Robo-advisers – online wealth management services that provide automated algorithm-based advice without the use of human financial planners – could offer life insurance products within the next 5 to 10 years, according to research by Life Insurance International (LII).
US-headquartered insurance association, LIMRA, defines a robo-adviser as a service that provides automated advice calculated through algorithms that allocate investments for the client based on investor goals and risk tolerance.
Although robo-advisers have been a part of the financial services industy for at least a decade, it is still a relatively new development for portfolio management.
LIMRA notes that robo-advisers currently focus solely on investment management.
However, it would be insular and short-sighted or life insurance professionals to think that robo-advisers will have no impact on insurance given the speed at which technology is developing and the appetite among consumers, who are currently not served by intermediaries, for advice.
LII also understands many protection insurance players are actively investigating the application of robo-advice.
Wealth manager BlackRock has already recognised the potential for robo-advisers by agreeing to acquire digital wealth management advisory firm, FutureAdvisor, in August 2015.
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FutureAdvisor will operate as a business within BlackRock Solutions (BRS). Commenting on the acquisition, Tom Fortin, head of retail technology for BlackRock, said: "As demand for digital wealth management grows, we believe that our combined offering will accelerate our partner firms’ abilities to serve the mass affluent in a convenient, scalable way."
Life insurance impact
Scott Kallenbach, research director at US-headquartered insurance association, LIMRA, tells Life Insurance International (LII) that sales professionals with a focus on life insurance can leverage robo-advice platforms to strengthen their investment management capabilities.
Kallenbach says: "They may not have the time, or the expertise, to offer investment management. A robo platform can help fill that need."
Over the next 5-10 years may see robo-advisers taking a more holistic view of client needs, says Kallenbach.
He says: "They’ll be able to offer more sophisticated investment options . . .and I would not be surprised if they also have life insurance and related products
"I can see carriers creating products specific for this platform – as a way to gain access to another distribution channel."
To explore the impact robo-advisers may have on financial services practices, LIMRA surveyed over 300 members of its panel of financial professionals.
This found that almost half of all sales professionals view robo-advisors as having no real impact on the insurance and related financial services industry.
While some advisers may ignore the disruption posed by robo-advisers, financial advisers – who are key life insurance intermediaries -will need to evolve to keep pace with technology driven alternatives.
LIMRA says robo-advisers may be a disruptor, but they can offer companies and sales professionals a competitive edge by supporting an omnichannel strategy and practice management.
Support an omni-channel strategy: According to LIMRA, consumers’ primary reasons for using robo-advisers are ease of getting started and 24/7 online convenience. It says this demand for a seamless, omnichannel approach will continue to accelerate. In a paper, LIMRA states: "The robo-advisor technology enables a customized experience that allows clients to engage the company on their own terms, 24/7."
Practice Management: The next generation of clients is very comfortable using technology. LIMRA notes that using a robo-adviser platform may help fill the pipeline with new, emerging affluent clients.
LIMRA stresses that technology will not replace one-to-one relationships, but rather it will strengthen those bonds.
Ian McKenna, director of the Finance & Technology Research Centre, tells LII that any protection insurance organisation that is not looking at automated advice and systems runs the risk of losing "serious market share".
McKenna says: "I am certainly seeing things moving in the direction of [robo-advice and automated systems].
He adds that although it used to take 5 years to develop a technology project, now the incubation period last approximately 18 months because such is the speed of technological innovation.
Asked what advantages of robo-advisers could offer life insurance professionals, McKenna says they would help organisations interested in behavioural science and better understanding how to market insurance.
He says: "There is also the opportunity to engage in longer sales cycles. If people were given information and more opportunity to review and consider it, this could grow the protection insurance market, rather than cannibalise it.
Looking ahead, McKenna says: "We will see different distribution approaches and they will sit side-by-side."
A report by Deloitte, Robo-Advisors – Capitalising on a growing opportunity – recommends three ways to capitalise on the opportunities presented by robo-advice:
1. Partner with an existing robo-adviser
2. Develop an in-house solution
3. Acquire a robo-adviser
In terms of partnering with an existing robo-adviser, the Deloitte report says a partnership can enable traditional firms to react quickly and typically has lower costs and limited organisational changes.
Meanwhile, when acquiring a robo-adviser, Deloitte says firms should identify a target firm based on a growing customer base, opportunities for further growth, technology capabilities and the potential fit within their organisation.
The Deloitte makes salient points by concluding: "Digital, automated advice will likely become a standard expectation for the mass-affluent and mass-market segments.
"But we have seen only the beginning of what automated advice can become. Big data and advanced analytics have the potential to broaden the scope of robo-advice dramatically, incorporating financial planning into broader retirement, health, and wellbeing, and enabling quasi institutional research.
"Robo-advice could then impact all investor segments, not just the mass-market and mass affluent retail investors."