Navigating The Industry’s Changing Landscape Demands Foresight And Flexibility
As a legacy industry, the insurance industry has long been associated with providing financial protection and effective risk management. For individuals, the industry delivers financial security and peace of mind for themselves and their families. By insuring companies and Taft-Hartley funds through providing solutions like medical stop loss coverage which protects them in the event of employees’ catastrophic medical conditions, the industry helps drive their growth and enables them to take calculated risks. Legacy industries, however, are not known for bold moves. Unlike, for example, the tech sector marked by rapid change, the insurance industry has been slower to adapt to new business models, technologies and market dynamics. For our industry, the primary drivers of change have been the various challenges we face. To succeed, it’s been necessary for insurance companies and brokerages to adapt and deploy better strategies that enable them to address today’s challenges and benefit from more opportunistic practices.
For years now, the insurance industry has grappled with increasing legislation on the state and federal levels. Just as the Department of Labor’s fiduciary rule sent a warning to investment advisors and other fiduciaries that they must put the best interests of the investor ahead of their own, the SEC issued a Regulation Best Interest and the New York Department of Financial Services (NYDFS) issued its Insurance Regulation 187–a best interest standard for annuities and life insurance product recommendations. The standard became effective for annuities on August 1, 2019, and will be effective for life insurance products on February 1, 2020.
Regulations relating to protecting customers’ personal data also have intensified. Following in the footsteps of the European Union’s EU General Data Protection Regulation (GDPR), we saw two of the nation’s more progressive states, California and New York, issue new data protection legislation; the California Consumer Privacy Act (CCPA) and the NYDFS’ Cybersecurity Regulation. As large collectors of sensitive data, insurance companies will have to take new measures to assure their compliance with these other state regulations likely to follow.
On a related note, we see the value in having a cyber security solution to offer consumers. At Amalgamated Life, we entered an agreement with CyberScout® in early 2018 to market its LifeStages® identity management services and its FraudScout® credit monitoring and risk minimization services. Not only do these products provide vital consumer protection in the event of a data breach, but also let the market know that we take cyber security very seriously.
In addition to these and existing regulations affecting the industry, there’s The Tax Cuts and Jobs Act, which has been affecting insurers’ operations. Specifically, the broad tax rate cut from 35 percent to 21 percent had the effect of reducing cash tax rates over time, as well as reducing deferred taxes recorded on company balance sheets which placed stress on risk-based capital. Economic conditions including the flattening yield curve between short- and long-term interest rates, which historically has predicted a recession, coupled with market volatility and political unrest, have also challenged the industry.
Another area where the insurance industry is experiencing some difficulty is in workforce development. With the graying of America and many experienced insurance professionals retiring, attracting the younger generation to an industry not associated with youth or high technology so integral to the lives of Generations X, Y and Z is a challenge. Similarly, attracting these younger generations as customers will demand that insurance companies make the necessary investments in technology to distribute product information online and via mobile platforms to deliver a more personalized, seamless customer experience.
Investing in advanced technologies is not only a challenge, but essential for insurance companies’ future success. Artificial Intelligence (AI), for instance, can be leveraged to facilitate better product marketing, underwriting decisions and more expedient claims handling. Through Big Data, predictive analytics can be applied in micro-target marketing and more tailored customer service. Today’s leading-edge technologies can also be harnessed to support product research and development, and promote increased cost efficiencies and better operational decision-making.
The Road Ahead
In addition to meeting today’s challenges head-on, carriers, brokers and agents will need to focus on capturing the underserved markets; that is the mass market consisting of consumers with $25,000 to $100,000 in investable assets, and the middle market comprised of consumers with $100,000 to $250,000 in investable assets. According to McKinsey research, there are 68 million households which include mass-market millennials (age 18-34), mass-market Generation Xers (age 35-54) and middle-market Baby Boomers (aged 55 and older). Within these households, 57 percent do not own individual life insurance. By targeting each market niche effectively based on their unique characteristics and life stages, and capitalizing on life trigger events (i.e., marriage, babies, new jobs, etc.), carriers, brokers and agents will be better positioned for growth. For instance, many Baby Boomers are brand loyal, have cash on hand, and therefore are prime for up-selling additional insurance products. Millennials value innovation and socially-minded organizations. Marketing products that are differentiated from others and also communicating a company’s philanthropic activities will score points with this sector.
It’s also important that companies strive to change the public perception of life insurance companies. Currently, industry members are not the first “go to” resource most consumers consider when making financial decisions. By building brand awareness and conveying a company’s value proposition, companies can instill greater consumer confidence in insurers’ and brokers’ vital role in their financial protection and security. In addition to professional marketing and branding, it’s important that product literature and information presented online be fully transparent and easy to understand.
Expanding the Lines of Communication
In 2019, we, at Amalgamated Life Insurance Company, developed a Broker Advisory Council. Our goal was to expand the dialogue between our organization and our broker network. While we have had just one council event to date, it has proven extremely valuable. We are gaining greater insight into what the brokers are hearing from their customers. This feedback includes both general observations relating to what plan sponsors want for their members, and also specific comments pertaining to our various group and voluntary products. We learned from our participating brokers, for instance, that the portable voluntary group level term life insurance product we introduced last March was very well-received by their customers, plan sponsors and members across the country. Having a direct pipeline to a broader cross-section of the marketplace to supplement the input derived from our own sales executives is valuable in our product research and development, underwriting, marketing and customer service.
We’re cautiously optimistic about 2020. Carriers, brokers and agents that adhere to best practices, venture out of their comfort zones with respect to new technologies, and also keep their finger on the pulse of the market can be successful in the year ahead despite the challenges. [JT]