Luxembourg Times, 31 October 2018
The reasons to buy private life insurance for the mid to high net worth individual are the same as ever -peace of mind, wealth management, mobility and scenario planning- but in the turbulent world we live in perhaps more so. This makes the attributes of a Luxembourg life insurance contract ever more relevant. A key challenge for the insurance industry going forward is the changing expectations of the people who buy that life insurance.
What all of us want now is simplicity as we are increasingly influenced by the "instant experience" world. This means wishing to go online and be able to choose the pieces you want for anything - instantly - in this case, life insurance.
There are many studies (PwC's included) showing life insurance to be late adapter industry. Typically conservative, insurers sometimes develop products that don’t exactly line up with an understanding of the criteria of their sophisticated customer market.
However, companies are changing their behaviour - their internal focus. The ability of technology - automation, big data analytics and AI - to provide a much richer client experience is behind this transformation. Companies are seeing the need to offer customers the ability to access their own data easily, via a user-friendly dashboard on an automated platform, so they can make better decisions.
As Matt Moran, Partner Corporate Finance M&A and Strategy, Insurance Sector Leader, PwC Luxembourg puts it, "GAFA (Google, Apple, Facebook, Amazon) and mobile phones are instrumental in changing customer expectations. In the life insurance and wealth management sectors, people want flexibility, of course all done inside regulatory law. They want to know the performance of their underlying investments in real time. They want transparency on fees, and to be able to influence and change their investment strategy to, for example, sustainable or ethical, high or low risk, investments. Why should the insurance customer experience be any different than in other sectors?"
Advanced techniques, for example automation and data analytics, can help insurers gain insights to their customers, but according to a report from PwC, Insurance 2020. "Most insurers are still primarily focused on e-commerce, doing what they do already, but digitally."
Regulatory changes such as those on new distribution channels, GDPR and Solvency 2 (which seeks to ensure that insurance companies have sufficient capital to support their risk) are mandatory changes that have added complexity. This leads insurers to be internally focused, because there is a heavier burden of compliance and cost in their operations.
Finally, they face an overload of information. How are they going to deal with it all?
"Tech can make the customer experience richer," says Matt. "That is how some new companies are trying to capture market. However, life insurance policyholders trust that their wealth will be protected over the long term so people also want security. They want brand, and the service needs to be modernised for the small investors and up to the HNWI. The feel of the service has to be "fit for purpose." "
When banks want to recommend their insurance partners, they want that experience for the end customer to be easy. Combined with the human factor of years of investment and insurance expertise, partnering with new tech companies is one path to advance the experience of customers while at the same time more efficiently manage operations and deal with regulatory challenges. People, especially mid and high net wealth individuals, usually like the human relationship. They feel more comfortable with a person and with face-to-face advice.
"There is the insurance that you need by regulation and with that insurance, price is more of a bargaining chip. However, with wealth planning life insurance solutions people want the security of a brand. What insurance companies are doing is buying or partnering with tech innovators so that they can transform themselves. This is why companies like PwC have done collaborations with technology platforms such as Lifeware, to help insurance companies modernise and offer that end-to-end digital experience that everyone is looking for."
Over time, Luxembourg has built up a solid reputation as a hub for international insurance business particularly in the wealth, captive, reinsurance and marine segments. Where the Luxembourg insurance sector excels, and where its future lies, is in cross border business.
"Tech facilitates crossing the borders," says Matt. "In the life and wealth sectors, it’s all about connecting to banks and distributers by having end-to-end digital connectivity. Today, the process is seen as too heavy and in some cases it’s still largely a paper world cross-border. The winners will be those companies that offer a better end-to-end experience. This will also protect profitability. By getting this right, Luxembourg insurers can open up a new world of opportunities for growth."
"Luxembourg life insurance companies are starting to modernise their operations in line with these market expectations,” Matt continues. “BXT (Business, Experience and Technology) is an approach we use to help insurance companies to redesign process and product based on customer need by holding up a mirror to themselves and their business to offer people something that they really want.”
"Companies expend a lot of energy focusing on business fundamentals and technology infrastructure," says Susan Coleman, Managing Director, Global FS Innovation Centre, PwC Luxembourg. “Both of these are important, but in a world of Amazon Prime and Uber Eats, consumers have different expectations and their insurance company needs to measure up. That’s why starting with the customer experience and expectations makes so much sense.”
Check out The Blog “Insurtech reinventing the insurance industry”