(Forbes) - While many obstacles facing the U.S. insurance industry have become pronounced, revenue growth remains its most glaring challenge.
In the recent past, growth in revenue has largely been the result of premium increases—not an outcome of stimulating higher demand or innovation. Left unaddressed, this core issue will continue to pressure incumbent insurance firms and exacerbate their ability to generate profit that is higher than their cost of capital.
Clearly, incumbent insurance firms have much to contemplate—from rethinking their optimal market positions for competitive advantage to recapturing market leadership through innovation. Insurers can do both—expand the scope of their existing offerings and also widen coverage to address emerging risks, such as cybersecurity.
“Riders” serve as a powerful marketing tool and a mechanism to tailor protection products to unlock value from untapped customer segments. As such, they can enable the customization of standard policies while broadening the scope of risk protection to fulfill individual customer requirements. This has much potential to spawn new growth and improve profitability through (product) design optimization.
A simple example is a charitable legacy rider which will pay, at no extra cost, an additional death benefit of up to 1% to a qualified charitable organization chosen by the policy owner. Similarly, a long-term care rider will pay an accelerated death benefit that can be used for qualified long-term care expenses if the insured is chronically ill. In more complex configurations, insurers can design combo, hybrid and multiphase product offerings to dynamically customize riders most relevant to a given consumer's phase of life.
Why Not An Estate Planning Rider?
First, some historical summary to set the context. The affordability of long-term care (LTC) became a focal topic in the financial services industry, and health insurance firms identified an opportunity to insure against a new risk and delivered solutions in the form of policies and riders. First introduced in the 1970s, health insurers struggled to profitably structure an LTC program. Many have forsaken this segment altogether leaving a small handful of existing players despite the high certainty of demand:
- ~70% of adults over 65 will require LTC.
- In the coming decades, the 65-plus population will nearly double in size, from ~50 million in 2016 to 95 million by 2060.
Unfortunately, this segment has languished for two main reasons. Customers are unwilling to think about the intimidating realities of LTC needs and large rate hikes have proven to be an increasing deterrent.
Another target market with high certainty of demand with a far simpler ecosystem than LTC is estate planning. The space has been garnering much attention given that more than $70 trillion in wealth is poised to be inherited by younger generations within the next few decades. Yet, more than 170 million American adults do not have a legally valid inheritance plan in place. Insurance firms have an opportunity to augment their offering and improve their overall customer proposition while also tapping into an entirely new value pool.
For the most part, new growth may have been elusive for insurers because they have remained content selling (core-product) insurance policies to customers, versus uncovering new opportunities to address a wider spectrum of risk protection. A reason for such hesitation could be that broadening risk protection necessitates implementing new capabilities. Such endeavors can remove focus from their core business activities and result in unwanted side effects.
Rather than contemplate building digital estate planning service capabilities themselves, insurers can tap into the expertise and convenience provided by specialist tech players and garner the required functionality, integration, flexibility and speed to succeed. The right partner, capable of dynamically integrating digital estate planning capabilities into the customer journey as part of the insurer’s ecosystem, can make for a truly winning proposition. Furthermore, when the partner can offer access to new smart datasets to help insurers deeply understand and serve customers to assess and manage risks in new ways, it elevates competence to the next level.
Consumers are growing more aware of the necessity of an estate plan and risk-mitigation of dying intestate or without an estate plan, than ever before. The reward for consumers from obtaining an estate-planning rider is personal and family wellness with the peace of mind that results from knowing that substantially less time, effort and expense will be incurred by surviving loved ones to settle the estate. Further, when offered as a stand-alone subsidized incentive, consumers view it as a highly desirable and sticky service.
Clearly, such a tactic can deliver dividends only as long as consumers maintain low levels of risk tolerance to dying intestate. Notwithstanding, proper execution will require insurers to rethink elements of their existing operating models and look outside of their core organizations, to unlock growth opportunities and gain access to new underserved customer segments.
But most valuable for insurers is the institutional learning that comes from reconfiguring product design to innovate new offerings and revenue streams, such as an estate planning rider. Such offerings have the potential to jump-start the process of morphing insurers from undertaking basic risk insurance to much higher levels where risks can be prevented through holistic service offerings and breakthrough innovation.
By Sonny Kapoor | Forbes Councils Member
February 6, 2024
Sonny Kapoor is CEO of OneDigitalTrust - it offers a B2B estate planning platform for firms to offer to their stakeholders.
