Like all clichés, “don’t reinvent the wheel” became a cliché because it reflects a fundamental truth. In this case: The best approach to progress means building on progress that has come before.
As the life and health insurance industry scrambles to innovate in the insurtech space, the best opportunities for progress may also come by building on work that has already been done – in banking.
Banking and insurance have long been linked, and bank customers still represent significant opportunity for insurers. Total new life premiums in the U.S. from all channels totaled just over $14 billion in 2016. Of that, $1.17 billion (8.4%) came through banks, which represents an 11% increase over 2015.
While agents and brokers account for the bulk of life insurance sales, consumers are increasingly turning to other channels, including banks, to meet their life insurance needs. With the average age of a life insurance agent in the U.S. now close to 60, this migration will only accelerate – with the digital space the most fertile ground for growth.
Banks of Tomorrow
Modern banking – especially for millennials – is moving away from brick-and-mortar branches to online-only services. Dozens of startups have entered this fintech space, often with their own niche appeal for customers who don’t want or don’t care about traditional bank branches.
Common features of digital banks include:
- Intuitive, inclusive app interfaces for ease of use
- No or very low fees
- Ability to send and receive payments
- Competitive rates for deposits
- Free withdrawals from most other bank ATMs
- Robo-advice via daily spending reports and real-time transactions to promote better spending habits
- Encrypted data for cyber security
- 24/7 customer support
Some market entrants are taking it to the next level and embracing biometrics, artificial intelligence, and intuitive tech with apps that respond immediately via chatbot interfaces to user queries such as “How much do I have?” or “Where is the nearest ATM?” One digital bank uses blockchain technology to facilitate global money transfers at no cost. Another allows users to create their own brand or logo from a pre-selected color palette. Still others seamlessly integrate with other day-to-day tech, such as Uber.
The question then for insurance companies is: With banking making so many advances in the digital space, how can insurers best leverage this progress for their own future growth? Two main paths emerge:
- Take learnings from the banks and create similar insurance offerings
- Marry insurance services to existing digital banking platforms
For the first approach, the insurtech startup Fabric offers a good case study. In fact, the founders of Fabric actually came from a digital banking company. The online-only platform provides a simple and affordable coverage solution for new parents and other young adults: the prices are posted, the quotes are instant, and the plans are clear.
Accidental death is the single biggest risk for adults aged 25-441. So Fabric takes a different tack from most companies by offering accidental death insurance as a starter policy, called Fabric Instant. It takes about two minutes online to buy Fabric Instant, which starts at six dollars per month for $100,000 in accidental death coverage. Policies can be purchased via phone, tablet, or desktop, and no health information is required.
After purchasing Fabric Instant, customers can upgrade at any time to Fabric Premium, a 20-year term life insurance policy offering up to $5 million in coverage. This option is priced based on the person’s health and lifestyle. The term life policy can be converted to whole life insurance.
Fabric, an RGAx partner, is now live in more than 40 states and Washington, D.C.
Partnering for Growth
Insurers looking to partner with digital banks generally must take a wait-and-see approach for now. While many of these startups may look promising, they still must demonstrate long-term sustainability.
Another challenge is the feasibility of fusing an insurance offering onto a simplified digital banking business model. Which digital banking startups offer the most natural fit for integrating insurance? Will expanding offerings and the scope of the service into insurance undermine the very simplicity which could be making the banking business successful in the first place?
One solution being pursued by North American insurers is venture capital (VC) investment, and most have diversified their business to include their own VC arms. VC provides a chance to stay close to innovation while investing in opportunities that are at arm’s length. Most investment in the U.S. has been in the property and casualty (P&C) space, but more investment is now occurring in the life insurance area.
The Road Ahead
The digitization of insurance is already underway, but exactly where it will ultimately lead remains unknown. The banking industry may offer the best indicator. For now, carriers are placing bets on which new channels and technologies will be the ones that gain traction and propel the industry forward. The best approach is to stay up-to-date on the latest innovations, form partnerships to expand capacity in the digital space, and be prepared to seize opportunities as they arise.
RGAx can help. RGAx was formed in 2015 to build and accelerate transformational businesses in the life insurance industry. Its mission: to create tools, data, products, and digital platforms that advance consumer-centric solutions and improve the insurance buying experience. Contact us to learn more.
1. CDC: National Vital Statistics Report, Volume 64, Number 2. (February 16, 2016), Table 9.