Best of Both Worlds: Combining Digital Distribution with Full Underwriting ​

Conditions are ripe for life insurers to recapture market share online. An ongoing pandemic has renewed interest in protection, driving a 40-50% increase in digital life insurance sales from pre-pandemic levels. 

Yet if the experience of digital life insurance advisor PolicyMe and life insurer Canadian Premier is any indication, digital life insurance distribution remains a largely untapped opportunity. Both companies partnered with RGA to unravel a mystery: Amid a global health crisis, lockdowns, and social distancing, why haven’t life insurers sold even mored policies online? 

Recent digital sales growth is deceptive because it is based on very small numbers. By most estimates, direct channels (from mail to mobile) accounted for only 6% of all life insurance sales, a number that had been flat for six years. Despite aggressive efforts to access the underserved middle market, the fully digital portion of those sales represents an even smaller sliver. Of the consumers who do begin their life insurance search online, only a small percentage complete those transactions. 

Insurers have placed big bets on the idea that consumers will trade the lower cost of a traditional, in-person purchase for the speed, simplicity, and no-touch convenience of online purchases. 

What if customers won’t buy without the best of both worlds - the ease of the digital purchasing journey and the comprehensiveness of fully underwritten coverage? Through its partnership with RGA and Canadian Premier, PolicyMe offered both benefits in a new and highly successful digital life insurance product. 

Recently Andrew Ostro, CEO and Co-Founder, PolicyMe; Graham Kent, Chief Operating Officer, Canadian Premier; and Braam Kruger, Vice President, Business Development, RGA Canada, shared a case study in collaboration at the RGA Global Bancassurance and Alternative Distribution Seminar. This exclusive virtual discussion included insurers, banks, insurtechs, and other ecosystem players. Here are some key highlights from the case study discussion.

Zeroing in on the Canadian market PolicyMe serves, the decline in life insurance ownership has mostly been among traditional (typically family) market segments. This has occurred despite the increased availability of digital life insurance options. What does this say about the opportunity in underserved markets?

Kruger (RGA): It is clear that the current environment provides market conditions that are favorable for recapturing some market share in traditional segments, but the traditional distribution channels haven’t been successful in capitalizing on this opening. 

Now, there are challenges when looking to successfully sell life insurance through a digital channel. The first of these is the need to offer education. The fact remains that customers need advice when purchasing life insurance, even when buying through a self-directed online process. Even online retailers offer publicly visible customer product reviews and make suggestions based on a customer’s purchasing history. Most consumers research products on Amazon.com before making a purchasing decision. 

To address this, and to negate the need for advice, insurers have simplified products. Yet this approach hasn’t met consumer expectations. What is needed is a better way to communicate and ultimately establish the need for coverage. This needs to be done in a way that builds trust, which is also critical for converting clicks into sales. 

That’s why the approach of PolicyMe is so effective. It’s all about empowering the consumer to make an informed assessment. The result has been conversion rates that are much higher than anything else in the Canadian market. 

Ostro (PolicyMe): When we started, it was quite simple. We wanted to see if we could crack the online distribution problem for life insurance. What we saw was essentially 60% of life insurance buyers starting their search online, but only a small percentage were buying the product digitally. Clearly, something was missing; something was preventing people from completing purchases online.

Let’s delve a bit deeper on that last point. What do you say to critics who argue that the old maxim is true – life insurance is sold, not bought?  

Ostro (PolicyMe): We felt that wasn't really the case. We were told you’ll never be able to sell online because you need someone actively pushing the product. But in our research and in relevant user studies, we found that this is not necessarily true: A lot of people were aware of, and interested in, life insurance – and wanted to purchase it on their own. But ultimately many couldn't get through the process without going to an advisor.

The problem? People often associated the insurance purchase with a binary decision: Do I buy it, or do I not? And as we all know, the choices can be much more complicated. There are many different policies and options. Each decision can have huge coverage and cost implications. Many who start their online journeys get stuck when they reach the sections related to term length and coverage amount.  They quickly realize that these decisions are not so simple, and this can lead the consumer to feel overwhelmed or to fear making the wrong selection. It’s easier to stop the online process and go to an advisor. 

At the end of the day, we're still selling a promise – and when that is offered online, it can appear risky if consumers don't fully trust what’s happening on the back end. By educating people, we build credibility. Until the customer can feel confidence in his or her decision, no one is going to pull the trigger.

Kruger (RGA): At least in North America, one reason carriers have been unsuccessful in capturing the middle market in general, and through digital channels specifically, has been misaligned expectations. Product strategies have been centered around simplified issue life insurance, with the thesis being that consumers prefer limited offerings and ease in applying for insurance over comprehensive coverage and price. However, experience has shown this is not true. Expectations around product and price are not set in a vacuum. Features and cost expectations are shaped by what is available to the traditional, fully underwritten market.

