Innovations in life insurance products work best when a product is stripped to its core seven pillars:
- What is the need that must be insured?
- Which segment of the population has this need?
- What is the best distribution channel to reach this segment of the population
- What is the issue process and type of underwriting that would maximize marketability and profitability of the offering?
- What coverage best meets the need?
- Are there new tools or data available for pricing?
- How will this all be packaged and what promotion is the most effective, to both those buying the product and those selling it?
Each of the themes of these seven pillars – need, segment, distribution, underwriting, coverage, pricing and packaging/promotion – when monitored carefully over time, may contain a gem of an idea that can result in product innovation. If innovation starts in one theme, it is likely to affect the others, resulting in full, real innovation.
Instead of thinking about a product, let us think about recent trends, or changes in trends, concerning a need or segment of the population, how to reach new potential buyers (leads), how best to create a compelling or unusual advertisement to reach the targeted populations (the ones with the targeted need[s]), and so on.
Let us examine one example, in the U.K., where need (Pillar One) resulted in the development of the currently thriving product category of enhanced (or impaired) annuities.
Until about 15 years ago traditional payout annuities in the U.K. were ‘one size fits all’. Everyone, healthy or sickly, smoker or non-smoker, received the same annuity product, which was priced in the aggregate.
As life industry knowledge of health and income factors and their impact on longevity has grown, so has awareness of a clear need for individuals with underwriting concerns such as health impairments to be able to purchase underwritten annuities. Substandard mortality risks, subject as they are to earlier death expectations, could, if their annuities were underwritten, qualify for higher annuity payments from their invested lump sums.
This need was unmet until enhanced annuities were introduced about 15 years ago. Since then, this product’s popularity has grown by leaps and bounds. According to a recent study by Towers Perrin research, enhanced annuity sales in the U.K. quadrupled from less than £500 million in 2002 to almost £2,000 million in 2009.
Here is how Pillar Two (targeted population segment) can drive product innovation for the diabetic market segment. Diabetics are a population with strong current and future health insurance needs. Complications from diabetes are many and systemic, and can include retinopathy, renal failure, and complications involving the nervous system (diabetic neuropathy), which, coupled with circulatory difficulties, can lead to limb amputation. Diabetes can also exacerbate the risk of heart disease and stroke.
Because of all these risk factors, critical illness policies routinely screen out diabetics – why not look at diabetics through ‘product innovation glasses’? Could a critical illness product be created that would provide diabetics either a full or partial lump-sum benefit, depending on the diagnosed ailment?
Recently, products have been introduced in countries such as India, Singapore and Spain to address this target market and its specific needs. In one of those products an insured can receive a full lump sum if diagnosed with End-Stage Renal Failure, or a partial amount for a Procedure-Based Benefit, such as limb amputation due to diabetic complication or laser treatment for diabetic retinopathy.
As a driver of innovation, the Internet is also dominating discussions today about Pillar Three, distribution. Successful Internet distribution for insurance products requires certain critical success factors, such as the ability to drive traffic to a website, a strong brand, simple products that meet a range of customer needs, the ability to underwrite electronically, call centre support for those clients who prefer live interaction, and strong claims support.
Recently, a life insurer sought to develop an Internet-sold term product for affluent individuals. This seemed an unlikely endeavour, as the affluent generally require high face amounts (generally at $500,000 and up), and they need to be medically underwritten.
From this wish came a term life policy with face values of up to US$1 million, available for purchase over the Internet. The product features simplified medical underwriting, resulting in speedy application completion times and, more than anything else, has created an entirely new distribution channel for the insurer. So far, sales have exceeded expectations and the acceptance rate is unusually high.
As you can see from the above case studies, even if the idea may have stemmed from one pillar it has actually affected most of the others, often causing innovation in some other pillars.
By stripping a product to its core elements, one can easily see plenty of room for innovation and differentiation. With this approach come new products, excitement, and plenty of growth potential.
If you consider the many population segments your company serves, and the various needs of each, innovative ideas are likely to bubble up for appropriate, reasonably priced coverages. Then, after research, model-building, and testing, the innovative ideas will have generated innovative products that match, as closely as possible, their target markets’ needs.