Living benefit riders to life insurance policies: Pricing considerations and strategy
Adding benefit riders to policies provides meaningful coverage for those who need it, and carriers usually can do so at a relatively low cost.
As insurers face fierce competition and pricing pressure, many are looking to innovative ways of doing business to drive revenue and growth or risk falling behind. Today’s technologically-savvy consumers demand personalized offerings, responsive customer service, a wider range of options, and the ability to research and engage with carriers online.
For insurers, innovation is a key factor to increasing market share and improving customer retention. Innovative products and solutions enable you to service client needs in new ways that your competitors have not considered or been able to provide.
Successful insurance innovations deliver clear value to customers. They are thoroughly tested, feasible to administer and compliant with laws and regulations. To innovate rapidly and effectively, your company needs a roadmap to follow, so you can continuously evolve your processes and offerings to better serve your clients and ultimately gain competitive advantage.
A corporate culture that promotes the development of innovations is a powerful way to generate new ideas. In this environment, employees do not simply accept the status quo that led to the current system of processes, services, and products. They are encouraged to think out of the box and freely share their ideas. Open communication practices make employees feel safe pointing out business problems and confident that management will listen to their feedback. Rewarding employees and collaborative teams for their contributions is essential to keep people motivated and maintain a culture that supports innovation.
How many times have you seen a new product or service and wondered “Why didn’t I think of that?” In retrospect, many innovative ideas and products can appear painfully obvious, particularly with ideas that become ingrained in our daily lives. In some instances, innovation is disruptive because it creates a new market and value network that displaces established norms. For example, Uber disrupted the taxi industry with a new paradigm for both riders and drivers. At the opposite end of the spectrum, innovation can be much more subtle. Incremental innovation makes small scale improvements that add value to your existing products and services in large part by using your existing capabilities.
Whether disruptive, incremental, or somewhere in between, a successful innovation addresses an actual market need, even if your customers are not yet aware that they need your solution. The key to success is to clearly identify the business problem, which may also be a customer pain point. Your customers might have pain points that your products or services are not solving, or your business might have pain points regarding delivering your services in a way that is not satisfactory to customers. When you focus on identifying and addressing pain points, you create a clear path to improvement.
Brainstorming sessions along with customer, employee, and business unit feedback are all ways to identify problems and pain points that need to be solved. Here are a few common questions insurers could ask to jumpstart the brainstorming process:
Innovation can take many forms, including a new or enhanced service, process, or product. Once you have clearly defined the problem, keep an open mind and remain flexible about potential solutions. Explore as many ideas as possible to solve the problem because the more solutions you develop, the greater the probability that you will find the right one. Then evaluate, rank, and prioritize each solution in alignment with your company’s resources and business strategy. As a starting point, you can evaluate each idea by asking the following questions:
At this point, multiple feedback loops are critical to rapid innovation. Explore different solutions concurrently by engaging your marketing, actuarial, and legal experts to help identify potential roadblocks. Keep in mind that companies that support fast innovation often realize first-mover advantages including larger market share.
The aim of innovation is to meet the needs of your customers, and to that end, market research is crucial to your innovation roadmap. 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. Your marketing department can research the perceived value of your innovation using a combination of customer surveys, focus groups, data analysis, and other tools. This is an opportunity for you to test both the innovation and the messaging you will use when going to market.
A feasibility study will assess the viability of implementing your innovation. The purpose is to map all relevant aspects including potential obstacles, revenue, competition, and funding needed to bring your innovation to market. It is important that all business units are involved to help identify and overcome any potential roadblocks. A cost/benefit analysis covering short- and long- term considerations is also an essential component of a feasibility study.
For example, providing an innovative insurance benefit or process can be valuable to consumers, but only feasible if your company can administer the new offering. Often, new or modified technology will be required. Data access is crucial and you need to have employees who are experienced in interpreting the information. Depending on the innovation, data that mirrors the exact benefit specifications might not be available, though, in broad terms, the more data you can access and analyze, the more accurate your feasibility study outcomes.
Your feasibility study might indicate that time, money, technology, overall business capacity, or other obstacles are too restrictive for you to move forward with the innovation as initially planned. You can then refine and improve the solution to address the obstacles identified in the feasibility study.
The first iteration of any innovation released to market is not expected to be perfect. It is important to learn from it, react quickly, and evolve. To the extent possible, factor flexibility into the initial iteration and engage specialists so that you can move quickly.
The balance between timely innovation and regulatory issues is a fundamental component of your feasibility study. Sometimes, the legal and regulatory treatment for an insurance innovation is unclear. Your legal team might need to research and investigate at the state and federal levels to determine permissibility. In some cases, it might take time, resources, and effort to convince regulatory authorities that an innovative benefit or process is in the best interest of the public. You will need to weigh these factors against the potential benefits of your innovation to determine the return on investment for your company.
If your legal team has a good relationship with regulators, it can facilitate receiving candid feedback from them. In some instances, it can be helpful to reach out to regulators anonymously to evaluate their receptiveness to a new idea. Your team might also need to meet with various Departments of Insurance (DOI) for innovations that will be regulated at the state level. DOI interpretations are the easiest to change because changes to laws are generally more difficult and time consuming to achieve. If the issue is at the federal level, it might be more difficult to influence change. Regardless, regulatory changes of any sort might involve lobbying and prolonged delays.
A changing world demands insurance innovation. Success requires a corporate culture that fosters new ideas and collaborates effectively to drive innovation forward. Milliman consultants are uniquely qualified to help you develop, implement, and manage your company’s innovation strategy to better serve the evolving needs of your customers and secure your competitive advantage. With Milliman, you gain access to consultants who are accustomed to pioneering technology as well as who have expert insight at the forefront of trends that will define tomorrow’s industry.
See how Milliman helped a community hospital innovate to expand access to high-quality care. Watch the Aspire health plan video .
If you would like to discuss innovation please contact Ashlee Borcan or one of the other outstanding professionals at Milliman.