The protection industry is forever predicting positive change to grow the market. Jonathan Hughes, a reinsurance actuary, assesses the odds of this happening soon.
Nearly ten years ago, a budding young actuary calculated there were enough pensions actuaries already and decided to enter the exciting world of life reinsurance.
Compared with the first nine years, so far this year I’ve spent an unusually large amount of time running or participating in ‘innovation sessions’, both within the firm and with clients. These sessions have led to a few pertinent questions:
- What are the top three innovations the protection market has seen over that period?
- Why is there such a strong belief today that, finally, we will see the innovation needed to grow our market?
- What are likely to be the top three drivers of innovation over the next decade?
Of all those questions, the first is actually the trickiest. Perhaps it’s difficult to spot innovation from within an industry, or maybe it’s simply because there has been a genuine lack of it. But, after lots of head scratching, this
is the conclusion:
1. Automated underwriting systems: These have been knocking around for a long time, but it’s only really during the past ten years that they have come of age. We now see the majority of cases being underwritten electronically. As well as the obvious benefits of reduced time and cost, this has created a structured source of data that we can use to enhance the underwriting process.
2. PruProtect’s Serious Illness Cover: There aren’t many examples of genuine product developments over the past ten years – certainly not ones that have generated meaningful volumes. I recall a former colleague describing PruProtect’s offering as “courageous, in the Yes Minister sense”. But Serious Illness Cover has proved it is possible to carve out a meaningful segment of the market via
3. Click: A surprise choice for sure, but the experiences of those involved opened some disbelievers’ eyes to the importance of distribution quality monitoring. It also made me, as an actuary, acutely aware of how little I really understood about the different sources of leads in the marketplace. While Click may no longer be selling our products, the legacy of closer distribution scrutiny lives on.
Moving on to today, why the increased innovation focus now? Why would the next ten years be any different to the last?
In part, the greater focus is the usual tendency of our industry – so used to thinking long-term – to miss at first the more immediate disruptive changes that occur in other industries. I remember the look of bemusement from my wife when I came home enthusing about the impact of a novel use of technology during the underwriting process: the telephone (first patented in 1876).
But the pace of change elsewhere has accelerated ever more rapidly. To pick just a few examples, at the end of last year, some debate was created over a telemarketer called ‘Samantha West’, who swore she wasn’t a robot yet sounded awfully like one – she couldn’t answer “what vegetable is in tomato soup?” for a start. We’ve got robots writing our news for us – and there’s even a machine called AARON that creates oil paintings straight from its ‘imagination’.
Combined with stagnant sales, it’s now becoming impossible to ignore the potential for innovation in technology, marketing and business models to disrupt our market. While we may not be able to identify the clear winners right now, it is certain that initiatives started in recent months will have a profound impact on our industry over the years to come.
Choosing just a few potential drivers of future innovation is hard, but here are my top three:
1. Predictive underwriting: We’ve been through the first two phases of Gartner’s Hype Cycle (the ‘peak of inflated expectations’ followed by the ‘trough of disillusionment’) and are now ready to move up the ‘slope of enlightenment’. Practitioners are finding out through trial and error where predictive modelling can help the underwriting process and how best to use the models. The ever-growing volumes of data available will make this tool more powerful over future years.
2. Electronic health records: Wearables are probably still in that peak of inflated expectations, but consumers will take increasing control of their health and medical records via services like Microsoft’s HealthVault. This will present us with a challenge: how to develop propositions that both take advantage of this increased health data and avoid the obvious risks of anti-selection. Those who do this well will develop a strong competitive advantage.
3. George Osborne: Another oddball choice, but it’s simply because of what he’s done to the annuity market. By removing a major source of profit, we’ll see renewed strategic focus from the big beasts of the life insurance industry on how to profit from other lines of business.
While technology and data may have created the means and opportunity, it’s ultimately the profit imperative that all too often provides the motivation.
Only time will tell which of the above will genuinely disrupt our market (I’m already feeling Osborne was a bit of a courageous choice and I should have gone for behavioural economics instead). But on to the more important question, for me at least: was it the right call to leave the world of pensions nearly ten years ago?
While the pace of change in protection has been slow at times, our industry has done some great things over that period. And I’m more convinced than ever that we now have the opportunity to create the changes we need to grow the market – it just takes us to have the courage to disrupt the status quo, rather than relying on our current proposition to satisfy future customers.
To end with a quote from William Pollard: “The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.”
Jonathan Hughes is head of strategic development at RGA Re