John Ritchie, former chief executive of digital group risk insurer Ellipse, and now managing director of consulting company Eithne Group, explains that in order for the UK group life and disability insurance market to realise growth it needs to automate and be digital in communication, in payment processes and purchasing processes at corporate client and individual levels.
What is the condition of the group risk side of the UK life and disability industry? At the end of 2015 it was a £2bn annual premium market that has grown at an average of 7% pa since 2010.
Growth in 2015 relative to 2014 was a disappointing 3.6%. 2015 of course was the election year where it was felt to be politically expedient to take a breather on auto-enrolment as there was quite some anxiety about a backlash from SMEs and micro businesses.
That political consideration looks distinctly third order priority given the seismic decision to leave the EU.
We are all so familiar now with the distribution graphic which shows us the huge number of new employee benefit schemes being established as SME and micro businesses comply.
Be in no doubt that auto-enrolment is happening right now and it is dominated by the process.
Insurers in this market needs to change, perhaps even more than advisers, and lead change to enable distributors to succeed.
This is an open door to an unprecedented growth opportunity for advisory businesses. It does pose a major practical and philosophical question though. What do you want and what are you prepared to change?
A £3bn AP market by 2020.
What are the clues to this? Firstly, it is the observation that the Pensions Regulator projections have consistently underestimated the rate of new business starts in our rapidly changing economy.
The UK is already one of the most digitally developed economies in global terms and we can observe from our challenger insurance business that there are many new businesses that immediately establish pension, life and some disability cover for their people.
For some leading insurers in 2015, 40% of quotes were new to market schemes. That is new businesses or existing employers that have never had this form of cover before. Those ventures assume the service will be provided in a complete package and delivered digitally.
It is instructive to contrast underlying growth levels in individual protection markets. The conclusion might be that it is practical and economic to get to people through their workplace and that we can use the established streams of people data that employers already hold to deduce pricing variables.
Advisers and insurers will need to change major components in their organisations – the post auto enrolment era is the digital era.
That is not to say that it is easy for distributors or insurers to access these markets. Adviser administrative practices, marketing and communications structures in particular need to change.
Data and how that data flows and connects is at the heart of this.
To realise growth from our life and disability trade we need to automate and be digital in communication, in payment processes and purchasing processes at corporate client and individual levels.
Underwriting at scheme/policy and individual member level, financial education and advice will deploy algorithms and automation.
If your advice firm is caught up in sterile argument on the distinction between advice and guidance you are already so far off the pace that your race may be over.
The areas that require most change are communications and process automation.
Collectively, insurers and distributors are just not communicating frequently enough to get the core messages about life and disability insurance to their targets.
The only strategic question is which insurers are economically viable in a post auto enrolment, digital, environment.
In other words who has already built or is designing and building the data pipes and delivery platforms?
The 5 characteristics of insurers that will thrive and grow are
- Automation of substantial parts of the process to reduce cost, create service reliability and space for communications.The insurers that automate will have an operational and cost advantage over the major incumbents.Perhaps as much as 10% of a gross premium advantage.
- Data integration, that is, automated synchronisation to and from benefit platforms and payroll will be critical.
- Anytime benefits are the future . Flexible benefits are frankly so last century. Flex windows and life event triggers are fundamentally underwriting restrictions. They are necessary because insurers have not invested in process and communication.
- More communication to people – at least 5 x times’ more than current levels – in and around employee benefit schemes will be a hygiene factor.Use of data we already hold on the individual to play back what they could have and actually need will be essential.We need to stop obsessing about big data for us and think about using small data – data about the individual – for them.
- The appetite to insure the 50% of employees that insurers and reinsurers have not wanted to cover in the last 25 years is critical.
‘Digital free stuff’
Products of the near future may not lead with the core insurance, but lead with the digital free stuff – that is free to the customer – which is attractive and cool.
Wellbeing tracking through wearables will feature for the employee. For the employer it will be people and time management software that is data integrated to the long term sick pay insurer’s claim process.
These features will become the new generic product models. The invisible digital stuff, the data synching between payroll and benefit platforms, providers and individual members, which is the key to sustainable advantage as it will drive down costs and improve pricing.
The strategic risk is that insurers and distributors apply a shallow analysis and think in last century patterns.
Optimism on growth in life and disability markets should prevail if we focus on the workplace and on our purpose in that context.
Through integrating data and obsessing about its flow, we make it economically viable to get a decent amount of family catastrophe cover to the 50% of people in this economy we have not reached in the last 25 years.