UK life insurers "need digital strategy", says PwC, as survey shows consumers keen to move business online

Out-Law News | 12 Jun 2014 | 3:04 pm | 4 min. read

UK life insurance and pensions have been among the slowest of business sectors to capitalise on the commercial potential of the internet and digital innovation, even when compared to non-life insurers, according to a new report from professional services firm PwC.

A survey of 1,500 UK insurance customers carried out on behalf of PwC found that 30% of those who did not buy or manage these products online would be happy to do so if providers were able to offer online professional advice. However, the survey also showed that consumers were becoming more open to purchasing policies from alternative providers such as banks, internet brands and healthcare providers should these meet their needs of cost effectiveness and ease of use.

"If today's incumbents don't get it right then their consumers won't hang around," said Graham Jackson of PwC. "Whether it's price and product information, experience or brand, an insurer's offering also needs to translate into the digital world."

"The main objective for insurers is to have a business strategy for the digital era, rather than digitising what life and pensions businesses are currently doing. Our poll showed that over a third of consumers agree that tailoring to customer needs would help their insurer improve customer experience. Digital can prompt access to new markets and deliver the ability to create more personalised health, wealth and retirement solutions," he said.

Insurance expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said that the findings of the report would "not be very surprising" to most life and pensions companies.

"For these companies, they have historically collected policyholder data by using paper-based application forms and the policy admin systems have generally not kept up with technological developments," he said. "Some still have overnight batch processing which is way out of date. This is largely due to the cost of changing systems to accommodate vast amounts of data but also in some part due to bolt-on portfolios which have been acquired over the years and not migrated onto more modern platforms. Banks have similar issues."

"One key problem is that the data collected is often incompatible with an online service such as not even asking for email addresses of the policyholders. Also, advisers tend to keep the client data to themselves for obvious reasons. However, some life companies are moving to newer admin platforms that do enable straight-through processing and linking the back office to a customer-facing website which allows two-way engagement either via the adviser or direct to the customer," he said.

According to the report, the number of so-called 'digital natives' is already beginning to overtake the number of traditional consumers; and this type of consumer will dominate the market by 2017. PwC defines these as customers with increased expectations who are better informed, more connected and vocal due to the growth of social media, mobile, analytics and cloud technologies.

Many of the consumers that are currently considered to be in this group are younger or on lower incomes, and do not currently see life insurance or pensions as affordable or relevant to them, according to PwC. According to the report, these consumers are an "untapped" market for customer-centric, innovative businesses that are willing to learn more about and engage with these consumers.

"The key development is the opportunity to get closer to customers and create genuinely customer-centric products, services and lifetime solutions," the report said. "Digital interaction allows insurers to build up a rich profile of customer needs and attitudes without relying on agents to cultivate relationships. They can then use this to customise solutions and shape experiences to individual demands."

"By enabling businesses to reach out to younger and other largely untapped sections of the population in new and engaging ways, digital is also going to greatly expand the 'addressable' market. It's notable that people aged under 34 in our global survey are much more likely to use social media to find out about life insurance options and quotes than their older counterparts. This suggests that social media could become an increasingly important way to reach this relatively untapped younger market," the report said.

PwC said that in order for firms to be successful, they would have to augment their existing processes with more flexible digital platforms. Firms could look at developing 'greenfield' start-up products that could be set up quickly to run alongside existing capabilities, or at acquiring or partnering with companies that already had the necessary capabilities in place, the report said.

"Augmenting industrialised legacy processes with a quick-to-market solution will enable life and pensions businesses to compete on equal terms with the mobile companies, internet providers and other new entrants looking to make inroads into the market," the report said. "In parallel, they can integrate new operations with existing business platforms and make sure that overall capabilities are steadily updated."

According to the consumer survey carried out on PwC's behalf ahead of the report's publication, 17% of respondents were open to purchasing life insurance policies from internet brands such as Amazon or Google. 12% of respondents would consider purchasing a policy from a healthcare provider, while 10% would consider doing so from a retail brand, according to the survey.

"It is worth commenting that it is not just the younger end of the market that would be more attracted to the life and pensions sector if online capabilities were developed and increased," said insurance expert Bruno Geiringer. "There is also a considerable amount of engagement with the internet from the older population: the well-known 'Silver Surfers' should be considered as a potentially large pool of customers."

"As for online advice, we await the FCA's consultation paper due at any time now on the question of advice and guidance and hopefully it will explore whether simplified and automated advice services can be offered within the regulatory regime as it is either today or as it might be changed," he said.