Vol 46: Issue 2 | July 2023
If you were around in 1987, you might remember seeing the first modern mobile phone in the movie Wall Street.
The brick-like, 1kg Motorola DynaTAC 8000X in Michael Douglas’s hand looks nothing like our 2023 smartphones, but it marked the start of a huge, unstoppable shift.
If you’re a younger millennial, a zoomer or part of generation alpha, you’ve never known a world without mobile phones — or the internet for that matter.
As technology, climate change, immigration, culture, education and other factors shape society, insurers have to anti
cipate who their future customers will be and how to meet their needs and expectations.
Start with generation Z
As the brains trust at reinsurance giant Gen Re contemplates the future of insurance, it is focusing on the i
ncreasingly important — and complex — generation Z market. Zoomers, as they’re known, were born between 1997 and 2012, making them 11 to 26 years old.
A recent study that Gen Re commissioned based on psychological interviews with young people throughout Germany — Generation Z: What Brings Stability in Life? — shines the spotlight on what zoomers expect from insurers.
First, they demand insurance products that are flexible and better tailored to their differing needs during their lives.
Second, they expect quality customer service through fast, non-bureaucratic communication channels such as apps, chats and video calls. Third, they are seeking allies in the face of global challenges, including climate change, and they want insurers to make clear their common goals, values and positions.
There is a sobering finding in the survey, however. Ulrich Pasdika, Gen Re’s head of Life and Health for Europe, Latin America, the Middle East and North Africa, says the study delivers a wake-up call for some insurers, noting that younger people generally find the experience of dealing with insurance “unpleasant” and survey respondents describe insurance across the board as “non-transparent, confusing and untrustworthy”.
At the same time, gen Z has a strong desire for greater market coverage and protection as a result of the COVID-19 pandemic and geopolitical uncertainties.
This presents an opportunity for insurers to woo the gen Z market, according to Pasdika. As younger insurance customers revel in the unlimited opportunities of a globalised world, he says they are simultaneously becoming overwhelmed and experiencing a loss of orientation as they seek to master challenges such as sustainability, the climate crisis, social responsibility and more.
“To solve this dilemma, gen Z is looking for guidance, role models and anchor points that promise orientation and help them make the ‘right’ decisions,” says Pasdika.
“The understanding of this customer group seems to me to be extremely important in dealing with them and in providing suitable offerings for them. After all, the pressure on them and their search for orientation and support offer enormous opportunities for insurers.”
For Gen Re, this translates to working on new technologies and concepts for life insurers. “In particular, we want to keep the application process as simple as possible and underwriting as painless as possible,” says Pasdika. “We are thinking, for example, of the use of electronic health records to largely avoid health questions, or to use very short health questions that are tailored to gen Z in terms of wording and targeting.”
New lease on life
Looking at the other end of the generational timeline, Australian life insurer TAL is one of many players in the insurance sector responding to a number of demographic changes, including an ageing population.
Ashton Jones, general manager — Investments, Retirement & Operations at TAL, says there is no doubt that demographic shifts are having a significant influence on life insurers’ products, services and distribution models.
In Australia, between 1991 and 2021 the life expectancy for females increased by 5.1 years and for males by 6.9 years, while advancements in health care and shifts in the nature of work from higher-risk occupations to white-collar jobs are among many factors impacting today’s mortality and morbidity risks.
Jones says responding to an ageing population has been firmly on the radar for TAL in recent years, as people live longer and an increasing proportion of the working population is transitioning to the retirement phase. “As a life insurer, we have been focused on what this means for our customers as well as our superannuation fund partners and their members.”
He points out that people approaching retirement often worry that they will not have enough money to last them for the remainder of their lives. Significantly, the Australian Parliament passed a retirement income covenant in early 2022 that is intended to help improve retirement outcomes.
The covenant also challenges the financial services industry to consider how existing products are serving the needs of members in retirement and what products could augment those needs to help ensure access to a dignified retirement.
