Written by Andrew Ostro, CEO & Co-Founder of PolicyMe
It’s been over a month since stay-at-home orders were put in place across Canada. And with the new normal quickly sinking in, businesses have been forced to react and adapt to the changes.
Needless to say, the impact on businesses certainly hasn't been uniform.
Some industries are set up to thrive in this environment, seeing a big spike in demand and already having an operating model designed for a virtual economy (e.g., the e-commerce industry).
Other industries, such as restaurants and hospitality, have been given no options at all. As a result, they’ve been forced to shut down until the physical economy can return.
And then there’s a third type of industry where the opportunity for business still exists (and is, in some cases, even stronger than before), but where the industry requires significant changes to its operating model before it can move forward in the current environment.
This situation is no more true than in the life insurance industry.
Let’s start with the demand for life insurance.
In theory, the pandemic hasn’t had any impact on the need for life insurance or the overall importance of it. After all, life insurance reduces the risk that if an income earner passes away, the death will have a major financial impact on that person’s family. This fundamental risk isn’t any different than it was before. The pandemic doesn’t change how a family will be affected financially if one of their income earners dies.
So what has changed? Mortality is front and centre in people’s minds right now. As a result, more people are beginning to appreciate that the risk of an income earner dying actually exists and could affect them.
In other words, there isn’t any change in the number of people who need life insurance. Rather, there’s a big change in the number of people who realize they need it and are doing something about it.
This must be great news for the life insurance industry, right? Actually, it’s not that black and white.
Of course, at a time when many industries have had to shut down or fight to survive because of a steep decline in sales, the life insurance industry is incredibly grateful to still be operational and even be in higher demand.
But actually operating under the current circumstances and meeting this demand hasn’t been easy.
You see, the life insurance industry is a bit of a dinosaur. Historically, it’s been very slow to advance and is usually years behind other industries when it comes to adopting technology and improving the customer experience. When you start to look under the hood of life insurance companies, the reasons for this become blatantly clear.
First, life insurance companies are notoriously risk averse (kind of ironic for an industry whose sole purpose is to absorb other people's risks, right?).
So if a proposed change to an insurance company’s operating model comes with any perceived risk, it’s next to impossible to get leadership to approve the change.
Second, life insurance companies generally don't sell their own products.
Instead, life insurance policies are sold by a large network of individual brokers. These brokers are fiercely protective of their customer relationships. So it’s pretty rare for an insurance company to communicate directly with its policyholders during the sales process.
For this reason, life insurance companies focus on catering to brokers, not necessarily policyholders. Brokers are the ones who sell their policies. So life insurance companies build processes and design products with the goal of serving their broker network, hoping to convince each broker to sell more of that company’s policies.
In Canada, the broker network is an aging population, with an average age of 61. Yes, you read that correctly.
Because most brokers have been in the industry for decades and are reaching the end of their careers, they have no desire to change their businesses, adopt new technologies, or offer different customer experiences than what they’re used to. So to avoid upsetting their brokers and losing them to a competitor, life insurance companies typically shy away from making large-scale changes.
But that’s all changing now.
With physical distancing laws in effect, brokers can’t conduct business and sell policies the way they’re used to. So those changes that they were still resisting in early 2020? They’re practically begging for them now.
And with an operating model designed for a physical economy, life insurance companies can no longer shut down proposals for required process changes just because of a perceived risk. It’s simply not an option anymore for any life insurance company that wants to stay in the game.
So here are the key changes the life insurance industry has made recently:
I’m betting that none of the changes will seem particularly innovative or impressive to you. But for an industry that still uses DOS-based software (seriously!), entering the 21st century is a major accomplishment.
1. Digital signatures
Pre-pandemic process: Policy documents had to be signed with a wet signature.
Insurance company rationale: There’s too much legal risk associated with proving the signature is real.
Post-pandemic response: Insurance companies’ legal/compliance teams have finally accepted that digital signatures are binding.
2. Electronic policy delivery
Pre-pandemic process: Brokers were forced to deliver a physical copy of the policy to the customer before the policy could be considered “in effect." This often meant weeks between when the policy was approved and when coverage was active.
Insurance company rationale: This extra touchpoint is another opportunity for the broker to build a relationship with their client and potentially upsell.
Post-pandemic response: Paper copies of policies are no longer being printed (unless requested), and policies can be delivered electronically right after they’re approved.
3. Blood and urine tests aren’t a standard requirement
Pre-pandemic process: In-person nurse visits to draw blood and urine samples were required for most policies (with exceptions for small policies for younger applicants).
Insurance company rationale: The information gathered from blood and urine tests is critical for assessing the mortality risk of a life insurance applicant.
Post-pandemic response: In-person nurse visits to draw blood and urine samples are no longer required for most policies. Insurance companies are using statistical models and “big data" to make up for the missing information from blood and urine tests.
4. No face-to-face interactions required
Pre-pandemic process: Brokers were allowed to make sales without meeting their clients in person. However, an in-person nurse visit was required to verify the customer’s identity. So even when the size of the policy didn’t warrant blood and urine tests, if the sale didn’t take place in person, a nurse visit was still mandated.
Insurance company rationale: To reduce the risk of fraud, someone must meet the client in person.
Post-pandemic response: In-person meetings aren’t required. Other forms of digital verification can be used instead.
Of course, even before the pandemic, there was a small number of insurance companies that had already adopted some of these changes. However, most companies were unwilling to do so.
But with the pandemic essentially nullifying the old way of doing business, every insurance company has been forced to make these changes whether they wanted to or not.
As a result, we’ve seen an industry change more in the last 3 weeks than it did in the previous 10 years! That’s huge!
It isn’t just the life insurance companies and brokers that are benefiting from this, though. These changes combined with the increased demand for life insurance mean that many more Canadian families are getting the financial protection they need—and through a more convenient and streamlined process.
Worried about how COVID-19 affects your life insurance policy? Learn more about the impact of COVID-19 on life insurance coverage.