There is an old saying in the industry that “life insurance is sold not bought”. No one wakes up in the morning with a burning desire to scrutinise the fine print of an insurance policy, so an agent or financial adviser has often had to do some persuading.
But a new wave of life insurers think they can do things differently. Start-ups including Blue in Hong Kong, Beagle Street in the UK and Haven Life and Ladder in the US believe they can convince customers to buy directly, without needing to go through the intermediaries used by most other life insurers around the world. “In insurance there is a huge opportunity,” says Blue’s chief executive Charles Hung. “The digital channel will be an alternative for people who want to be in control.” Many of these new players in the market have started with term life insurance — a relatively straightforward policy albeit one that might still require the buyer to answer a few questions — which pays out a fixed amount when a person dies.
But they could later move on to more complex insurance, pensions and savings products, all of which can fall under the broad banner of life cover. The start-ups are betting that the global life insurance market, which according to Swiss Re generated $2.8tn of premiums last year, will eventually migrate online just as car and home insurance has done in places such as the UK.
If they are right, it would be a revolution in the way that people look after their financial needs. It would also force the rest of the industry to rethink its route to market and spell bad news for the millions of people around the world who make their living from selling life insurance.
In China alone, UBS estimates there are more than 8m people working as insurance agents. Advisers and agents have long been a core part of the industry. “The man from the Pru” was for years a fixture of British society, going door to door to sell Prudential’s insurance policies. A Prudential agent these days is more likely to be a woman than a man, but the principle still holds — agents and advisers remain its primary route to market. In Asia alone, Prudential has more than 660,000 agents servicing 15m clients in a regional market that generates life insurance premiums of $615bn a year for the industry.
“In almost every geography we distribute through a person who provides advice and context for savings and protection,” says Prudential chief executive Mike Wells, adding that the products lend themselves to advice. “If you are spending less now and saving more it is aspirational — there is a level of emotion and discretion that there isn’t in [other forms of insurance].”
The start-ups are betting that all that will change once today’s young adults, who have grown up buying everything online, reach an age when they start thinking about life insurance. That often coincides with buying a property or becoming a parent.
“We started to think about how we deliver life insurance to a younger customer,” says Yaron Ben-Zvi, Haven Life’s founder and chief executive. “We’re helping to prove that for certain people and products, you can get people to do it themselves.”
Without an agent to explain exactly what life insurance involves, the start-ups have had to do things a little differently, focusing on making their products as simple as possible.
“We designed features that are relevant to the customer, and taken out features that are not,” says Mr Hung of Blue, which is backed by Aviva with Tencent and Hillhouse Capital. He cites the company’s critical illness cover, which pays out if the buyer becomes seriously ill, as one example.
According to Mr Hung, many critical illness policies cover a whole array of conditions. Blue’s cover focuses on just three core conditions — heart attacks, cancer and strokes — and so is simpler and easier to sell. In a report this year, Boston Consulting Group and Morgan Stanley looked at how the money is divided up in the German life insurance industry. It found that distribution expenses take up 38 cents out of every €1 that is paid in premiums — a higher sum than goes to the customers. Strip that sort of expense out, say the start-ups, and they can offer better prices.
“We don’t charge commissions and we give savings back to our customers, so our prices are extremely competitive,” says Mr Hung.
The start-ups have support from some unlikely sources. Mark Weinberg, who made a career setting up financial advisers such as Allied Dunbar and St James’s Place, is now advising UK start-up yulife on its strategy.
“In future, sales will be driven much more by technology of one form or another,” says Sir Mark. “The potential buyers are more comfortable taking decisions and buying things online.”
There is some evidence that people are getting used to making their own decisions about life insurance. According to the Association of British Insurers, the proportion of people buying life insurance without formal advice rose from 20 per cent in 2013 to 29 per cent in 2016.
Some in the industry argue that selling life insurance and pensions online will help to get rid of some of the mis-selling problems — from endowment mortgages in the UK to annuities in the US — that have plagued the industry in the past.
