Direct Life Insurance Report - Wearables could shrink lapse rates

In light of the recent Direct Life Insurance Excellence Awards hosted by Strategic Insight, we thought we’d take a look at their latest Direct Life Insurance Report to find some insight into the current state of the life insurance industry. Here is the first of two blogs based on the report’s findings.

For years, lapse rates in life insurance have been climbing. In Strategic Insight’s Direct Life Insurance Report 2016, the study found life insurance lapse rates in Australia had increased substantially in the last decade.

For Direct Lump Sum Life Insurance for example, lapse rates have increased significantly. Comparing two studies outlined in the report, one covering 2008-2010 direct sales and the other covering 2010-2012; the first showed a total 62.6% lapse rate after 5 years, and the latter, after just 3 years had already hit a lapse rate of 59.9%. This suggests quite strongly that the 2010-2012 lapse rate is on track to be much worse than for the previous period.

So it’s no surprise that insurance industry publications and events are focussing on retention as a popular issue for discussion. Climbing lapse rates could have a devastating effect on the profitability of life insurers.

The good news is that incumbents are taking action to staunch the wound.

“Multi product discounts, rebates of premiums after the first policy anniversary, tied discounts to loyalty cards and gift cards on sign up are still prevalent. Real Insurance, for example, offer a 10% rebate of first year’s premiums if renewed into a second year. Based on the Initial Public Offer Document (25th May 2015) issued by Greenstone, the company claims an 80% retention rate. Swiss Re have also recognised the importance of Client retention by recently appointing a retention manager to reduce lapse rates and improve persistency and profitability.”

Judging by the low rates of retention though, this is not yet enough. But there are also some newer, more innovative initiatives aimed at fixing the issue. As the Direct Life Insurance Report states, one of the key trends not only in the life insurance market, but also health and general, is improved client retention rates through wellness programmes and wearable tech. It appears to be working; wearable based rewards programmes are starting to make a difference to some insurers’ lapse rates and persistency.

A couple of key examples from the report:

  • AIA: “report a 40% improvement in policy retentions since they launched their “Vitality” program 18 months ago.”
  • TAL: “advise that 70% of new policies have benefitted from discounts under its wellbeing program, launched in December 2015.”

So how does it work?

The basic premise behind using wearables in life insurance is that a consumer would consent to sharing data gathered via a wearable device (like a fitbit), in exchange for lower premiums, discounts, gifts or monetary rewards. The insurer then benefits through improved customer loyalty, richly informative customer data, and lower claims thanks to healthier lifestyles.

Additionally, with wearable technology, insurers are able to change the overall negative connotations that clients often associate with the insurance industry. For years the life industry was known for providing something that clients don’t necessarily want, but need, that they then have  to pay outrageously high premiums for. Through the use of wearables, insurers are able to increase consumers’ buying power and ultimate control over what they are purchasing, therefore increasing consumers’ confidence in insurance products.

Through these ‘wellness’ programs, insurers can give something back to consumers. As the Direct Life Insurance Report states, this can then help to change what has previously been seen as a “dull boring industry” into something more “dynamic and valued” by customers.

The use of wearables and wellness programs benefit both insurers and customers. Specifically, there are various areas that wearables could be of benefit to insurers, these include marketing, underwriting, risk management, new product development, pricing and providing valuable client analytics.

Using wearables, insurers are able to more accurately design insurance products by better understanding the risk exposure, daily activities regarding health, lifestyle and sleep patterns, and heart reports of the client. This data can drive innovative product development within insurance and allows insurers to acquire current and reliable information on clients.

As with anything though, there are pitfalls. A particular threat in terms of the wearable trend is consumers’ fear surrounding privacy of information. One potential strategy to mitigate this fear and increase consumer adoption, is for insurers to educate consumers on the benefits of wearables, and the security measures that will be in place to manage private data.

There are still questions that remain. Is the wearable trend in insurance just a fad? Is this really the right place for insurers to be focussing their time and attention? As stated in the Direct Insurance Report, lack of policy transparency and simplicity can be as much to blame for lapse rates as a lack of incentives.  

Wearables will only be truly successful at improving retention rates if they are not treated simply as a sales gimmick, but as a significant part to a larger overhaul of life insurance product development and marketing. While they are a useful tool for increasing the customer centricity and personalisation of insurance, there is more to the issue than that.


To find out more or download the 2016 Direct Life Insurance Report from Strategic Insight, follow this link.

For more about the Direct Life Insurance Excellence Awards, Read the press release below.

NobleOak Life is the winner of the overall Direct Life Insurance Excellence Award for 2016 announced by Strategic Insight, Actuaries & Researchers at a lunch event attended by over 100 people at Museum of Contemporary Art in Sydney on Tuesday, October 25th 2016.  The annual Awards recognise Life Insurance Company excellence in the provision of Direct Life Insurance products and services.

In the Product Award categories, Suncorp Life (Life Protect) received the Term Life Award, NobleOak Life (Premium Life Direct TPD Option Rider) received the TPD Award, ANZ OnePath (ANZ Recover Well) received the Trauma Standalone Award, NobleOak Life (Premium Life Protect - Trauma Option Rider with Life) received the Trauma Rider Award, ANZ OnePath (ANZ Accident Cover Plus) received the Accident Cover Award and the Income Protection Award went to TAL Life (InsuranceLine Income Protection Plus - Rate Saver).

TAL Life (NRMA Funeral Insurance) received the Funeral Cover Level Premiums Award.  CommInsure (Credit Card Plus) received the Consumer Credit Award.

Source: Strategic Insight (Plan For Life)

Download Media Release (PDF): PFL_SI_Media_Release_Direct_Life_Insurance_Awards_2016