Life and Health Insurance M&A
We review the M&A worldwide for life and health insurers in 2021, and an outlook for 2022 and beyond.
Underlying drivers of change are fundamentally transforming the foundations of the insurance industry. New ways to expand insurability and to measure, control, and price risk enable the creation of innovative insurance products and services. Digital platforms disrupt how insurers reach policyholders and potential customers, especially millennials who expect on-demand, high-touch services with delightful user experiences. Technology advances including artificial intelligence and cloud computing improve efficiencies, and with automation, insurers can reduce the cost of a claims journey by as much as 30%.1 How can insurers leverage these breakthroughs to address unmet consumer demand, successfully launch new insurance products, and drive down costs?
Milliman addresses this question in the “Innovate to win” series. Our first article presented a roadmap to guide you through the entire innovation process.2 Here, we focus on how you can identify and meet the needs of your customers through market research.
Research into the behavioral economics, marketing, and psychology of insurance products is business-critical for insurers. To sustain profitable growth, insurers must create innovative products and services while improving customer connectivity. The typical insurance company loses 10% to 15% of its customer base every year and the cost of acquiring new customers makes this churn extremely expensive.3 However, innovation is also expensive and inherently risky. According to Harvard Business School, 95% of the 30,000 new products introduced into the general marketplace each year are failures.4 With deep risk management expertise and large customer bases, insurers are better positioned to succeed at innovation when compared to other industries.
Successful innovations solve fundamental customer problems in new, better, or more cost-effective ways. Researching customer needs and expectations in the context of your competitive landscape is an integral part of the process. To mitigate risk, all these questions should be researched and answered before launching any innovation into the market:
Market research provides valuable insight into consumer needs and can eliminate misperceptions regarding what potential customers will think about your new product, service, or process. Research can help you clearly define your target market, avoid costly mistakes, and speed product development time. Although market research helps mitigate risk, it does not eliminate it entirely and can be costly. You will need to determine how much time and money you are willing to spend researching the market and if your potential innovation is worth the investment.
Primary and secondary research are the two most effective ways for insurers to gather information about markets, products, and consumers. Contrary to its name, secondary research is usually conducted first and analyzes existing data. By combining multiple sources of secondary data, you can identify trends and gather useful information at a low cost. You can then use this information to better understand the actions you and/or others have already taken and learn from any mistakes or successes. Secondary research helps maximize future primary research, which is the collection of new data about a specific topic. Certainly, secondary research has value, but it lacks the customization and specificity needed to evaluate larger insurance innovation projects.
A business decision of major consequence requires primary research. Primary research begins with a review of secondary research to efficiently gain direction and insight into the intended study topic. After that, quantitative and/or qualitative methodologies are used to gain further insight into consumer needs, preferences, and behavior. Additional benefits of engaging clients in a research project include strengthening relationships, winning loyalty, and creating new business opportunities.
Quantitative data, typically gathered using surveys, can be represented by usable statistics. Surveys gather a significant amount of data in a relatively short timeframe from a wide range of people, giving you the confidence that the data accurately represents your customer base. This data can provide valuable insight into consumer preferences such as likes and dislikes, satisfaction ratings, and opinions. You can run statistical significance tests to apply results to the population of interest and present the results graphically. Data-driven charts and graphs are an effective way to help stakeholders understand research and convince them to act on the results.
When you need more context regarding your data-- for example, why people feel a certain way about a response-- then qualitative research is the best approach. Sometimes the “why” is critical to exploring a study topic and qualitative research addresses this requirement through focus groups and interviews. These methods enable more in-depth understanding through direct quotes from respondents, the use of themes to bucket responses, and the ability to contextualize answers to understand the “why.” Although qualitative research is valuable, it can be time-consuming and costly when compared to quantitative research. Data is collected from a much smaller sample, so it is difficult to present in an aggregate summary and not statistically significant as being representative of the entire population.
Both types of primary research methods are valuable and can provide insight into the market with different applications and emphasis:
The most effective product development processes combine quantitative and qualitative research methodologies to refine and validate innovative ideas and prototypes. When you get the results of your research, it is important to have the infrastructure and resources in place to act on those insights. It is also important to note that the results of your research may require you to change your plans because what you previously thought were great ideas were not validated by the market research.
Still, it might be difficult to for your company to adopt new ideas and move forward with your innovation. Administrative systems can slow your company’s product development process and potentially hinder your initiative. Distribution issues can also make or break new product or service delivery. Bottom-line concerns such as low interest rates and the cost of meeting regulatory requirements are key considerations. As a result, many insurers de-emphasize innovative product development initiatives because of resource constraints and development and approval costs.5
If you are making a big decision regarding an innovation, it is important to dedicate resources to perform in-depth market research. Discovering what your target customers think about your innovation enables you to tailor and refine it before you officially launch it. It is best practice to test multiple variations of your solution with your target market to determine which version resonates most with customers. Research is an opportunity for you to test both the innovation and the messaging you will use when going to market.
If you would like to discuss how customized market research can strengthen the development of your innovative offerings, please contact David Bahlinger or one of the other outstanding professionals at Milliman.
1McKinsey. (March 2017). Digital disruption in Insurance: Cutting through the noise. Retrieved on May 26, 2020, from https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Time%20for%20insurance%20companies%20to%20face%20digital%20reality/Digital-disruption-in-Insurance.ashx.
2Borcan, Ashlee Mouton. Milliman.com. Innovate to win: Insurance industry roadmap to success. March 5, 2020. Retrieved on May 26, 2020, from https://us.milliman.com/en/insight/innovate-to-win-insurance-industry-roadmap-to-success
3Simpson, Pamela. The Lowdown: Reimagining Research to Recognize Emerging Insurance Industry Trends. (September 19, 2019). Insurance Journal. Retrieved on May 26, 2020, from https://www.insurancejournal.com/blogs/research-trends/2019/09/19/540368.htm.
4Emmer, Marc. 95 Percent of New Products Fail. Here are six steps to make sure yours don’t. (July 6, 2018). Inc. Retrieved on May 26, 2020, from https://www.inc.com/marc-emmer/95-percent-of-new-products-fail-here-are-6-steps-to-make-sure-yours-dont.html.
5Society of Actuaries. Understanding the Product Development Process of Life and Annuity Companies. (December 2017). Retrieved on May 26, 2020, from https://www.soa.org/globalassets/assets/files/research/understanding-product-development-report.pdf.