Paul Sharma, a former UK financial regulator who now works for consultancy Alvarez & Marsal, says: “It is not entirely clear that current methods of interaction are resulting in good sales outcomes. It’s not like we’ve got the gold standard.” Introducing algorithms to help clients into the process, he adds, could improve the consistency and quality of advice in a lot of cases.
The agents, however, are not finished yet. Despite the rush of investment into start-ups that want to sell life insurance online, many in the industry say that it will largely remain a person-to-person business for the foreseeable future.
“Most clients are people with complicated needs,” says Charles Mardon, who runs Sovereign Wealth Private Clients, a group of UK-based advisers. “People often don’t know where to get started. The adviser is there to explain the intricacies of the products and services, and to build up a plan for the next 20 or 30 years. These products are not simple.” Giving customers that reassurance is seen as one of the big advantages that human agents and advisers have over algorithms.
“It is all about trust and comprehending what is there,” says Alf Neumann, a board member at Allianz’s life insurance business. “People trust other peoples’ judgment because many feel they lack experience themselves. These are very important decisions that you don’t take frequently — you want someone to check that you are making the right decision.” Mr Neumann says Allianz developed an old-age savings product that was designed to be sold online, but found that nine out of 10 customers were using an agent or adviser at the end of the process when making the final decision to buy.
“People still wanted someone to tell them they were taking the right approach.” Swiss Re has had a similar experience. Its iptiQ unit helps other companies to develop insurance products.
Thierry Léger, head of Swiss Re’s Life Capital business, says some companies have set up websites and apps for young people, only to find that potential customers did not have the confidence to buy from them. “There is a lot of concern and scepticism over what they see online,” says Mr Léger.
Other online-only processes in the financial sector have struggled. Two big wealth managers, UBS and Investec, have closed their robo advice businesses over the past year. Investec says demand for the service was too low. Another hurdle for the start-ups to address is that insurance companies need people to go out and convince customers that they need cover.
“They [advisers] have to hunt for new clients,” says Wei Ke, a partner at Germany-based consultancy Simon-Kucher. “Computer algorithms wait for people to come, but life insurance is not something that people usually seek out.”
There are behavioural reasons why people might not flock to life insurance websites and apps. Elisabeth Costa, a director at the Behavioural Insights Team, a consultancy part owned by the UK government, says: “People favour rewards now versus those in the future . . . it is not realistic to think that people are going to spend a long time engaging with pensions if there is not a clear call to action.”
Agents have been particularly important in Asia, where the life insurance industry is relatively new in some countries but growing rapidly as the middle class expands. China’s Ping An, the world’s biggest insurer by market capitalisation, has invested heavily in technology and has some of the industry’s most advanced artificial intelligence systems.
And yet it still employs 1.4m agents — a number that has shrunk slightly — to sell its products. Boston Consulting Group and Morgan Stanley argue that insurers can improve profits even if they stick with intermediaries. They estimate that shaking up distribution and simplifying products could boost profit margins for life insurers from 6.5 per cent to more than 11 per cent.
Insurers are also experimenting with hybrid systems. Envizage, a start-up run by former Morgan Stanley banker Vinay Jayaram, is advising companies including Axa on how it can offer customers a choice while getting more out of its advisers.
The key to doing that, he says, is changing life insurance from a “fear sale” into one that fits more comfortably into customers’ lives.
“You are not going to generate spontaneous interest in a great life insurance or pensions product. You have to see if the children are going to a private school, or they want to buy a house or give money to charity. You have to find out what resonates with them.”
For the moment, that sort of detail is beyond the online only start-ups. Most are starting out with relatively straightforward products, for people who might already know what they want.
The challenge, say people in the insurance industry, will be progressing from those simple forms of life insurance to more complex propositions that are less easy to explain with a slick video and a couple of clicks.
“One’s life is complex and one’s future is complex and uncertain,” says Mr Sharma. “Some of the things we call complexity are necessary because the needs of the customer are already complex. And the more complex a product is, the less likely it is to be sold online.”
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