LIFE INSURANCE: THE CASE FOR CHANGE

Transcription

1 LIFE INSURANCE: THE CASE FOR CHANGE HOW DO WE MAKE LIFE INSURANCE SUSTAINABLE AND FIT FOR PURPOSE IN A WORLD OF TECHNOLOGICAL CHANGE AND EVOLVING RISKS?

2 WHAT DOES THE FUTURE OF LIFE INSURANCE LOOK LIKE? Will digital innovation and the emergence of high-tech competitors put current market leaders at risk? And can insurance offerings be made more sustainable, or will rising costs put them out of consumers' reach? To answer these and other critical questions, ANZ Wealth interviewed experts from across its insurance business and drew on global research to share insights in a new whitepaper: Life insurance: the case for change. The analysis concludes that six key trends are converging to permanently transform life insurance.

3 LIFE INSURANCE: THE CASE FOR CHANGE KEY FINDINGS SIX TRENDS RESHAPING LIFE INSURANCE 1. DECLINING PUBLIC TRUST A series of highly publicised incidents has led to a decline in public confidence and an increase in regulatory scrutiny even though life insurers continue to serve most customers well, paying 90 per cent of claims in the first instance.¹ Complex products with poorly understood terms have contributed to the problem, exacerbating Australia s already high levels of underinsurance. ONLY 42 PER CENT OF AUSTRALIANS BELIEVE THEIR LIFE INSURER WILL BE THERE FOR THEM IN THEIR TIME OF NEED 2. PRICING PRESSURE IS INCREASING Contrary to public perceptions, not all life insurance products are highly profitable. While mortality risk products remain financially sustainable, many morbidity policies are not. Over the past three years, Australian insurers have lost more than $1 billion on individual disability policies, including $427 million in the year to March 2017.² The danger is that insurers will be forced to withdraw these products or risk their financial stability, which consumers rely on to support future claims. $1 AUSTRALIAN INSURERS HAVE LOST MORE THAN $1 BILLION ON INDIVIDUAL DISABILITY POLICIES OVER THE PAST THREE YEARS 1. ASIC, Life insurance claims: An industry review, Report 498, APRA, Quarterly Life Insurance Performance Statistics, March 2017.

4 LIFE INSURANCE: THE CASE FOR CHANGE 3. VULNERABILITY TO HIGH-TECH DISRUPTORS The past 10 years have demonstrated the potential for high-tech disruptors to reshape industries and usurp iconic companies. While the life-insurance sector has been largely sheltered from disruption by the sheer volume of regulation insurers must comply with, that focus has also made insurers relatively slow to adopt new technologies. That potentially makes them vulnerable to high-tech innovators partnering with risk specialists to bring new offerings to market. In line with this, investment in insurtech (technology innovation in insurance) is surging, with 496 venture-capital-backed deals globally worth around $US8 billion in the first half of 2017 alone.³ To avoid being left behind by the pace of innovation, insurers should embrace the advantages of the digital age before competitors pass them by. 4. INCREASING FOCUS ON HEALTH AND WELLBEING New technologies and social trends have redefined approaches to healthy living and inspired an upsurge of interest in personal wellbeing. This has multiple implications for insurers. A growing awareness of mental health has seen a rise in recorded mental illnesses across the developed world, with such claims playing a significant part in the rising cost of disability insurance. Meanwhile, Australia s ageing population is set to bring an increased prevalence of people living with multiple chronic and potentially disabling conditions.⁴ More positively, developments in analytics, wearable devices, connected health, and artificial intelligence, promise to radically increase the range and depth of insights insurers can call on in assessing and supporting clients. The challenge is in accessing this wealth of data and using it most effectively. THREE IN FOUR INSURANCE COMPANIES AROUND THE GLOBE BELIEVE THAT SOME PART OF THEIR BUSINESS IS AT RISK OF DISRUPTION GLOBALLY, 27% OF CONSUMERS SAY THEY WILL SHARE PERSONAL DATA IF THEY SHARE THE BENEFITS. (ANOTHER 56% ARE NEUTRAL.) GFK Market Research, CBInsights, The Global Fintech Report, Quarter 2, AIHW, Australia's health, 2016.