Kent (Canadian Premier): Insurance companies should not undervalue the education component they bring to partnerships with entrepreneurs, alongside offering expertise in regulation, licensing, and so on. Being able to educate within the industry is a big piece. It's both rewarding and helps bring our entire industry forward. 

Finding out what customers need and want and educating them on options sounds simple. So why is it so difficult?

Ostro (PolicyMe): The customer needs time to learn. The biggest mistake we made at the start: We assumed each customer was going to pass through the process to a purchase in one go, and that is just not the case. Often, the customer journey begins with learning about the product, then talking with a partner, and finally weighing the options.

The customer needs to build confidence in his or her decision. We encourage the customer to drop off and allow the customer to save a quote and come back. We don’t force a decision; we explain options. Surprisingly, 55-60% of those who start an application with PolicyMe actually finish it – and that’s a rare accomplishment for a fully underwritten product that requires a lot of medical disclosure in the application process. But I will say that we’re never satisfied. Our goal is to find out why people do pause and then explore different avenues to meet the educational or informational needs of those prospects in a non-intrusive manner.

Kent (Canadian Premier): From the start we focused on converting as many potential customers into sales as efficiently as possible. That meant ensuring that money and time spent on risk selection and underwriting would be directed toward the right cases. A lot of the focus has been on optimizing the customer journey around the risk selection – but without changing the risk profile. Changing the way we ask questions, the way we use words, and the way we explain the process became key components.

This solution becomes self-fulfilling. The more applicants complete the process, the more efficient this model becomes. It's quite interesting from a policy administration perspective. We’ve really optimized that process to get it to a price point that works for consumers and our partners.

“Fail fast” is a mantra of Silicon Valley. The idea is that it is more important to try new things, and that startups learn from mistakes. How does that translate to insurance? 

Ostro (PolicyMe): You can’t fail fast in insurance. If you make a mistake, if you sell the wrong policy to the wrong customer, you can assume a potential million-dollar liability. Our lesson was to slow down just enough so that we could build the experience thoughtfully – and avoid creating products consumers may not want to buy or assuming risks that could not be validated. We may not be able to solve all problems in insurance, but we need to focus on the right problems – we still need to bring our products to market rapidly and underwrite them well.

We may not be able to solve all problems in insurance, but we need to focus on the right problems – we still need to bring our products to market rapidly and underwrite them well.

We also learned that we should not reinvent what’s already there. For example, it doesn’t make sense to reinvent an underwriting philosophy when there are insurers who have the experience data. It’s a game that you just can't win. Some of our key services are built in-house, like our databases. But we also learned to leverage through microservices the experience and knowledge of partners, including several RGA companies.

Kruger (RGA): This is not a new lesson, but it's something that can be quickly forgotten: the importance of focus. With any kind of product development, there is a healthy tension among partners. But if all partners are aligned and focused on the same goal – in our case improving the customer experience and meeting customer expectations – success is much more attainable. Secondly, if you're trying to improve parts of the process that are not among your core strengths, you produce inefficiencies. All partners should lean into their strengths and bring in support in areas where they are not strong.

Kent (Canadian Premier): Strong relationships and trust among partners are important; a solid relationship allows you to have those uncomfortable conversations about failure and about focus. These discussions helped push decisions. Another important lesson is that you can't think of the product launch as the finish. All three parties have continued to work very closely since we’ve launched, discussing improvements that are needed. How can we speed certain pieces of the application up? What can we do to improve the product offering? So, our relationship has continued, and that is driving a lot of the success that we're having.

What is the future of alternative distribution? Are we thinking about this consumer in the wrong way? 

Ostro (PolicyMe): From a global perspective, I think alternative distribution has not reached its potential because it's jammed into an existing process. We're trying to force a product that was designed for in-person sales into a digital insurance journey.

I think the future for alternative distribution can be great if we can focus on the customer and his or her journey and match the approach to that customer’s needs. I believe the middle and lower ends of the market will shift toward online distribution over time. This represents a real opportunity for growth for those players who are able to develop the best digital experiences. On the other hand, companies that fail to adapt risk becoming obsolete. 

Kruger (RGA): It’s critical to ensure the online purchasing journey is seamless and intuitive from end to end, from advice to application to underwriting to placement. This space is only going to become more competitive, and the winners will be those with a relentless focus on the customer’s needs. This involves constantly monitoring and adjusting at every step to ensure that if someone leaves or fails to convert, we know why and can adjust the offer or experience to improve results.