Several years ago, I interviewed for an entry level position at a large insurance company in Boston. I hadn’t ever thought about working in insurance, but it was my first interview in Boston and I was excited about the prospect of landing my first professional job out of college. After a couple of rounds of behavioral and case interviews and a job shadowing segment, I made it to my final interview of the day. At some point during our conversation, the person interviewing me made a case for why he thought insurance was “sexy.” In that moment, I cringed in my head and told myself I would never work in the insurance industry. I thought to myself, “Is this person serious?? How could anyone think insurance is anything but plain?” Well, even though I did not get that job, I guess the joke is on me because I have spent the last 5 ½ years of my career working in – you guessed it – insurance.
The firm I work for now specializes in implementing large life insurance portfolios for ultra-high net worth clients who use life insurance as a tool for estate planning and wealth transfer strategies. I never imagined coming to the conclusion that insurance is anything other than boring (my 23-year old self would be shocked), but because of the unique niche market we serve I have come to appreciate the value that insurance brings to a family on this scale. And in order to remain a leader in our market, it is critical to keep tabs on changing trends. For the most part, these trends have been focused on the client side (such as how changes in the financial markets or tax laws would impact people’s planning strategies and needs). However, in recent years there has been something looming on the insurance carrier side and over the last several months I have gotten used to hearing one buzzword: InsurTech.
“InsurTech” is inspired by the term FinTech and and refers to the use of technology innovations designed to squeeze out savings and enhance efficiency from the current insurance industry model. As illustrated in the graph below, investment in global insurtech has grown significantly since 2014. As of November 2018, global insurtech deals had raised $2.5 billion across 100+ deals, with the market expected to grow at an annualized growth rate of 41% over the next five years. Additionally, companies based in the United States have completed significantly more insurtech deals than the next leading country, making up 51% of total deal activity since 2014. The belief driving insurtech companies and investments by venture capitalists is that the industry is ready for innovation and disruption, and innovation has already started to manifest itself in smartphone apps, consumer activity wearables, online policy handling, claim acceleration tools, and more.
As you know, the insurance industry is composed of many different segments – each of which could take up their own blog post discussing the impact of insurtech – but since I have experience in one of those segments (life insurance) I thought I would spend the rest of this post highlighting one example of how insurtech has impacted the life insurance market.
One of the most promising technology trends that is becoming popular in the insurance industry is wearable tech. From smart watches to activity trackers, it is hard to look around and not see someone wearing some type of wearable tech, and John Hancock has been an early mover to capitalize on this trend. The company launched their Vitality program back in 2015, which rewards customers for taking everyday steps to live longer, healthier lives. In a nutshell, participants in the program use some type of activity tracker (the current program offers an Apple Watch) to monitor daily activity, and John Hancock is able to use the data gathered from all policyholders to reset life insurance premiums each year. The program therefore incentivizes customers to make healthy choices – log plenty of activity, get regular physicals, avoid smoking, and you’ll be rewarded with a lower annual premium (in addition to some other rewards, such as discounts for travel and entertainment).
In its early days, only customers with certain products were eligible to participate. However, at the end of last year, the company doubled down on this unconventional life insurance model by announcing that all of its products will be eligible for Vitality participation. The results of this program have proven to be positive so far, for both the customers and John Hancock. Policyholders have shown to take nearly twice as many steps as the average American, have logged more than three million healthy activities, and engage with the program approximately 576 times per year. The last piece is particularly advantageous for John Hancock, since typical life insurance policy holders traditionally only engage with their life insurance company once or twice per year (or in some cases, never).
So, is this the beginning of a life insurance revolution? I think time will tell, but the whole InsurTech wave is about bringing more transparency and convenience to the customer. Ultimately, I think insurance x technology will prove to be a match made in heaven.