Knowledge is power : redefining life insurance
The life insurance industry has changed substantially over the past decade. Advances in technology, such as more powerful computing and great leaps in medical advancements, have substantially changed the nature of the risks the industry faces and the way companies design products.
Furthermore, the nature and behaviour of clients have changed. Clients are more health conscious, have access to more information and choice, and tend to be more present biased with a greater need for instant gratification.
A game of jeopardy
Auditing firm Deloitte & Touche recently released a report on the insurance industry outlook. In it, they noted that traditional insurance business models may be in jeopardy in part due to rising expectations for personalised products and services in an increasingly connected world.
The study highlighted, among other things, that the monopoly that insurers held on pricing and assessing risk has been eroded by third-party data-analytics companies with the capabilities to build non-traditional risk profiles on individuals.
Similarly, the 2015 PricewaterhouseCoopers (PWC) Insurance Industry Report highlighted the disruptive influence of tech companies on the insurance industry as a major trend.
PWC estimated that as much as 22% of new insurance business could be lost to FinTech companies by 2020. The report also noted that companies are increasing spending on IT infrastructure and big data capabilities to meet this mounting challenge.
The challenge for the life insurance industry is centred on how to design products to meet the needs of this new generation of consumers, given the rapid pace of technological advancements.
Changing landscapes
The Internet of Things is a recent buzz term used to describe how the network of physical devices, vehicles and other items, which are embedded with electronics, software, sensors and network connectivity, enables these objects to collect and exchange data that ultimately improves the product for the consumer and the company.
Similar to the internet of things, the insurance of things refers to the increased connectivity between all data points within life insurance. This represents a key aspect of the future of the life insurance industry.
The exponential growth in the popularity of connected devices such as wearables and smartphones has significantly increased connectedness with policyholders.
Important evidence
Evidence showed that through encouraging and incentivising a healthy lifestyle and increased physical activity behaviour, life insurers can significantly reduce individuals’ mortality risk and in that way increase their life expectancy.
The insurance of things (IoT) therefore presents far more opportunities to overcome the challenges we face in the life insurance industry. A company’s ability to thrive in such a technologically inclined environment depends on its ability and willingness to innovate and provide products that more accurately match consumers’ needs, given the increased knowledge of the consumer base.
Knowledge is power
The wealth of information insurers have access to is also changing the life insurance industry.
According to the recent Discovery Life Claims Statistics, unnatural deaths accounted for 21% of all claims in 2015. Sixty per cent of Discovery Life claimants were older than 50 in the same period. For older clients, causes such as cancer and heart and artery conditions were more prevalent.
Although the average cover level and cover for disability increased, many South Africans remain underinsured. It’s especially those who are younger than 40 who have a very high risk of being underinsured. This is validated by The South African Insurance gap in 2013, a True South study.
During this year, the oldest female claimant was 80 and claimed as a result of a stroke. The youngest female claimant was 33 and claimed as a result of cancer. Cancer and heart and artery related claims made up 59% of claims over the age of 50 during the year, with the highest prevalence of cancer seen in Gauteng, at 9% higher than the national average.
Among female claimants between the ages of 31 and 60, breast cancer was the most prevalent. Among males prostate, skin and gastrointestinal related cancers were the most prevalent causes for claims.
The oldest male claimant, 84, and the youngest claimant, 23, died in motor vehicle accidents. Motor vehicle accidents caused the deaths of most of the younger clients and accounted for 50% of claims among clients under the age of 30. Deaths related to motor vehicle accidents have decreased since 2014. Motor vehicle accidents made up 9% of claims in 2015 compared to 11% of claims in 2014.
Build relevancy
This information can help insurers build appropriate and relevant products. Dr Jonathan Broomberg – CEO of Discovery Health – recently highlighted trends, costs, and advances in cancer care. The event where he highlighted this was held just before the 2016 Olympic Games and focused on the life of 2012 Olympic Gold Medallist Chad le Clos and his family’s personal battle with cancer.
It is rare to find a family who has not been touched by cancer these days. Our data shows a steady and significant increase in incidence of cancer. Data from medical schemes administered by Discovery Health show a 36% increase in the number of people diagnosed with cancer. In just the past four years, Discovery Health Medical Scheme saw an 83% increase in the cost of treatment, and spent a total of 13.9 Billion on cancer care.
A rapidly advancing field
Broomberg highlighted that cancer treatment is one the fastest evolving medical fields. Treatment has evolved from single agent chemotherapy in the 1940s to more targeted treatments, including biologics in the 2000s. The first immunotherapy medicine has very recently been approved for use in South Africa.
This has contributed immeasurably to the life and healthcare industries. Insurers who collect this data on South African policyholders will enable further research into targeted and more personalised treatment as we move towards the era of greater advances in cancer screening and prevention.