Jones believes life insurance meets a critical need in the lives of working Australians and their families, protecting their financial wellbeing in the event that they become ill or injured and are unable to work.
Therefore, it is critical for life insurers to stay relevant and ensure these important protections remain accessible and affordable. Australians, he says, are increasingly focused on navigating their journey into and through retirement.
“By realising the objectives of the retirement income covenant, and by helping more people understand both their needs and potential risks in the latter stages of their life, we expect that in the future, people will engage with these considerations even earlier in their working lives,” he says.
“We have an opportunity to help our superannuation fund partners support the unique risks their members face — not just throughout their working lives with life insurance through their super, but also as they transition into and move through retirement.”
Carl Christensen, global head of Life & Health Solutions for Swiss Re in Zurich, says with people now living for so much longer, the demand spectrum for life insurance is clearly changing.
As well as a basic line of life protection, consumers may also be seeking other benefits from their insurance. “So, it could be a question of how does it pay for their health care, or how does it pay for their home care?” he observes.
Nevertheless, while issues of an ageing population, greater longevity and any associated health implications are important, Christensen believes the real key to the success of insurers in the face of demographic changes will be digitising distribution.
He says this phenomenon is picking up speed in terms of the tangible value it creates.
“And digitalisation does not only touch upon the gen Zs — it goes beyond that and has an impact on all our purchasing behaviours and engagement behaviours.Yes, it might be highly embraced by gen Z, but in the end it’s relevant for every generation across different insurance categories.
And I think that digital transformation probably has the largest influence on the insurance sector.”
In New Zealand, Gallagher Bassett chief client officer Steven Walsh says that, as a claims and risk management provider, it is witnessing several demographic trends, including a growing number of customers — and not just younger ones — who prefer digital channels for interaction.
Insurers are also adapting to different ethnicities and cultures. For example, during recent severe flooding events in Auckland and Cyclone Gabrielle, Gallagher Bassett experienced extra demand for its multilingual claims team to speak to customers or act as interpreters in their preferred language.
“This highlights the importance of adapting communication strategies to meet diverse customer needs,” says Walsh. “While the demand has not been to the level that has warranted written communications across multiple languages for customer updates or claims notifications, it is an area in which insurers may look to improve and adapt to their multicultural customer base.”
Looking to the future, Walsh agrees that New Zealand customers will likely place a greater emphasis on digital services and communication channels, demand more personalised and customised products, and expect faster and more efficient claims processing.
Trends to watch
For Swiss Re’s Christensen, product “adoptability” will be crucial as insurers take on major challenges such as demographic changes. Instead of signing up for a 20-year life insurance contract, for example, people may prefer annually renewable products.
However, he warns that the insurance industry needs to be more cognisant of tackling the acquisition cost of products. “We tend to not talk enough about this in my view,” he says. “So, yes, we’d all like to have an insurance product that could change every year, but if the acquisition costs are so expensive to find a client and to sell the product to a client, then we can still have a big challenge in the sense that those costs need to be amortised over a longer period of time to make it a sustainable product. And it’s not automatically getting cheaper through digitisation.”
At Gen Re, Pasdika envisages three core demographic trends for Germany that are instructive for other international markets:
The 25–45 age group. For decades, the main target group of life insurers will become significantly smaller, despite immigration, requiring new sales and product concepts to close the still considerable gaps in coverage for death and disability. “Even in this shrinking target group, there is still significant potential to boost future sales,” he says.
The over-70 cohort. This group is expected to grow by about 30 per cent over the next 25 years, meaning that the number of people in need of long-term care will continue to rise sharply. “The German insurance industry is already involved in providing care for people in need of long-term care and in making provisions for those who will eventually need long-term care. New approaches are needed that will enable insurers to make even greater contributions in this future field.”
New target groups. For example, what are the protection needs of people aged 45 or 50 and older until they retire, and how can they be met? How do you reach the more than six million people who have immigrated to Germany in the past 10 years? Last, but not least, how can the customers of tomorrow be addressed — those people under the age of 25 — and how can they be made aware of their protection needs?
