Life insurance: Prepared for a digital future

| 24 Jun 2019

What's next for the life insurance industry? We got together industry experts from C-level executives, association heads to startup founders for a roundtable discussion organised in collaboration with 360F. There is much work to be done given the technological and societal changes. But life insurance agents continue to be as vital as ever, and the industry can face the future with confidence if it adapts to the new environment.

Life insurance is a product that is bought out of love, and the empathetic connection an insurance agent can make with the customer is what allows the product to be sold.

While recognising and highlighting the importance of digitalisation in the life insurance industry, AIA’s group chief strategy and corporate development officer Mr Mark Saunders said the role of agents and advisers is an important and often underrated one.

“For most people, if you talk about death, “no” they think, “that is a long time away”. If you talk about critical illness, about cancer or heart disease, some start to worry but they tend to feel that it won’t happen to them, not soon any way. Agents are very influential, very good at convincing people that these events can occur at any time and they should prepare by way of financial protection through life insurance. They do it in different ways and by connecting with the customer on an emotional, rational and professional basis,” he said.

Financial Services Managers Association’s first vice president Mr Royce Lee pointed out that most life insurance products are bought by customers who are looking out for other people.

“There are two groups of people; the first is the transactional group and the second is the people that really appreciates the advice an agent can provide,” he said. But in both groups, the decision is made out of love for others.

The key to moving people from looking at it from the transactional point of view to appreciating advice, is to provide professional quality advice. Hence, he strongly recommends all practitioners of the financial services industry to get certified as a Chartered Financial Consultant or a Chartered Financial Planner.

“Then you would truly have the license, backed up with real knowledge and the competency to give good quality advice. That would be the key distinguishing factor for agents,” he said.

He also said that if he were the regulator, he would mandate all financial consultants to have those certifications before they are allowed to go out into the market. “It would increase the prestige of the profession and people will take it more seriously. Otherwise, the perception is of a group of young people who took a couple of exams and then were let out into the market to peddle products.”

Consumer’s demands are changing

The general sentiment from members of the roundtable is that customers are more frequently asking for shorter-term products or even single-premium products.

360F CEO Michael Gerber said that consumers are getting more used to flexible and short-term contracts, due to the popularity of subscription services such as Spotify, Netflix and Amazon Prime.

 “These days, the younger generation is brought up with a mindset which I call the Spotify mindset; you subscribe and unsubscribe. They want the freedom to enjoy a product for a month and then let it go in the next month,” he said.

At the same time, consumers are looking for more control, describing Spotify’s method of ‘unbundling’ an album so that a listener could get only one or two songs specifically or ‘bundling’ with playlists specially put together for them or they can curate on their own.

360F business development director Ms Clarie Kwa said, “We said earlier that life insurance is a product bought out of love, so if an agent has the technology and tools to bring forth these emotions easily and empower consumers to have the flexibility and control in tailoring the solutions, then the journey would be much more enjoyable and persistent.”

The myth of digital distribution

While the digital ‘quick-and-simple’ approach is valuable to the customer, it must also be balanced with ensuring that the human touch and advice, and the emotional aspect of insurance – especially life insurance – come into play.

As Hong Kong Federation of Insurers Life Insurance Council chairman Ms Charity Au said, “A few years ago, when the aggregator first entered the market in Hong Kong, we thought it would change things. But nothing happened because the products were still too complex.”

However, she expects that with less complex and unbundled products, the aggregator might have a bigger role to play in helping the customer make an informed choice.

While for some, the idea of insurers catering to the ‘Spotify mindset’ might mean an emphasis on digital distribution and less emphasis on the agency force, Insurance and Financial Practitioners Association of Taiwan president Mr James Liu believes this should not be the case.

“There is a myth about the agency solution being an expensive one. But we are gradually learning that digital distribution is expensive too, especially with the rising prices of digital advertising,” he said.

He also pointed out that InsurTechs such as US-based Lemonade might advertise themselves as not having agents, but they still charge their customers a 20% expense-loading.

For life insurance, with more complex and personalised products, the expertise and human connection of an agent is worth the extra overhead.

(L to R: Mark Saunders, Ben Tan, Michael Gerber, Koh Hong Kwan, Benjamin Ang, Charity Au, Clarie Kwa,  Alpha Ho, Andrew Tsang, James Liu, Royce Lee and Paul McNamara.)

