The traditional value propositions of life and health insurance companies were not product innovations. Instead, it has always been the client’s retirement fund and financial risk protection in the event of illness, disability or death.
However, recent major macroeconomic, demographic and regulatory trends are forcing insurers to streamline their value propositions, refine their operations and innovate their products. Here are emerging trends in product innovation in the broader area of life and health.
There are two inevitable changes in the business world these days. The first change is the fundamental need for responsiveness and agility in the supply chain to respond to the COVID-19 crisis. The second is the rapid and irreversible shift to e-commerce.
Ecosystem integration is proving to be the up-to-date business process-driven approach for these two. By definition, the wordecosystem“Here’s everything that revolves around making and delivering a company’s products. For example, this includes customers, data providers, financial institutions, suppliers and logistics providers.
Businesses are now jumping on the bandwagon of finding value in processes that connect all of their stakeholders. They are quickly discovering ways to unlock this value through software technology called ecosystem integration. It connects and integrates key revenue-generating processes between a company and its ecosystem partners.
Insurers have also opted for integrated service offerings or ecosystems. They are now growing vertically through the value chain. They did this by creating partnerships and joint ventures.
This vertical integration allows health and life insurers to provide integrated services. An example is veterans health care in the United States (US). Having it with Medicare allows U.S. military veterans age 65 and older to get Medicare and VA benefits even in a non-VA health clinic. Another example is improved digital capabilities, which have not only improved customer experience and results, but also made insurance more affordable.
Another way to improve customer experience is to group products into a package, combo, or mix based on customer needs and preferences. For example, companies typically combine best-selling items with low-selling ones and sell them as a unit for a single price. This not only helps consumers try new products with low risk, but also saves money.
Product bundling has many benefits for businesses. For example, because bundling items can result in multiple items being sold in a single purchase, it can steadily increase the average order value. Plus, selling more means reducing marketing and distribution costs and inventory waste.
Many insurers now offer policyholders flexibility through various health and life coverages. They now include health, protection, retirement and wealth management benefits. For example, the insured can now adjust their premium flexibly to be even more protected against various risks as they age. The insured can also extend his protection coverage against disability, serious health risks or even death.
Pooling changes the structure of a business from a stock company to a mutual company, where customers own most of the shares. Many insurance companies are structured this way. Mutuelles give policyholders the right to receive part of their profits and even to elect the management.
The new trend is the acquisition upside potential (or the amount by which analysts expect the price of a security to rise) through pooling. Several insurance companies now use this concept for retirement savings. This allows policyholders to obtain the potential increase in value from investments, especially in riskier asset classes, instead of conventional low-risk fixed income assets.
Essentially, pooling allows policyholders to build up a reserve fund. They are usually made through excess capital from insurance companies. It is generally useful for policyholders, especially on bad results of expiring contracts. Although these contracts have strict termination rules and a long duration, they generate excellent upside potential.
Enhanced coverages for pre-existing conditions
In the past, insurers tended to reject people with pre-existing conditions. These are health problems that a person had before the start date of health insurance coverage. Examples of these are asthma, diabetes, cancer and even pregnancy.
The good news is that life and health insurance has started offering protection coverage for them these days. For example, in the United States, under the Affordable Care Act of 2014, insurance companies can no longer reject people with pre-existing conditions.
Additionally, they cannot charge more money for coverage or subject someone with a pre-existing condition to a waiting period. These changes have prompted many US health and life insurance companies to restructure their protection coverages.
Improved life and health coverage for pre-existing conditions is usually possible through improved underwriting capabilities. They are finalized after taking specific risk parameters into account. Also, for good control, they are usually equipped with digitally supported reward systems.
The innovation of their products has not always been at the center of health and life insurance businesses. However, due to significant developments, real product innovation has become the essential lever that insurers must invent. Otherwise, their traditional value propositions will continue to erode.