“If insurers successfully develop answers to these questions,” says Pasdika, “their business will flourish, notwithstanding the further ageing of the population.”
Innovation to the fore
From ‘clumsiness cover’ to lifetime bonuses, insurance is changing with us.
As proof that insurance innovation is real, think of Hedvig. The Swedish insurer provides digital home and motor insurance targeted at generation Z that includes ‘clumsiness’ cover for spilling coffee on a laptop. It also donates surplus end-of-year funds to charity.
In New Zealand, one of Gallagher Bassett’s life insurer clients offers a funeral cover product that caters to an ageing population, providing funds for funeral costs without burdening their families.
“This product serves a niche group of customers with an ageing profile that may not have any life insurance, or who would find traditional life products more difficult to obtain, if at all,” says Gallagher Bassett’s Steven Walsh. “With little to no underwriting on funeral products, those customers that have had health issues or who may suffer from obesity can still obtain cover and thereby satisfy a niche market within the wider stable of life insurance product offerings.”
For its part, life insurer TAL is committed to providing smart digital experiences for customers, not just at claims time but through the entire customer journey, from their first job to retirement.
For example, late last year TAL partnered with AMP to launch MyNorth Lifetime, a market-first retirement solution. As the insurer, TAL guarantees a lifetime bonus that provides retirees the peace of mind and certainty of higher income for life. “We see great value in helping our partners deliver tailored retirement solutions and give customers confidence in retirement,” says TAL’s Ashton Jones.
Relationships and cobots the next big things in insurance
Customer expectations of insurance are changing — and quickly.
Just ask Chris Raimondo, a Chicago-based partner and leader in EY’s Insurance Technology sector. He says evolving consumer needs present a chance for insurers to innovate in pursuit of growth and stay ahead of new competitive threats.
Raimondo believes the next decade will see a fundamental reorientation of the insurance business, with the traditional focus on products, policies and paying claims shifting to services, experiences and creating value. “The way we see the industry evolving is really for the customer to be at the core,” he says.
“What gives us that sort of thought pattern is the insurance purchase, which is a relationship. It’s not a one-time transactional purchase.”
The upshot is that insurers will have to factor in a new set of value drivers for consumers that goes beyond price and products and includes important new elements such as consumer data protection and a commitment to sustainability.
EY’s research points to modern insurance customers demanding hyper-personalised and real-time risk protection, which in turn will require broad adoption of artificial intelligence (AI), machine learning and digital platforms.
Raimondo has identified a range of key customer types that will define the market by 2030.
- Virtual vanguards seek protections that cover digital assets such as crypto keys and virtual identities.
- Environmental, social and governance devotees want to do business with environmentally and socially engaged companies and avoid those that are greenwashing.
- Bubble protectors are after holistic and dynamic coverage for entire lifestyles.
- Data capitalists desire risk prevention and protection management with a portfolio of coverages for their personal data.
- Conscious owners engage with insurers that have sector-specific expertise and services that help them pursue sustainability goals.
Raimondo believes the insurance industry’s transformation in the past decade has been impressive.
“But the speed at which insurers are going to need to continue to transform around the changing customer and the future customer will be critical to their survival.”
To that end, they will have to double down on digitisation and data and how they can improve the customer experience.
“That’s how you get hyper-personalisation; that’s how you create tailored products and services at the points where the customer wants them or needs them. So, being able to really harness that data to create products and services through a spectrum of distribution channels will be critical.”
The use of ubiquitous technology is at the heart of a generational shift that now sees insurance customers making instant mobile purchases and expecting providers to understand their identity. Raimondo says the next phase will involve embracing generative AI and collaborative robots, or cobots, that further transform the insurance sector.
“Generative AI will become ubiquitous as future generations of consumers become much more comfortable interacting in a digital world with digital service and cobots, rather than interfacing with humans, because the technology will eventually be so sophisticated.”
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