Commissions vs fees

The debate on commission-based agents and fee-based agents continues.

While many believe that customers would not be willing to adopt a fee-based model, Chartered Insurance Institute’s corporate development manager Mr Alpha Ho said that it came down to a matter of perception.

“Insurance and financial planning need to get to a point where people look at it and it comes down back to their education of it – is it a second career or is it a legitimate profession?” he said. “Are life agents viewed to be as professional as lawyers, doctors or accountants?”

Whether commissions or fees, Mr Saunders said, “People don’t apply the same mindset to all purchases of financial products. For example, when you put money on deposit in a bank, typically no one asks how much in fees the bank is getting on your deposit rate. But for some reason, life insurance seems to suffer an extra degree of scrutiny when it comes to charges.”

The solution, in the end, might just be to let the market decide, said Asia Insurance Review’s editor Mr Paul McNamara. “There will have to be some regulatory oversight, of course, but the market should dictate what makes sense, factoring in the product and the market.”

The ‘future ready’ adviser

AIA director of premier agency strategy, group agency distribution, Mr Andrew Tsang said, “Quality is key for the industry. And that starts with quality recruitment. At the same time, insurers need to do a better job at packaging and infusing modern ideas. In some markets, we term our leaders as founders and agents as partners. While it may appear to be a name change, it has parallel to the startup world, and young people are excited by that.”

Insurers are also increasingly stepping up to the next evolution of CRM tools, including those that will alert agents of trigger points in the customer’s lives. This would enable and prompt an agent to get in touch with them.

“Maybe the client has just received an inheritance or experienced some other life event; We need the technology to help the agents know when and how to approach their clients,” said Mr Gerber. “The technology should imbue high level of confidence in the agent. At the same time, we need to have an agent who is willing to use that technology and engage with the customer with all the tools at hand. That, to me, is the future-ready adviser.”

Achieving this, however, requires an update to the regulations surrounding agents and the purchasing of life insurance products. “For most places, Singapore included, regulations mandate that purchasing a policy requires physical interaction with the customer. But we question why we can’t use technologies like FaceTime to make this process more efficient?” said Great Eastern managing director Mr Ben Tan. “We are lobbying for it, but current rules surrounding data privacy and technology risk management is slowing down the advance of the omnichannel and ecosystem concept.”

Facing the future with confidence

While the general consensus is that disruption is more apparent in the general insurance sector at the moment, Allianz Taiwan Life head of sales and distribution, Asia Pacific, Mr Koh Hong Kwan said that things could change very fast.

He said, “The generation of real digital natives is becoming increasingly important as a segment in business. We will need to figure out what it means to our industry and how our industry needs to change to adapt to it. We will be fine in the coming years, but we should not be too comfortable.”

The emphasis is that millennials will become a major segment both as customers and as future agents.  “We tend to look more at the customer side, but millennials also affect the future of the industry as they enter the agency force. Mindsets like the gig economy, doing niche careers, desire to seek digital affirmation (“likes”), etc. will affect the future workforce of the industry,” he said.

Mr Tan said, “For over 100 years, our colleagues before us in the industry would be sitting in a similar room, discussing the challenges of the day. It could be the invention of telephones or cars causing worries about the end of insurance as they know it. But 100 years later, the insurance industry is still thriving. Disruptions will come in many forms and shapes but by facing the challenges head on, I have every confidence that the industry will continue to thrive.”

The roundtable was chaired by Mr Benjamin Ang, Editor, Asia Advisers Network and was organised in collaboration with 360F.

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About 360F

360F supports banks, life insurers and their distributors to scale sustainably. In particular, 360F utilizes marketing science, behavioral finance and psychology to innovate and forward financial advisory to the next frontier. Other than providing consulting services, 360F is currently launching its next-generation product suite “360-FORESIGHT PRO®”, an AI-based advisory platform and the first-of-its-kind robo for financial well-being. This includes an algo-based solution assistant that automates and optimizes a holistic solution comprising protection (insurance) and investment. Financial advisers are set up with 360-AI capabilities and sales intelligence to raise their effectiveness in discovering and realizing their customers’ true (and greater) potential for financial well-being.