The life insurance industry is susceptible to disruption, but has some factors that will help to protect it, Willis Towers Watson Head of Risk Consulting Paul Caputo says.

“The signals suggest the life industry is vulnerable to disruption due to its slow uptake in technology,” he told the Actuaries Institute Financial Services Forum in Melbourne last week.

“And customer loyalty is hard to achieve.”

Disruptors will challenge the argument that “life insurance is sold, not bought”, Mr Caputo said.

But the industry has some built-in protection from these forces in that the business is capital-intensive and the market is heavily regulated.

He says these factors will discourage “cheap entrants”, but that would not stop a well-financed player from entering the market.

Life insurers are also vulnerable to changing consumer attitudes and the impact of social media, because companies outside the industry have access to information about what people are thinking and doing.

Mr Caputo says these companies also have the analytical abilities and expertise to look at this data, which will give them a significant commercial advantage over the life industry.

Willis Towers Watson Senior Consultant Kenneth McIvor told the forum the threat to the industry from disruptors will probably come from a combination of factors.

These include “peer-to-peer insurance”, where a group of people combine their assets to provide each other with cover.

“People have the ability to take insurance into their own hands,” he said. “This increases transparency, lowers prices and eliminates moral hazard.

“But as life insurance typically needs large pools of customers, peer-to-peer models might lack scale.”

Disruptors might also gain a foothold through telematics as more people use wearable technology to monitor their health. Mr McIvor says these devices enable insurers to better understand risk, in turn leading to better management of these issues.

“The devices open up new distribution channels although there are still privacy, accuracy and fraud issues to deal with.”

Another threat is “blockchain technology”, which executes a payout automatically when conditions are met without the client lodging a claim.

“This would industrialise the claim process and eliminate operational challenges and costs,” Mr McIvor said. “But blockchain is a nascent technology with high demands on data and infrastructure.”      

Big data is an opportunity for disruptors to gain a foothold in the life industry as new players have that ability to provide customer insights in real time, he says.

“It will bring analytical advances that will coincide with the lifestyle revolution of consumers,” Mr McIvor said.

“But the challenge for new entrants will be traditional actuarial techniques that provide sound insights into life insurance performance and that will not easily be replaced.”