Life insurance has been slower than other sectors to make full use of technology – but that could all change in 2025.
Most life insurers are in the process of migrating huge amounts of data obtained from clients and distributors to a single, accessible system, rather than several legacy platforms. For many, this transformation should be completed during 2025.
Until now, our industry has merely taken a paper process and put it online, which hasn’t fundamentally changed the way customers buy life insurance.
We can begin to innovate and make full use of new technologies, such as generative artificial intelligence
Before they can innovate, life insurers are hamstrung by technology, operating four or five legacy computer systems inherited from acquisitions they’ve made over the years, which makes accessing data time-consuming, costly and difficult. That’s why many insurers are currently going through massive re-platforming projects.
2025 will be the tipping point when life insurance’s digital transformation will be substantially complete, and we can begin to innovate and make full use of new technologies, such as generative artificial intelligence.
Widening the customer base
To attract today’s customers, we need to engage with them digitally, as well as educating them about the benefits of life insurance – a hard sell for young people feeling financially squeezed by the cost-of-living crisis and finding it hard to get onto the property ladder.
Life insurers need to work with distributors to use the combined data they have gained over the years to work out who is buying policies and who is not, to come up with different ways of speaking to potential customers. There are huge potential benefits for both insurers and distributors if they seize the opportunity to collaborate in 2025.
There are huge potential benefits for both insurers and distributors if they seize the opportunity to collaborate in 2025
Our sector needs to be more proactive about finding customers and prioritise marketing rather than relying on mortgage customers who realise they need to buy life insurance, or investment customers who want to protect their assets. And we need to make it as easy as possible for interested customers to buy life insurance, whether that is digitally or over the phone.
A stable outlook for 2025…
While many consumers are still struggling with the cost-of-living crisis, the situation is easing slightly now inflation is under control. This combined with low interest rates should boost the mortgage market, which will, in turn, lead to an increase in demand for life insurance.
…but concerns over insurers exiting
The big worry for the sector over the last couple of years has been its contraction, with major insurers such as AIG being acquired by Aviva and Aegon by World London, while Canada Life has left the market. If the trend continues, it will stifle the competition we need to spur innovation.
The main reason for the contraction is that insurers are fighting over a share of a flat market rather than a growing one
The main reason for the contraction is that insurers are fighting over a share of a flat market rather than a growing one; and if you don’t have the strongest proposition in terms of price or product, you are fair game for an acquisition. Our market reality today is survival of the biggest, with the larger players relying on their economies of scale for success.
While we are seeing some new entrants to market, such as One Family buying Beagle Street, they tend to be smaller outfits rather than the big beasts.
There are some counterpoints to the doom and gloom, such as HSBC ramping up its proposition, and Octopus entering the life insurance space in October, with the purchase of the tech assets of DeadHappy.
FCA market study
The life-insurance sector will come under scrutiny in 2025 when the Financial Conduct Authority launches its study into how pure protection products are sold.
Our market reality today is survival of the biggest, with the larger players relying on their economies of scale for success
The regulator is concerned the design of commission arrangements may not allow firms to deliver good outcomes to policyholders, and that some products provide poor value – for example, if the total premiums paid over a lifetime exceeds the maximum conceivable payout.
It will be looking at consumers’ engagement with – and understanding of – the products they are buying, the competitive constraints on insurers and intermediaries, and potential conflicts of interest in the structure of commission.
The FCA will focus on the sale of term assurance, critical-illness cover, income-protection insurance and whole-of-life insurance, including policies for over-50s that offer guaranteed acceptance.
The study will no doubt take up a great deal of insurers’ time and energy, which might otherwise have been used to innovate, but we should welcome this kind of scrutiny, as it can only lead to improvements that will benefit policyholders and make the life-insurance sector more attractive to new and existing customers.
Mark Townsend is chief executive at Reassured
Note to FCA. There is no business without a sale and no selling without incentive. There are already enough checks and balances on the advised sales process so if you want a market outside of demand lead sales I would not mess with comission too much. you may have noticed as one of my old bosses pointed out, there is no queue outside any of the insurance company offices (physical or digital).