer acquisition investments now focus mostly on the Internet
It is true that traditional insurance distribution isn’t going away. There will always be a ‘kitchen table’ somewhere for a life agent to sit at and the relationships established by property casualty distribution with their clients has certain stickiness based on context. The point here is that those methods are fully mature and that companies are willing to make investments that are disruptive in order to generate more premium and lower costs. A completely fresh approach to customer acquisition has been largely driven by a new generation of buyers who prefer to research, shop and transact their insurance needs using the internet. The internet is a vast resource of information and buyers, especially millennials are taking advantage of it. This new generation of buyers expect insurers to provide the same level of customer experience they receive from other industries like retail and banking. Customer experience has become the new game changer. And this is where the discretionary dollars are being allocated. Both industry segments want that business and are equally invested in transforming the customer experience to get it.
The verses for property casualty and life insurance have traditionally been ‘call and response’ where the life insurers echo the words of the property casualty insurers – after the song is over. But in 2017, these two segments of the insurance industry are coming closer in their investment themes and priorities, and are now performing in harmony with equal emphasis on the importance of customer acquisition.
About the Authors: Russ Bostick is a founder and managing partner of MVP Advisory Group, LLC. Russ can be reached at firstname.lastname@example.org. Debbie Wilson is a partner of MVP Advisory Group, LLC. Debbie can be reached at email@example.com