Life and Annuity insurance business manages close to USD 20 trillion of assets, and half of these are in government bonds with diminishing returns. For example, 10-year American bond yields have more than halved since the end of 2019. The coronavirus crisis also puts pressure on non-Government bonds which may cause credit distress and further downgrade. Combine this with COVID-19 ushered unprecedented market volatility, where global stock exchanges are witnessing extreme falls unseen in many decades. Yield curves are flattening due to downward movements in equities, interest rates, credit spreads, et al, which is causing major erosion to intrinsic values of Assets Under Management (AUM). This impacts solvency ratios that is always challenging the life and retirements sector.
Additionally, COVID-19 drags down interest rates leading to lowered investment incomes and diminished viability of financial guarantee products. This adds to the resistance that Life & Annuity carriers face from millennials looking for new age products that would provide bundled covers of life, healthcare, retirement savings all rolled in one, which is very different from the traditional offerings of protection, universal and variable life that are currently sold as separate covers. Coronavirus also causes income problems for career agents whose commission incomes from new business, have taken a big hit due isolation and remote sales happening via portals. Here multiple insurance companies are providing financial help to tied agents which escalates operation costs.
COVID-19 heightens the effect of headwinds caused by newer players like Insurtech start-ups, venture capitalists and non-insurance incumbents, who further commoditize the profitable life insurance products. They dilute medical underwriting guidelines which are key to keeping loss ratios low in times of crisis like the current coronavirus pandemic. This reduces the differentiation that traditional carriers had and forces them to transform their target operating model and tech landscape.
Here are some solutions that I feel will help in overcoming these challenges:
Persevere to transform and choose the right responses
In such a backdrop, life and annuity carriers should engage with customers and prospects with innovative product options, coverages that will cushion them against pandemic losses (both direct and indirect).
Move away from one size fits all
The best way to do this is focus on “aggressive growth” by designing journeys focused on each persona. Create a customized digital interface that provides delightful customer journeys which are hyper-personalized, with 360-degree view of client/ prospect data.
Sales process – reimagined, redefined and rewired
Successful life & annuity carriers are the ones making their workplace digitally elastic and catching the space between stimulus and response in the coronavirus era. They are nimble and adapt swiftly to remote servicing, using digital platforms that facilitate seamless networking, creating a virtual work environment with flexible collaboration tools, bolstered by adaptive robust security and underpinned by the cultural awareness which is the unique secret sauce of each organization.
In the COVID-19 backdrop, some of the ingredients for market-leading growth will encapsulate a mix of the following:
- Innovative yet simple products, that customers can trust to cover pandemics, simple in design with no fine print exclusions
- Customer-focused portals for research & self-service, with flexible coverage linked pricing
- Personalized interactive illustrations which can be calibrated based on “need analysis”
- Omnichannel, personalized distribution using analytics for understanding buyer behaviors with precise segmentation
- Intelligent chatbots as virtual assistants to handhold customers and prospects, helping them to understand even complex insurance covers and help in decision-making
- Quick and responsive COVID-19 pay-outs powered by Artificial Intelligence to expedite claim settlements guaranteeing security and re-assurance
- A move to lower cost structures by technology transformation, cloud hosting & automation
To summarize, “less in more” is true in the COVID-19 economy – fewer human interventions, compensated by digital interfaces, virtual assistants, and advanced analytics tools. This will help in moving to lower cost structures while boosting digital sales that come at a lower acquisition cost.
Stay tuned for COVID-19 Impact Series: The New Insurance Economy – Challenges and Solutions
- COVID-19 Impact Series: Property & Casualty Insurance Revisited
- COVID-19 Impact Series: Healthcare transformation using IT
- COVID-19 Impact Series: Trying Times for Broking Sector
- COVID-19 Impact Series: Turbulence in Reinsurance
Visit LTI’s Insurance page to find out more about our capabilities in this vertical.
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