Time for Transformation

Four key market forces are driving changes in the insurance industry Bill Bade

Time is the most important gift in life. It creates excitement in youthful anticipation of an overdue vacation or disappointment as the clock expires on a favorite sports team. Technology and new market opportunities long discussed as the future of the insurance world are already in practice at carriers—a few such examples include John Hancock, Lemonade and Oscar—and an influx of new market forces is creating opportunities for others. Many of these other carriers have invested, or will begin investing, in such opportunities. The remaining carriers that refuse to follow suit will eventually run out of time.

To stay relevant, carriers should embrace at least four key market forces that are driving changes in the insurance industry: customer expectations, technology, demographics and regulatory oversight. These changes create investable opportunities as well as potential challenges.

Market Forces

Market forces are the fundamental building blocks of change in our industry. Even though the four primary market forces discussed in this article have always existed, they are heightened to various degrees in today’s environment and have varying applicability across different products and markets. In addition, the market forces create both challenges and opportunities depending on specific carriers. Insurers should seek to limit exposure to the challenges presented and invest in the opportunities.

Customer Expectations

Customer expectations have increased due to consumers’ desire for insurance products and services that look and feel like other products and services they purchase—including unique experiences created by companies such as Amazon and Expedia. These expectations arise from overlap with other industries, including pre- and post-sale customer service. If a consumer can look up the status of a shipment online, they also want to be able to see the status of a claim online.

Insurance products are rarely intuitive or easy to understand. When consumers book flights three days before traveling, most understand the price will be higher than if the trip was booked months earlier. It’s far less intuitive to the consumer why they might pay a significant health insurance premium if they’ve never submitted a claim. When products aren’t intuitive, consumers look for alternative product solutions.

It is important to note why this intuitiveness is not present in insurance. Why can’t I simply purchase health insurance on my phone in minutes? To an industry insider, the answer is obvious: Anti-selection will occur, as those needing coverage for imminent care will be more likely/timely to sign up for coverage than healthy individuals. Insurance typically is not wanted until a known risk is present. However, to the outside consumer, there is a disconnect with their experience in other industries.

It is this opportunity where it is critical for the actuary to have a hand in innovation—to find this middle ground where both efficient and consumer-centric experiences that rival the experiences of other industries can emerge, while at the same time making sure these solutions are sustainable in the long term for managing risk for large populations.

Rising customer expectations coupled with the entry of new carriers (new carriers entirely or existing carriers in a new market) leads to decreased loyalty and increased consumer leverage. This power the customer wields results in better service.


The development of new technology is finally breaking through barriers of entry into the insurance markets. The proliferation of InsurTech companies and the infusion of private equity are accelerating the pace of innovation. This trend continues to soar as $3.2 billion of InsurTech funding was secured globally in 2018, an amount which nearly doubled the amount raised in 2017.1 As insurers seek solutions to the opportunities and challenges created by other market forces, the adoption of new technology systems will be a key path to success for many.

Many of these opportunities have less to do with what software capabilities exist, but with the technology infrastructure environment in which our consumers live their daily lives. There are now more opportunities for touch points with our consumers than ever, along with a better understanding of our customers through data. And never has there been a stronger business experience through technology. The massive growth of new online insurers like Acko General Insurance in India or ZhongAn in China has shown that a completely digital experience is not only possible, but a catalyst for potential growth.

Of course, as we think of technology, we must think not only of what more we can do, but also of what we can do less. While startups have the luxury of creating a unique experience, large insurers have the scale to create disruption through execution. By identifying which segments of their value chain can be transformed through technology, they can find a path to true differentiation. Should an underwriter’s time be spent completing documents and drafting proposals, or instead should they analyze sales trend reports and trends of cross-sell opportunities? Should claim examiners be sorting through folders of charts, or instead should they review a single dashboard of medical information in minutes to review a disability claim?


Age-based demographics represent both generational differences as well as true age differences. Generational differences are based on birth years, and groups sharing birth years generally share preferred service models. The generations are subject to some disagreement over birth years, but include Generation Z (approximately 1997–2012), millennials (1981–1996), Generation X (1965–1980), baby boomers (1945–1964) and the Silent Generation (1928–1945). As an example of preferences, millennials will be more likely to adopt online distribution models than the Silent Generation. Figure 1 provides the trend of each generation as a percentage of the total population from 2010 to 2030.

Figure 1: Generational Makeup of U.S. Residents Aged 18+

2010 2015 2020 2025 2030
Generation Z  0.0%  1.7% 10.1% 18.0% 25.8%
Millennials 22.8% 29.1% 28.4% 27.6% 26.8%
Generation X 28.9% 27.0% 25.4% 24.0% 22.7%
Baby Boomers 33.9% 30.7% 27.7% 24.8% 21.5%
Silent Generation 14.4% 11.5%  8.4%  5.6%  3.2%

United States Census Bureau. National Population by Characteristics 2010–2017 (Annual Estimates of the Resident Population by Single Year of Age and Sex: April 1, 2010 to July 1, 2017). December 19, 2018 (accessed April 19, 2019).
United States Census Bureau. 2014 National Population Projections Tables (Table 9. Projections of the Population by Sex and Age for the United States: 2015 to 2060). May 9, 2017 (accessed April 19, 2019).

