How will life and health insurance products change?
COVID-19 has no doubt caused huge turmoil in the insurance industry. However, despite facing tremendous uncertainties, where there’s pain could possibly indicate opportunities to gain – we’ll explain how life, health and financial planning products in particular will be affected in this two-part series.
If you want to hear what we have to say about the future of financial planning products, click here.
The last time Asia had experienced a large health crisis dates back to SARS in 2002. Following SARS, several Asian markets experienced a swift rebound in sales, with a particular increase in demand for protection products. Although many analysts forecast that COVID-19 is unquestionably more severe than SARS, we believe that the value of life and health products would still increase as customers are more aware of the product benefits of medical, hospital cash and critical illness.
Highlight your digital capabilities and strength to draw in customers
Market share will shift to those insurers that can show they are responding to the new realities of the post COVID-19 world. One of the key things to highlight should be the insurers’ digital capabilities, specifically, how maintaining a seamless online relationship with their customers will definitely inspire confidence among them. There will also be gains for insurers that have invested in innovation such as health and wellness apps, and networks of virtual doctors for medical policies.
Investment market dislocations change the savings product landscape
Large dislocations in investment markets create new pressures for solvency and profitability that will force product changes. Potential trends include:
- Steep equity market falls might be a good time for customers to consider investment-linked products, and the attraction of capital-lite products to insurers is evident. However many customers looking to insurers for savings solutions are nervous about these products when stock markets have dived and we are likely going to see high volatility in the coming months.
- US-dollar products will remain attractive for the apparent safety they offer relative to other currencies. But with US Treasuries locking in a 30-year return of less than 1.5% per year; the value of guaranteed return products is surely diminished for both customers and insurers.
- The traditional proposition of participating savings products providing smoothed long-term returns will be more attractive than ever to customers. But low-yields and capital constraints mean insurers have to reduce guaranteed returns. As non-guaranteed bonuses become a greater part of the total prospective return then the par proposition is likely weakened in customers’ eyes.
- In some Asian markets, insurers have offered short term insurance products in competition to the minimal returns available from bank deposits. However, this market is looking increasingly infeasible for insurers given the lower bond yields and higher capital charges.
Stay agile in order to anticipate volatile markets and changing customer demands
It will take months for investment markets to settle on what are fair value prices in the post COVID-19 world and we need to get real about the level of uncertainty we are facing. It’s possible that economic damage could push developed Asian countries into negative interest rate territory like what we’ve seen in Europe (Switzerland and Sweden) which makes traditional long-term insurance unfeasible. However, it is just as possible that war-time levels of government borrowing could lead to price inflation that we have not seen for generations.
With such an extreme spectrum of possibilities for investment, agility will be the key point of differentiation between those insurers that will succeed in the post COVID-19 world versus those that won’t. This especially applies to new products: insurers will need to anticipate changes and respond quickly to customer demands and reprice rapidly as investment conditions remain unstable and unpredictable.
No one knows exactly what changes will be seen in the post COVID-19 world. Those insurers that are brave enough to get ahead of the curve with new product ideas, and repositioning the importance of protection in particular, will have the greatest chance of success.
Bob Charles
Head of Actuarial, Coherent
Bob Charles is an actuary who enjoyed a 30-year career with Willis Towers Watson, culminating in leading the Asia Pacific business. He subsequently worked with insurance technology start-ups. Bob is currently the Head of Actuarial at Coherent, working with clients on finding great uses-cases and applications for our unique Spark technology.
