Product innovation within life insurance
Digital life insurance is proving to be a difficult nut to crack for insurers. The fact that over 60% of InsurTechs are focusing on property insurance as opposed to life bears this out. The rationale is simple, an increasing availability of location based data streams and a simpler underwriting process positions property insurance as a more easily disrupted vertical. Life insurance, with its long term policies, and an overarching proposition of financial planning has stymied would be disruptors. Nevertheless, opportunities within digital life insurance remain, particularly on the product side.
Term life innovations
The first shoots of innovation within life insurance are visible within term life products. Specifically, given the difficulties associated with transacting life insurance online, especially products that involve health or investment components, several US based startups including Quilt, Ladder Life and Haven Life are turning to term life insurance to establish an online foothold.
For example, Ladder Life, a CA based InsurTech has recently entered the life insurance vertical with a term product that includes digital underwriting. Ladder Life is positioned as a subscription model (similar to Netflix and other online service providers) whereby premiums are adjusted according to the changing needs of policy holders.
With traditional life insurance, people are often sold a big block of coverage that doesn’t take into account the changing needs of policy holders as they transition into parenthood and retirement.
Ultimately, term life insurance disruptors such as Ladder Life, Quilt and many more are showing what can be done in terms of both the process of buying life insurance and the ability for people to match their coverage to their needs.
Micro life/Health AI
Digitally delivered term life insurance is already being demonstrated. However, those that can delve deeper to renew their legacy operations that accompany these product lines will differentiate the winners of today from tomorrow.
Although protection orientated life insurance products are being promoted by CIRC, simple participating products account for more than 80% of the market.
A standard $1 million term life insurance policy in the US costs about $1,000. At that price, insurers can afford to have multiple humans touch each policy as it flows through departments, from underwriting and into multiple IT systems. However, micro life insurance policies where a premium might be just $10 will require a new paradigm, and operating efficiency loss of just $1 per policy would represent 10% of the total revenue.
To embrace the micro life insurance or ‘episodic’ life insurance opportunity, insurers will need to overhaul their current operations in order to compete with smaller, nimbler startups willing to offer short term cover.
Micro annuities, personal pensions
Finally, another vertical within life insurance that is ripe for disruption is pension products and specifically annuities. Currently, annuity products are stuck in the large commission-cycle; it’s difficult to find an annuity with initial premium payments below $1,000. But a micro-annuity, positioned as a ‘personal pension’ and supported by a chatbot to monitor monthly contributions and show consumers exactly how much guaranteed income will be available during their retirement, would address a fundamental societal need in an ageing China, in addition to lifting the veil of complexity currently accompanying life insurance products. Under this model, an asset-management fee would replace the commission and a robo-advisor dramatically improves the user experience.
Ultimately, although the current distribution channels within life insurance are providing volume but not value, life insurers are increasingly turning to product innovation as opposed to channel innovation in order to gain an edge in an overlooked space.