It is unsurprising that Figure 1 indicates movement toward younger, technology-savvy generations; yet, relatively few insurers are delivering products and services in the manner these generations expect.

True age differences could be displayed in many difference variations. At a high level, Figure 2 considers the rapidly growing retiree bucket as a result of aging baby boomers.

Figure 2: Age Distribution of U.S. Residents Aged 18+

2010 2015 2020 2025 2030
18­–64 82.8% 80.7% 78.3% 75.8% 73.8%
65+ 17.2% 19.3% 21.7% 24.2% 26.2%

United States Census Bureau. National Population by Characteristics 2010–2017 (Annual Estimates of the Resident Population by Single Year of Age and Sex: April 1, 2010 to July 1, 2017). December 19, 2018 (accessed April 19, 2019).
United States Census Bureau. 2014 National Population Projections Tables (Table 9. Projections of the Population by Sex and Age for the United States: 2015 to 2060). May 9, 2017 (accessed April 19, 2019).

Most national medical carriers anticipated the trend toward retiree products, including Cigna through its acquisitions of HealthSpring and Loyal American, as well as Aetna through its acquisition of Continental Life. How is your company playing in this market?

Regulatory Oversight

Regulatory oversight is often associated with adverse actions, such as uncertainty in federal regulations or tightening state regulations. This is understandable and well-documented; however, it is also worth considering the potential growth opportunities that arise. For example, the Affordable Care Act’s (ACA’s) high deductible health plans and medical loss ratios supported the product need and distribution growth of supplemental accident, critical illness and hospital indemnity products. Today, many medical and core life and disability carriers now offer these supplemental products with very favorable growth rates. From a growth perspective, the ACA was arguably the best event to ever occur in the supplemental product space.

Opportunities and Challenges

Collectively, market forces generate opportunities and challenges that should be addressed based on the insurer’s product portfolio and market. Many of the opportunities and challenges are dependent on multiple market forces. A few of these opportunities and challenges include:

  • Artificial intelligence (AI). AI provides both internal decision-making as well as customer-facing support. Insurers need to be careful when using AI in a complex industry, particularly with automated functions that affect consumers. Once AI is moved to production, it is difficult to identify an error until it becomes quite costly. I am aware of scenarios where an automated process destroyed the profitability of an entire product.
  • Distribution. Distribution has remained relatively stable in most markets, though consumers are becoming more comfortable with online enrollment for products that historically were enrolled face to face. It is very likely we will see disruption in direct-to-consumer models, signs of which are already present in health insurance startup Oscar’s small business initiatives. In response, agent and broker distribution models may expand beyond traditional services including alignment with third-party technology platforms and third-party administrators (TPAs), or implementation of captive models.
  • Patient advocacy. Patient advocacy, either through the carrier or exclusive strategic partnerships, protects against commoditization and shows insureds (particularly younger generations) that carriers care about them as individuals. Actuaries can play a lead role in identifying which of these initiatives affect pricing, take-up rates and customer behavior.
  • Personalization. Many carriers have moved toward the standardization of products and services, particularly in small to mid-size groups as well as individual markets. This is a natural response to squeezed profit margins. Technology, however, affords an opportunity to realize the opposite scenario—a long-term reduction in cost while improving the personalization of product and services. How powerful would it be in a group market to treat every small group like a national account?
  • Product development. Placing emphasis on the customer experience and service model can reduce the importance of the product itself and lead to commoditization. In some products/markets, insurers continually change the marketing algorithms and service model but find product changes unnecessary.
  • Risk profile. Combining technology with data and analytics allows carriers to build more sophisticated pricing models to attract and retain customers. Not only can a more sophisticated pricing model increase the profitability of a carrier’s block of business, but competitors with simple pricing algorithms may absorb the worst risks. Federal policy can also create product opportunities that benefit one party but are detrimental to others, such as HealthShare Ministries, short-term medical plans and others.2
  • Security. Security plays an important role in the future of insurance and affects a multitude of carrier operations. As an example, many carriers rely on third-party technology platforms to enroll products in a controlled environment. These carriers are placing their brand in the hands of up to 100 or more different technology vendors, and these technology vendors are susceptible to malicious activity like any other organization.
  • Supplemental products. The rise of high deductible health plans has been a key driver of the growth of supplemental accident, critical illness and hospital indemnity products over the last 10 years. While most carriers pursue these products in traditional group markets, some carriers have found extraordinary success in individual as well as retiree markets. The expansion of these products alongside both Medicaid and Medicare products is expected for many years to come.

If our industry started with a blank sheet of paper, an unlimited amount of funding and unlimited resources, what could we build in the next five years? It would certainly be something different than what we have today. And, to be certain, there are efforts to move our industry incrementally forward. I sincerely hope actuaries, uniquely positioned with a keen understanding of risk and an analytical approach to problem solving, will be among the first to support change within insurers.

Bill Bade, FSA, MAAA, is founder and consulting actuary at Sydney Consulting Group as well as president at Sydney Administrators and Sydney Insurance Agency.

Copyright © 2019 by the Society of Actuaries, Chicago, Illinois.