5 LIFE INSURANCE: THE CASE FOR CHANGE 5. MILLENNIALS: CHALLENGE AND OPPORTUNITY MILLENNIALS PREFER TO RECEIVE ADVICE DIGITALLY Millennials are an increasingly important economic force. In 2014 they overtook Baby Boomers as the largest global demographic group and emerged as the number one source of global income, spending and wealth creation.⁵ Yet insurers have struggled to engage them effectively. Millennials are least likely to say they have had positive experiences with their current insurer,⁶ and most likely to buy new insurance offerings from high-tech companies entering the industry.⁷ Why are they so disengaged? Because they place a premium on high-quality digital experiences something insurers have often failed to provide. The good news is that insurers who respond effectively to Millennials preference for digital interactions will have a cost-effective channel for greater engagement and capturing new business. HNW = high net worth ($500k-$1m+) 6. DATA AND ANALYTICS WILL TRANSFORM UNDERWRITING Traditional underwriting methods are cumbersome for insurers, and invasive and time-consuming for customers requiring up to six weeks for a decision to be made. But emerging medical technologies such as mobile apps, m-health devices, wearables and rapid genetic testing have the potential to overcome these problems. By combining big data with predictive analytic models, insurers can better understand insurance risks and personalise their products, with individualised pricing based on a confident assessment of the risk each individual represents. To do so, they need to invest in creating improved data analytics capabilities, while transparently explaining the methods they use to access, analyse and harness data. UNDERWRITING DECISIONS WILL INCREASINGLY BE MADE USING UNSTRUCTURED DATA FROM MULTIPLE SOURCES FROM MOBILE APPS TO WEARABLES AND IMPLANTABLE DEVICES PWC, Life Insurance 2020: Competing For A Future, Telstra Research, Millennials, Mobiles and Money: The Forces Reinventing Financial Services, Capgemini and Efma, World Insurance Report, Capgemini, Top 10 Trends in Insurance in 2016.

6 IT'S TIME FOR INSURERS TO FOCUS ON THEIR CORE PURPOSE: HELPING CUSTOMERS IN TIMES OF NEED. ANZ, Life Insurance: the case for change, 2017

7 LIFE INSURANCE: THE CASE FOR CHANGE SOLUTIONS A more sustainable future for life insurance. There is enormous promise and challenge for life insurers in the years ahead. If the sector continues on its current path, there is a risk that some products could become unsustainable. This will force up premiums, making cover unaffordable for customers, possibly depriving them of the protection they need. Even worse, the continuation of loss-making policies could threaten the ongoing financial health of the insurance providers that consumers rely on. The solution is to create clear, core-purpose products that provide genuine protection against the financial impacts of injury and disability at an affordable price for consumers and insurers. Financially stable insurers will be better positioned to invest in the new technologies set to revolutionise the way insurance policies are underwritten, reducing risk and dramatically improving the speed and efficiency of the underwriting process. The result will be a better consumer experience underpinned by seamless digital interactions, helping to engage the increasingly powerful Millennial cohort. By proactively meeting the challenges posed by emerging technologies, changing consumer sentiments and the evolving economics of the sector, insurers will reap tremendous rewards, principal among them being a strong and sustainable future. Access the whitepaper at APEXINSIGHTS.ANZ.COM Important information: Australia and New Zealand Banking Group Limited ABN (ANZ). This paper is current as at September 2017 but may be subject to change. It is of a general nature only and does not contain any securities advice or recommendations on any particular matter. While ANZ has taken care to ensure that this information is from sources considered reliable, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, ANZ does not accept any responsibility or liability arising from the use of this information, or any loss or damage from it, to any person. As such you should seek qualified advice before making any decision based on this information or any of it.

8