Life insurance companies have faced major changes over the years. Even before the pandemic, they struggled to adapt to new technologies and meet changing customer expectations.
Once COVID-19 emerged, interest rates dropped and product offerings evolved, sending many whole and term life insurance providers back to the drawing board to rethink their strategies.
As 2021 comes to an end, insurers are continuing to unpack and adjust to these changes, with many embracing this opportunity to innovate and revolutionize how the insurance industry helps people.
With that in mind, here are the four biggest challenges facing the life insurance industry today.
As a result of the pandemic, global interest rates dropped lower than they were even during the 2007-08 financial crisis, according to McKinsey & Company. Life insurance companies were hit hard by this shift, since many invest most of their assets in bonds and mortgage loans. Deloitte even reported that almost half of insurance executives said the pandemic showed how unprepared their businesses were to "weather this economic storm."
Life insurance premiums also plummeted in 2020, according to Deloitte, with many annuities and non-term life insurance offerings set to be impacted through 2021 and beyond. Even with the rise in COVID-19 deaths, consumers have not shown an increased interest in purchasing life insurance due to the perceived costs and complexities of the process, forcing many insurers to find new ways to meet their bottom lines.
The average life expectancy has grown from 70 to 79 since 1960. In fact, by 2030, the number of people aged 60 and above is expected to increase by over 50%, as the World Economic Forum reported.
In response, the life insurance market has shifted away from offering mortality risk products and towards helping people manage their health later in life. In fact, customers are increasingly investing in annuities for retirement over life insurance. McKinsey & Company describes this transition as a shift from the "assess and service" model to the "prescribe and prevent" model, better reflecting customers' needs and behaviors.
An influx of data and advanced technologies have provided insurance companies with an opportunity to better understand what their customers want and deliver more valuable, personalized experiences. Still, this is easier said than done, and it often requires new budgets, teams, tools, and strategies.
Insurers, for instance, can give customers the ability to virtually get life insurance quotes, file claims, access policy information, and communicate with representatives from their devices. They can also gather data from wearable and connected devices to update consumers with real-time alerts and health and wellness resources. As McKinsey & Company reported, six in ten consumers across the world are willing to share personal information with insurance companies in order to lower their premiums.
Customers are seeking simpler and more affordable life insurance options for a range of reasons, including economic instability and a growing interest in overall health and wellness.
Deloitte, for example, proposes a modular life insurance product that people can customize to meet their needs for different stages of life. Some insurers are already offering more flexible payment systems for people with seasonal incomes as well as coverage that automatically optimizes and updates based on clients' financial data.
As these changes continue to play out for the life insurance industry, providers have an opportunity to learn from the market and adapt their offerings to meet consumer demands. In the end, they should be equipped to better help those in need and deliver personalized, data-driven products that future-proof their businesses.