Product-centric processes degrade the customer experience. Insurers must insulate consumers from the traditional web of internal and regulatory-driven controls by placing policyholders in the center of the customer experience, protecting them with personalized risk-management solutions that smooth out an otherwise bumpy financial journey.
Ultimately, all insurance is about wealth management. People buy insurance to reduce the impact of unlikely events that, without insurance, would cause significant financial disruption to wealth accumulation plans altering life-long goals and aspirations.
To address these customer needs, insurance companies traditionally align themselves by product – a department for auto insurance, a call center for term life insurance, etc. – but ultimately consumers don’t want insurance products, they want a comprehensive plan to smooth over volatility found in the financial markets and risk inherent in their day-to-day lives. The insurance industry fails to recognize the linkages between these two forms of risk as consumers look to safeguard their lives from financial ruin.
Let’s look at a few examples of product-centric
mis-thinking:
You don’t need auto insurance, sort of Although common knowledge leads many to believe insurance is compulsory, it really isn’t. For example, in the state of California, drivers have
several self-insurance options such as simply depositing $35,000 with the DMV. How and why is this relevant to the topic of wealth management? The choice between self-insuring and purchasing a policy from an insurance company is ultimately about how much financial shock one is able and/or willing to tolerate.
Wealth management is not just about investments The traditional view of wealth management – often limited to financial assets such as stocks and bonds – is myopic; the word “insurance” is not even found in the
Wikipedia article on Wealth Management. To be comprehensive, investment risk must be contextualized with non-investment risks, recognizing that the long-term trajectory of a high-performing portfolio can still be torpedoed by death, injury or lawsuits stemming from liability.
Making a customer-risk centric experience hinges on putting individual risk at the epicenter of how carriers engage with their clients and prospects.
A platform is required to pivot between what customers see and what is seen by other stakeholders, like internal decision makers and regulators.
The four key dimensions of customer risk – investment, death, injury and liability – must all be rationalized to provide effective risk-based wealth management. This is what the customer must see, an aggregate picture of how their wealth is expected to grow over time and what various scenarios of the residual components will look like, should they occur, in different forms.
Because actuarial departments and regulators don’t think in terms of this aggregate view, however, the insurance carrier must maintain the status quo by having personal auto teams, life insurance teams and so on. But the insurer itself must be able to seamlessly “pivot” between what consumers need to see and how it manages individual products.
Risk-based wealth management transcends the scope of traditional product-based personalization such as recommending auto bodily injury limits or suggesting an umbrella policy. The unprecedented change we are talking about can be more characterized as a hyper-segmented and personalized solvency model at the individual or family level.
As an illustration, consider an individual trying to select the optimal deductible for their auto policy or possibly even consider self-insurance based on their net worth and investment portfolio. Similar questions arise when people revisit life insurance requirements as the total value of their investments increases over time.
Impairment to the portfolio is often only taken from the perspective of investments. What really matters is a simulation across all risks of life across a multiple of scenarios and probabilities. This is further complicated by hybrid investment-insurance products like variable annuities that are usually considered investment vehicles but are insurance from a regulatory perspective and typically contain a death benefit.
What companies need is customer level Monte Carlo-like simulation across all risks, not just investments. There is no shortage of tools and financial advisors who include Monte Carlo simulations as a service, but these are limited to the performance of investments and fail to reflect the disastrous effects adverse life events can have on long-term investing goals. Throw in an unexpected illness or liability judgment and all traditional projections are off.
As pandemics unfold, new tax laws are passed, driving habits change and the health insurance landscape changes, the demand for comprehensive risk-based wealth management solutions will only increase. Insurers who connect the dots between the worlds of traditional insurance and traditional wealth management will serve their clients in a more holistic capacity, ultimately driving more revenues and customer loyalty.
The bottom-line question is are you
really serving the current and future needs of your customers?
