Do you ever imagine what your life would be like if you could see the future? A new TV series on ABC called "FlashForward" holds the premise that a mysterious paranormal event causes everyone on the planet to simultaneously lose consciousness for 137 seconds. While unconscious, people see what appear to be visions of their lives approximately six months in the future -- essentially, a global "flash forward." A number of people see newspapers or calendars and it is established that every vision occurred at the same time.
Always looking to the future, the Society of Actuaries (SOA) recently issued a call for essays on "Visions for the Future of the Life Insurance Industry." The call for essays, titled, "Life Insurance 2020 Foresight," encouraged SOA members, or non-members who belonged to one of the SOA's sponsoring sections, to create a vision of a thriving insurance industry in the year 2020. The essay contest was sponsored by the Product Development, Reinsurance and Financial Reporting Sections of the SOA. The top 10 essays are now published in an e-book, which can be found on the SOA's Web site at http://www.soa.org/library/essays/life-essay-2009-toc.aspx
A range of topics were discussed in the essays, but many authors featured a vision for the future of insurance products and distribution of those products that will be insightful to every producer.
Sharon Giffen, FSA, FCIA, MAAA, in her essay, "Sustain," wrote that every facet of business will change over the next 10 years. "Distribution has evolved in concert with our processes," Giffen noted. "Only a decade ago, we were in the independent agent market, competing with other providers for market share. Our mission was interesting to them, but not sufficiently compelling to sell at a higher price or to reduce their commission demands. We were incurring high marketing costs including the travel necessary to attract distributors. This was not well-aligned with our mission and is no longer a source of sales.
A small group of brokers embraced our mission and became dedicated to us. These PPGAs sell to and service our customers who want the personal touch, generally delivered by voice or video, and they assist in their local communities to deliver the "Sustain" programs. For this, we are happy to pay their commission expectations.
Early on, we experimented with social networks, such as Facebook. These avenues provided some success at raising awareness -- people were drawn to our mission, but no sales traction resulted. That changed in 2015 with the commercialization of Second Life, the virtual online world that was introduced as a social network in 2003."
Maria Thomson, FSA, MAAA, in her essay, "Industry Will Experience Zippy Growth Through Zip Processing," emphasizes the use of technology and growth coming from mid-market expansion.
"ZIP Insurance employs Straight Through Processing (STP) tools to underwrite and issue policies at the point-of-sale, utilizing e-tools. ZIP Insurance will not use underwriters for underwriting new business, but rather for establishing underwriting rules and updating them by analyzing data on e-app responses and keeping current on pertinent industry studies and developments.
ZIP's approach to business makes the sales process very transactional, thus lending itself well to the customer service rep sales environments it has chosen for its distribution. ZIP Insurance software walks the agent through the sale, screening questions, payment and policy delivery. While the agent is taking the applicant through the drill-down underwriting questions (personal history interview or PHI), the software will automatically poll the e-databases it is programmed to access. The PHI, in combination with the e-data, will provide the software with the information needed to render an underwriting decision. If the sale is made, a credit card or EFT payment can be accepted and the policy will be printed or e-mailed, as the customer prefers."
Ken Beckman, ASA, MAAA, in his essay, "Risk Management for the Individual," points toward the development of a single product that will allow individuals to manage the risks encountered over a lifetime as the product evolves. He sees marketing being modified to better educate the public about a full range of risks that imperil their financial strength. He states, "To grow in the year 2020 and beyond, life insurers will need to become personal risk managers for their customers rather than just a place where insurance policies are sold. Successful companies will offer a policy that provides comprehensive risk management services for individuals and families. The product will offer lifetime protection from all the primary risks in a single insurance policy using the following coverages: life insurance, longevity insurance (i.e. guaranteed lifetime retirement income payments), disability insurance, long term care insurance, investment insurance and medical insurance (contingent upon the outcome of national health reform)."
Chiu-Cheng Chang, FSA, FCIA, sees a new pricing methodology of using science to use one's biological age rather than actual age in his essay, "Adjustable Biological-Age Pricing for the Global Market." Change writes, "Pricing life insurance products according to one's biological age (supplemented by well-established, but simple underwriting tools, if necessary, at the very beginning of 2020) is simple, systematic, dynamic, more scientific and global. It is nothing but a simplified and unified approach to traditional risk classifications. It may also be viewed as a clear-cut summary or a very condensed form of traditional multiple sets of mortality tables. Using modern medical devices to measure one's biological age, we can see very clearly that throughout one's lifetime one can definitely and significantly decrease or increase one's biological age versus one's chronological age. One important, but perhaps forgotten, social (now global) function of the life insurance business is to change policyholders' behavior for the very benefit of the policyholders themselves. Pricing according to biological ages can rekindle and highlight this function most effectively."
Max Rudolph, FSA, CERA, MAAA, sees the industry landscape changing with new entrants and consolidation in his essay, "2020 Life Insurance Company Success Story." He concludes, "The economic path taken will determine the traits of successful firms. If the scenario described plays out, new entrants and foreign firms will have an advantage. In-force blocks will act as a drag on existing life insurers as life settlements and low interest rates drive more efficient policyholder behavior. Industry consolidation will accelerate, favoring large insurers who focus on mortality risk with whole life products, pass through equity risk and keep expenses low. Products will evolve to add more portability and payout annuity options. A fee for service planner model will continue to replace commission based agents. Regulation will increase under a federal charter and international consolidation will accelerate among financial services industries. A cheap dollar will put US-based insurers at a disadvantage."
So how does this impact you in your business today? What do these actuaries' visions of the future have to offer you today as you are meeting with clients?
1. Seek the insights that can be gained from the full list of essays. It is very unlikely that everything envisioned will become reality, but it is important to gain new perspectives of what the future could possibly look like. This will allow you to have more information to display your knowledge as you meet with clients.
2. Too often, people think that the future will look like today. At the time that this article was written, the equity market has recovered a 50 percent gain in the past six months. That does not mean that equities will always move upward, as investors painfully learned during the financial crisis. What is needed is a long-term view that can last over a range of different economic scenarios. These essays clearly point to substantial change.
3. Make sure that your clients know that the future could be different and it could impact them. For example, a customer might delay buying life insurance today since he thinks he can postpone that purchase. What if the world changes and he is no longer insurable or all insurers use biological age pricing? What happens then if he cannot purchase the coverage that he needs? These essays provide you with information that can be used to counter "I can always just buy in the future."
I encourage you to carefully study the 10 essays that give a unique opportunity to "flashforward" to the future. Enjoy your reading.
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