The evolution of Life insurance

It is clear even to non-experts that the Life Insurance industry has been affected dramatically by the interest rate environment we have been experiencing in recent years in many advanced economies. As Central Banks kept rates low to stimulate production, Life insurers had to face the challenge of matching the high guaranteed rates embedded in their traditional policies. 

However, there are several good reasons today to be more optimistic than ever about the prospects of Life insurance, regardless of the expectations of many analysts about the gradual increase of yields, which may or may not take place.

Opportunity #1: meeting increasing retirement needs

There is an unprecedented gap between retirement needs and retirement solutions. We observe an ageing population in many advanced economies. As a matter of fact, 19% of the current population in the European Union, equal to approximately 97 million individuals, is older than 65. In 2050, almost 30% of the European Union’s population is projected to be older than 651.

The elder segment of the population has extensive needs (which are likely to grow further in time) in terms of post-retirement income as well as services and protection covers. The progressive reduction of support to the ageing population from governments, often grappling with cumbersome public spending, is going to increase the need for solutions from private providers. This is exactly the natural playing field of Life insurance companies. 

The provision of income solutions, services and protection covers for the elderly is the natural playing field of Life insurers 

Due to uncertainty in terms of future longevity rates and associated capital requirements, the Life insurance industry has been so far reluctant to offer post-retirement income solutions.

However, forward-looking insurers learn how to design personalized products and services and, as a result, take advantage of the following facts:

• there are substantial amounts of wealth (approximately €33 trillion in Western Europe) residing in various investment vehicles; people are expected to use a significant portion of this wealth to get post-retirement peace of mind;
• as part of comprehensive post-retirement solutions, there is the clear need of providing protection against certain aging-related illnesses, such as dementia, as well as services that can improve elder customers’ lives.

Opportunity #2: meeting the multiple needs of the young and middle-aged population through single solutions

Young and middle-aged customers are increasingly looking for simple and tailored solutions as well as single providers that can cater to all their needs, including investments, savings, protection & health insurance. As opposed to banks and asset managers, Life insurers can provide comprehensive responses to all these multiple needs.

Life companies can offer personalized Unit-Linked and hybrid solutions that combine the upside potential of investment products with the protection of capital or income, reflecting the risk profile of different segments. Over the recent past, customers have shown remarkable interest in Unit-Linked and hybrid solutions, which today represent most of Generali’s Life offering. The Unit-Linked portion of our new production jumped by almost +30% last year!

Furthermore, critical illness, unemployment, disability and private medical insurance solutions, to name a few, can be offered to complement savings and investment products. Customers get peace of mind and are spared the trouble of buying different products and services from different providers. 

Additional insurance solutions can complement savings and investments. Customers get peace of mind and are spared the trouble of buying different products from different providers

Opportunity #3: offering a better customer experience using innovative technologies

The insurance industry can enhance its traditional distribution models by leveraging technological breakthroughs to multiply the interaction points with customers. Freed of valuable time currently spent on repetitive exercises and supported by data analytics, agents and brokers can enjoy more touch points with customers, understanding their evolving needs and advising them on the appropriate Life insurance solutions at the right moments of their lives.

The use of technology before and after sales, including robo-advisers and artificial intelligence, is expected to lead to business opportunities for Life insurers and, at the same time, to a better, simpler customer experience.

Life insurance is like good wine, it continues to improve as time goes by

In my professional career in insurance, I have seen periods when Life was more fashionable and others when Property & Casualty was, instead, en vogue. I have learnt to stay away from fads and to focus on fundamentals.

The Life business has changed dramatically over the past years and now has the potential to cater to customers through a personalized and distinctive offering, along their whole life journey, while generating a higher margin for insurance providers. The advantages provided by Life insurance policies combined with favorable demographics and technological developments make me optimistic about the future of the Life Insurance industry.

Beware of fashions, as they come and go. Life insurance is like good wine, it continues to improve as time goes by.

1 Source: Eurostat