Top 5 Challenges in Bridging the Protection Gap

We became first time parents in March this year. It was the height of the pandemic in the UK with strict lockdown rules. Working-from-home became a blessing in disguise allowing us to experience this special time together as a family.

However the experience has recalibrated my risk perception. Every time I step out I am acutely aware of the risks we all face every day. I am equally aware that it is not just the risk of contracting the novel coronavirus but hundreds of others. Our health and lives are as fragile as they are robust and we all deserve a safety net for ourselves and for those we love and care about.

According to the Association of British Insurers (ABI) around 1m UK adults were unable to work because of serious injury or illness in 2017 and the protection gap continues to rise reaching an estimated £2.5 trillion in 2012. This problem is not unique to the UK. SwissRe estimated the US mortality protection gap at $25 trillion in 2016 and the trend is similar in other advanced economies while emerging economies fare even worse. Here are our review of the top 5 challenges in bridging the protection gap:

1. Cost:

The cost (or perception thereof) of getting insurance features regularly as one of the top challenges. For long insurers have focused on affluent customers. This has shaped product design, risk classification and pricing, distribution, communication and operations. Most products (often bundled together) are confusing to most customers. Pricing is very uncompetitive because of the inability of existing predictive models to differentiate risk. Most of the loading is still based predominantly on Age, BMI and smoking status. At the same time most of the distribution is still via agents and brokers. This channel is, understandably, too costly to cater to lower ‘sums assured’ leaving out large parts of society. Similarly operations are manual and tedious, most importantly in assessing risk. Armies of underwriting teams are under increasing pressure to the workload consisting of thousands of pages of applications per day. Emerging d2c business models are the step in the right direction but, unable to overcome traditional structures, have had limited success so far.

2. Purchase Experience:

This is a no brainer. According to TransUnion, in the US, average time from application submission to policy issuance is 27 days with most developed markets ranging between 3-5 weeks. On top of this the customer needs to divulge personal and highly sensitive information about their occupation, medical history, family medical history, pre-existing conditions, lifestyle, smoking and alcohol consumption, dangerous pursuits and on and on and on. Most of us don’t have this information on hand and all of us are scared to get it wrong as nobody wants to pay a premium for years only to find out that your claim is invalidated because of a discrepancy in your application. For a significant proportion of customers the ordeal doesn’t end there and after revealing all the required information they still have to get a medical exam or blood test conducted. The result is that insurance has one of the worst application abandonment rates, further shrinking the total addressable market.

3. Education and Language:

This draws from the first two problems. Complicated products and lengthy procedures obfuscates the value proposition. This is compounded by medical jargon and the questions of what is covered and what is not. On top of this we include our own lexicon of technical terms e.g. in a recent survey by Legal and General in the UK less than 1 in 10 respondents associated the word ‘protection’ with insurance. Finally the language and communication seems to pit the insurer against the applicant where information asymmetry creates doubts and mistrust.

4. Agency and Engagement:

The variables used to assess health risks are historic and generally unchangeable. They neither empower nor encourage the individual to improve their ‘state of being’. While insurers would love for the insured to eat healthy, be more active and aware, they don’t provide any incentives for doing so. There’s rising literature that mobility and activity are much better predictors of mental and physical health. These are also variables over which individuals have agency and control. We live in an age where almost all of us have a plethora of digital data on us all the time. Insurers need to leverage this data to improve risk predictions and promote healthier lives.

5. The Present Bias:

We increasingly live in the moment and increasingly celebrate it. Throw caution to the wind, carpe diem and all that. Financially speaking, record low interest rates makes it much cheaper to discount the future rather than save for it. This is not a problem insurance can solve alone but reducing the costs, improving access, communicating clearly and aligning incentives for healthier outcomes can make a significant difference.

Conclusion:

We have a transformative approach to overcome these challenges. It is built on enabling customers to share powerful health indicators digitally and instantly. Trained on comprehensive, longitudinal datasets our algorithm predicts the likelihood of hundreds of medical conditions and calculates extra morbidity and extra mortality risk on a continuous scale. Allowing for an easy and quick purchase, better and more granular risk classification and inexpensive and seamless delivery model.

Get in touch to find out how we are working with insurers and reinsurers to help provide the safety net that we all deserve.