KEY POINTS

  • Life insurance is a fundamentally hard product to sell, as it requires people to think about their deaths and promises no immediate benefits. Moreover, the way life insurance is sold makes it doubly unattractive, as consumers must go through a paper-based, lengthy application process and an inconvenient medical exam, with little guidance from their providers, and often high costs.
  • The problem is compounded by incumbent insurers' failure to innovate, even as personalized products and streamlined services proliferate in other areas of finance. Many incumbent life insurers are hampered by decades-old IT systems that keep them from making better use of their data, for example, to process policies more quickly, better personalize products, and conduct more accurate risk assessments. As a result, the life insurance industry is far behind on the digital curve.
  • A small yet growing niche of insurtech startups is now finding different ways to digitize life insurance to make it more appealing. Life insurance-focused startups are tackling a number of problems with the status quo, including a lack of consumer understanding of the product, inconvenient application processes, minimal customer loyalty, and inefficient data management and processing. Some are focused on improving products for consumers, while others are helping insurers to modernize.
  • However, these life insurtechs are disrupting a tightly regulated and emotive product, and their solutions carry regulatory and ethical risks. That means such companies, and any insurers using their solutions, must take precautions to ensure these new services add value to the industry. Such precautions include bolstering compliance teams and prioritizing customer education in a thoughtful way.
  • If life insurance incumbents are to stay competitive, they'll have to make fundamental changes to their systems and operating models. The innovation attempts incumbents have made are largely focused on front-end fixes that won't result in any real improvement in the product, or the way it's sold. Instead, incumbents must focus on modernizing their core systems first.
  • Life insurtechs are likely to spearhead change in this space, with incumbents following suit. Such startups will set new industry standards and consumer expectations around this complex product. That, in turn, will serve as a catalyst for innovation among legacy insurers.

Introduction

Life insurance is a fundamentally challenging product to sell. It requires people to think about their deaths, can seem like an [...]