Tom Scales, head of Americas – life, annuity and health, at Celent, explains why these are turbulent times in the US insurance market for life insurance and, in particular, health insurance.

The life insurance market is growing at a very modest rate of approximately 2% per year. This means that, for insurers to grow without disruption, they need to take market share from their competitors, either organically or through acquisition.

The real growth opportunity in the market is with younger buyers, particularly millennials.

Unfortunately, this is a group that does not yet see value in life insurance.

Here at Celent, we refer to these potential buyers as immortals because they do not believe they need life insurance. For the most part, they’re right, until they’re wrong.

Yes, their mortality rate is low, but for the families of those that are on the wrong side of that calculation, the impact is catastrophic.

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The pace of insurtech investment in life insurance is also slow. As highlighted in our recent report, Why Are There No Drones in Life Insurance?, there are some fundamental infrastructure issues that the industry needs to address, including this is the way we’ve always done it, and we have the technology to prove it.

The life insurance industry is constrained by the way the process has always been done.

Aging underlying technology

The underlying technology is aging. Many companies have multiple policy administration systems, and their age is often measured in decades.

Companies are still operating on platforms implemented in the 1970s, or even 1960s. It is tough to show an innovative agent and customer experience on a system that predated regular use of the Internet by 20 or 30 years.

Similarly, the steps to process an application have not changed. We still see the majority of applications taken by an agent, on paper, and then manually underwritten using handwritten notes from a doctor.

This makes sense, because the actuarial science is based on this information, but it does little to speed up the process.

In our recent report Resetting the Bar: Key Metrics in Life Insurance New Business and Underwriting, we show the average cycle time — the time from application taken to policy delivered — has dropped from 53 days to 38 days, a savings of almost 30%. This is great, but the industry needs that to be one day.

Positive change

The good news is that we are seeing positive steps. We are seeing companies invest in large-scale IT and operations transformations, which address many of the technology limitations of today.

We are also seeing innovation in underwriting, where companies are making instantaneous decisions on publicly available information. This could be revolutionary and change the entire fabric of the industry.

We are also seeing investments in selling life insurance in a direct-to-consumer model. Companies like Haven Life, Ladder Life, Policy Genius, and others are providing an entirely online experience that can bring life insurance into the 21st century.

The risk

The risk is not from within, but from party-crashing technology companies.

The barrier to entry to the life insurance industry is notoriously low. It requires operations and technology that can be outsourced, leadership, and capital.

 All are available in abundance. We have seen other industries impacted by  entrants, and it could happen here. Remember MySpace?

The upside for life insurers is an odd one. The margins generated by life insurance are low compared with those expected from high-tech companies. This alone may protect the incumbents, at least temporarily.

US health insurance

While this article is being written, the US Congress is debating a new healthcare law that will repeal and replace the current Affordable Care Act (ACA).

The outcomes and implications of these actions are beyond the scope of this article, but there is one important result: change.

Any time there is major, disruptive change in an industry, there are companies that benefit and companies that do not. It is a great time to be an innovator in the healthcare space.

Many health insurers are struggling with similar problems. For our purposes, we will discuss both the traditional major medical providers and companies that offer ancillary products, such as disability income, dental, and vision.

One of the major changes we are seeing is a shift from employer-funded insurance to employer-sponsored insurance.

The employee gets the benefits of purchasing power from their employer, but they are responsible for the premiums themselves.

This is a major shift and has allowed new companies to enter the market and all companies to offer more flexible products. This chaos has led many insurers to embark on long overdue transformation programmes.

We are seeing investments in all parts of the value chain, from direct to consumer, to direct to employer/employee, to the support of the agent. The ACA did drive considerable innovation, particularly in the area of self-service portals — direct descendants of public insurance marketplaces.

Positive change

There is more activity in health insurance than life insurance. Celent is aware of a significant number of transformation projects, new companies entering the market, and insurtech investment.

One area of explosive growth is with benefit admin (benadmin) providers, such as Zenefits, Gusto, and Just Works.

These companies offer small businesses access to low-cost or free human resources systems. They also administer the company’s benefit programmes, and the technology provider is the agent of record on the business.

Insurers that are not offering their products through the providers need to consider doing so.

The  Risk

As with life insurance, the risk to health and group insurers is outside entrants. The difference is that they have already arrived. The best example is Oscar.

Oscar has had a major impact on the health insurance industry, but it has not been without bumps in the road. They have discovered the challenge of working within the ACA model, but are likely poised for the changes being introduced.


For the first time in decades, we are seeing exciting, disruptive change in the life and health industry. Companies are striving to meet and exceed expectations. This article touched on highlights, but areas such as wellness, product innovation, and more will seed this disruption.

It is an exciting time.