In recent times, the word “disruption” has increasingly become a mainstay in our daily vocabulary. It seems every few weeks there are new businesses with new technologies trying to disrupt another area of our lives.
In Smart Nation 2.0, Singapore already has a framework to support the push to leverage technology to improve the lives of people on the island. Prime Minister Lee Hsien Loong has also made technology a key part of his National Day Rally speeches in the past two years. Last year, he cited the example of Uber and Grab’s disruption of the taxi industry and said that we need to “let disruption happen” but also help the drivers and companies locally.
In this year’s National Day Rally, he went on to highlight artificial intelligence, the government’s new parking payment app, Parking.sg, and e-commerce players, stating that “traditional stores and businesses must adapt and reinvent themselves”.
The Life Insurance Industry
While technology has the potential to disrupt every company, the life insurance industry may be partially insulated.
There key difference between being disrupted by technology and being able to leverage on technology. Companies that are disrupted by technology eventually find themselves obsolete and pushed out of the market while companies that are able to leverage on technology improve their business operations and may even expand their operations.
At the AIA Media Day in September 2017, the company’s Group Chief Executive and President Mr. Ng Keng Hooi shared that he saw other industries “as more vulnerable” affected by disruption, and that many other companies and industries were far likelier to face disruption before them.
Here are four reasons why life insurance companies will not be disrupted just yet.
#1 Demand For Life Insurance
“Life insurance products is something that is needed by the customer but not necessarily wanted”. People don’t get up from their beds one fine day and finally decide they need life insurance. It is only after consultation and face-to-face interactions with an insurance agent that they are convinced that they should have life insurance coverage to protect their loved ones.
This is unlike the industries that have been disrupted – such as e-commerce, transport or the food & beverage industry. These industries tend to have high demand with people constantly searching for such products and/or information. They also tend to not have much rules governing the industry.
Any company that starts selling life insurance products online, which the current life insurers already do, will not be able to easily succeed because of this. This brings us to the next reason.
#2 High Barriers To Entry
There is a high barrier to compete with the life insurance companies as entrants will need to put in a lot of money, establish a highly experienced team to continuously generate demand through agents and marketing efforts, and then be able to provide customers and agents with an end-to-end solution including processing claims, administrative support, establish safeguards for information security and fraud and many other operational functions.
This, of course, only works if they have established a trusted brand that people believe will last for the next 25, 30 or 40 years. They also need to have economies of scale to be able to deploy resources, such as time, effort and money, efficiently while operating in line with the highly regulated insurance industry.
Leading into the next point, even if they succeed at doing all this, they still need to have the ability to invest the premiums they receive to pay salaries, deliver returns to customers and potentially pay shareholders. They also need to have the financial and actuarial expertise to manage cashflow, given varying levels of policy maturity by members, and calculate the risks they are able to underwrite.
#3 Ability To Generate Profit and Returns
“Making money is very important” for life insurers. Life insurers cannot afford to make losses on their operations as it will not only affect their shareholders, but also their policyholders.
It is paramount that life insurers are able to consistently generate returns utilising the funds they receive from policyholders. This is to be able to pay them their capital and the guaranteed and non-guaranteed interest they are owed in 20 to 30 years.
Circling back to the earlier point, policyholders will also not have confidence in the life insurer to protect their money if they consistently report losses. At the end of the day, people expect life insurers to protect them and their money. If they can’t even protect their business, serious questions will be asked.
#4 Operations May Be Disrupted, Not The Company
Technology may provide a better solution for some of the processes the life insurers currently have in place. However, “the incumbent players are likely to do things to stay advanced in these areas” rather than be disrupted by a new player.
Think about the automation of back-office operations, life insurers will be best suited to implement these improvements. The disruption will be most heavily felt by the back-office workers.
Even if, one day, people woke up from their bed deciding to buy life insurance, they will go online to buy from the established life insurers. Again, this disruption will be felt by those in the distribution chain, the banks and insurance agents, rather than the life insurers themselves.
Disruption will likely affect other types of insurance first. Companies that sell insurance directly to consumers, especially those that are mandatory or in high demand such as car insurance, home insurance or maid insurance and travel insurance respectively. Life insurers have the luxury of being able to learn and react to what is happening in the industry.
Even though incumbent life insurers have some insulation against disruption and are actually best suited to roll out many of the operational disruptions that are occurring in the industry, they need to have the right expertise and technology at the right time.
They have to keep up with trends such as interacting with the new generation of consumers in their preferred mode – through digital platforms. Insurers already in the industry will be best suited to roll out social interactivity, chat-bots and robo-advisory for consumers.
Connected devices and wearables measuring health and sleep patterns are another area that life insurers can use to improve their services and operations.
Advanced analytics to process information, study trends and enhance customer engagement and perhaps even customise policies may be introduced.
This means they must already be investing in these and other areas – either through devising their own solutions via innovation labs or working with insuretech companies via accelerator programmes. If life insurers do not react, they will still be made obsolete.
Finally, today’s consumers are also spoilt for choice, often going to aggregators to find the best value-for-money deals. Again, while this will impact sales of direct insurance first, life insurers have to be mindful.
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