For most insurers, reinsurance is a key element in product design. Reinsurers not only take part of the risk (and that varies from insurer to insurer) but they also provide technical input and a range of other key support functions. Ultimately, they play a key role in pricing and underwriting too. Pacific Life Re’s Kuen Chik gives us the lowdown on product review from their viewpoint.
Product development in the protection industry has gathered pace in the last few years, with value-added services emerging as a rich platform for innovation. But progress has been slow when compared with other industries. Throughout the protection world there is enormous intent in coming up with new ways to tackle customers’ problems. And yet there is often the idea that the industry could be more innovative. So what are the barriers to greater innovation and how can we overcome them?
Who does what?
First, let’s look at the roles played by the various participants in the value chain: reinsurers, insurers and distributors. Being connected to the customer, distributors are often at the forefront of understanding the pains and gains of protection customers. Their feedback to insurers is vital in the product development process and is often the catalyst for ideas. For the insurer and reinsurer, there is no single way of working, in terms of product development. Often it is the insurer who originates product design but sometimes it is the reinsurer who pitches ideas to insurers. Reinsurers can be brought in at an early stage to develop ideas or at later stages just to price the product and review that it all works from a claims and underwriting perspective too.
At Pacific Life Re, we’re conscious that different ideas will work with different insurers. We bring inspiration from the latest consumer trends and what we see across the industry and throughout the world. We certainly don’t see our role as telling insurers what to do, but to work collaboratively with them. We can conduct ideation workshops with clients and recently we’ve developed a concept of product embryos – where part developed ideas can be road-tested, and if successful, taken to fruition with a particular client.
We conduct our own formal customer research but, when working with a particular insurer, we also lean on the distributor and customer research they’ve conducted, and their insights from distributor facing teams.
The lead time for development can vary enormously, depending on whether it is a tweak or an entirely new product. Often systems and system releases dictate the timing.
Test and learn. Experiments. Placing lots of small bets. Fail fast. These are all concepts in the world of innovation. But arguably long-term protection business does not lend itself well to experiments and test and learn. For example, selling a handful of policies as an experiment creates a legacy product problem – it could mean you have to service this handful of policies for the next 25 years. An overhead for the insurer and reinsurer alike.
In the old days, many insurers controlled their own direct salesforces but this business model is much diminished. Therefore, an insurer who wishes to experiment or test and learn has to get distributors on board with that too. Alignment between distributor, insurer, reinsurer and let’s not forget, the customer, is often difficult. Within this value chain, what works for one party might not work for another.
For the reinsurer, there is a rich seam of experience data for life, CI and IP but any innovative and novel protection risks that have not been covered before need to be thoroughly researched and assessed. Often the data is sparse, doesn’t exist or is difficult to obtain. Guaranteeing rates for an innovative protection risk for 25 years often comes at a price. A price that might make the product prohibitive for the customer.
How might we as an industry overcome some of these barriers? The legacy product problem outlined above is inherent with long term business. But not so with value-added services which can develop and evolve much quicker.
Reviewable rates, an obvious answer to pricing a novel protection risk, are common in the rest of the world (and historically in the UK) but nowadays doesn’t sit well with some distributors and customers. But that is exactly why there is scope for greater collaboration between distributors, insurers and reinsurers. The aim here is for each party to gain a greater understanding of the challenges the other parties face. Often there is a trade-off between price, inclusivity, and customer experience. For example, shortening a customer journey might be a good experience for the distributor and customer but could impact on price. Could three-way collaboration between distributors, insurers and reinsurers be the answer?
Finally, let’s consider what trends might emerge in the next few years.
We will see an even greater focus on the customer and customer outcomes as the FCA’s new Customer Duty kicks in and the industry grapples with what this means and what it doesn’t mean for products, propositions and the customer experience. The development of value-added services in recent years has really changed the landscape and we see this continuing apace. It’s an area we have sought to explore through our recent Beneath the Surface consumer research report, and we believe there is significant potential for value-added services to evolve to interact more with the underlying protection product. And finally, protection as a service rather than just a financial payout is an idea that has been around for a while. With the impetus from value added services, this is an idea that might finally bear fruit.
Kuen Chik, Director, Product Development, Pacific Life Re