It's no secret that baby boomers represent a significant challenge for life and annuities insurers. With more of them reaching retirement age, but living longer after retirement, their savings must be spread over longer periods of time.
The financial crisis served as a catalyst for these insurers to make macro-level changes in their business to address this problem, according to research from managing principal Doug French and executive director Henry Essert of Ernst & Young's Insurance and Actuarial Advisory Services, Financial Services Office.
On the technology side, one of the major changes has been in the way these carriers choose to reach out to a younger market in order to balance the longevity risk of the retirees with the low mortality risk of these younger consumers.
Strategy at life insurers is "dominated by the sense of mortality around your balance sheet," French says. Insurers are realizing, he adds, that "there's a limit to what I can do with my balance sheet and I have to get the risk taking aligned with my balance sheet."
Essert and French were surprised to see how many life insurers were using social media to reach this audience. Companies are so engaged with it as a strategy, they say, that it came up even though it doesn't immediately seem central to the analysts' research on risk.
"It wasn't a risk subject per se," Essert notes. "We thought it was kind of neat. The core idea is from a risk perspective we need to bring more of that product in. There's plenty of longevity out there, what's lacking is the short position, the mortality position. It's not as if it's an overserved market."
One reason it's not overserved, French adds, is that the way the consumers want to be sold has shifted almost completely online. Life insurers are preparing for this new reality.
"The realization is now there that the middle market can't be sold face-to-face because the industry can't afford it, and Generation Y doesn't even want a face-to-face experience," he explains. "Put that together and you're getting into the world of delivering and underwriting product through the Internet. That's what it's going to be if you're going to get more mortality risk. You can see a few years down the road that the buying experience for life insurance is transformed."
Social media isn't the only IT area that life carriers are boosting to be effective in this new paradigm. In an effort to be more lean, many are taking a look at their core systems to make sure they are even more prepared from a balance sheet perspective.
"A lot of them spend a great deal of time on the cost efficiency of delivering this [new risk]," Essert says. "Now that they have it on the books, they're looking at how much of that dollar/premium they are spending. In good times, it didn't matter, but now it's, 'Do we need this many actuarial systems or this many administrative systems?'"
Data and analytics capabilities are also becoming increasingly important for life carriers, French adds.
"Customer analytics is in every industry these days, and you're going to see the same things for innovators on the life side," he says. "You start putting tech from other industries together with what you're going to do. The delivery method is what people want — even in this country there's still an untapped market, and when you look outside this country, there's even more opportunity."
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio