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Innovation in the UK Retail Life Insurance Market

Extracted from an overview of the UK Retail Life Insurance Market. Please send me an email at richard@forske.com if you wanted to get a free copy of this overview.

It is of course challenging to predict the future innovations that will make significant impacts to the market in the next 5 – 10 years, but here are 4 trends that are developing and could get further traction:

1. Utilising the increasing availability of data

The evolution of personalized underwriting is being driven by the improvements in wearable health tech and resulting data availability. While the insurance market is based on a pooled risk exposure and has seen shifts away from pricing on certain factors (such as gender and post codes) the availability of specific personal health data provides new opportunities for pricing.

New health data platforms (such as Dacadoo) allow an integration of wearable data and an ability to build up a specific picture of a person’s health. With a rapidly growing wearable tech market, the available data points will increase significantly (for example automated glucose level tracking). This could facilitate building up a very detailed insight into a person’s health on a dynamic basis, that is with continuous data insight over time, rather than one off static testing. This in turn could potentially inform a dynamic premium that could reflect how someone’s health evolves over time.

There could be ethical concerns here over what data is collected and how it is utilized (as for example there is with genetic testing) and also by individual profiling, this could put the cost of insurance out of reach for the less healthy or those with certain medical conditions.

2. Integrating into platform eco-systems

A broader trend across financial services appear to show a shift to a platform model that has a wide customer reach and from that can offer a range of services (both the platform owners and third parties) in a eco-system built around customer needs.

For example, in banking, the open banking regulations have given the opportunity for new businesses to give customers access to their banking data which in turn could form the basis to offering a number of further services. The risk to dis-intermediation of the banks and subsequent loss of the customer relationship, is something the banks are alive to and have quickly responded by improving their own customer offering (including offering access to customer’s account data at other banks).

Ultimately this pressure will likely encourage the banks to offer third party services and seek to retain customer relationships by the breadth and tailoring of service offering to specific customer segments.

Add to this the potential for “big tech” to enter the banking market beyond just payments, and it is high likely the future will be dominated by a number of customer focused platforms providing a range of financial services.

In this environment it will be hard for insurers to be the platform owner (although Aviva appear to be trying with MyAviva) and so they must be experts at integrating their propositions with other platforms as core parts of the wider eco-system.

3. Evolving the product into an engaging customer proposition

Vitality should be admired for bringing innovation at scale to the individual life insurance market, with a proposition that combines the core insurance product with a wider incentives and rewards model. In return for achieving certain health related goals, customers can earn tangible rewards (including coffees and gym discounts) and combined with a market approach tailored to the customer (their website for example) they have delivered a level of differentiation to the market.

There is a slower evolution amongst other providers in the direction of delivering this wider proposition based around customer engagement, as more services are added either free or paid for to the core product (for example legal helplines and virtual GP services). This provision of additional services will allow a more specific tailoring of the core product to different customer segments to make it a potentially more attractive proposition, where insurance remains the core element but allowing a more engaging conversation. For example tailoring propositions to specific segments such as teachers, doctors or first time house buyers and offering bespoke services to each segment based on their needs.

4. Product simplification to facilitate robo-advice

There are a number of challenges for automating the financial advice process (versus simple guidance) but also many potential benefits. Benefits include an enhanced ability to close the evident “advice gap” and reach a much broader group of people with a lower cost offering (rather than just the more wealthy with face to face advice).

Potential risks include systemic risk in using algorithms to recommend an outcome on a set of factors that may not fully capture the information you can get in a telephone based or face to face conversation.

However the potential remains for online advice or guidance to play a more significant role across the life insurance range of products, even with more complicated products such as income protection.

This may be facilitated by the simplification of products and to design them based on the automated advice distribution channel. While this could compromise the quality of the product, this could be balanced against the fact there a much greater breadth of distribution.


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