3 Reasons Carriers Don't Hate Conversions

3 Reasons Carriers Don’t Hate Conversions

What does the newest concept in life insurance and the oldest one have in common?

John Hancock recently introduced the “Vitality” concept in an effort to engage policyholders post-issue and collect data about them on an ongoing basis. This is the biggest step that a carrier has taken in a generation to differentiate themselves and set a new long-term strategy.

Big Data is critically important to our industry because the opportunities for improving risk reassessment, life stage responsiveness, policy dates and issues, and new needs analyses are enormous. The single biggest impediment to progress has been the failure to standardize access to inforce policy data. The failure to achieve open in-force architecture alongside innovation-driving technology vendors has made it harder to solve big problems with policyholder engagement, revenue growth, fiduciary duty, and succession.

So what is so scary about letting the agey (or even policyholder) interact with their own inforce information online like other financial verticals? The old school train of thought is that carriers don’t like clients to know about options like conversions, so they deliberately withhold informatio – that they only reluctantly accept the necessity of placing in a conversion clause because their competitors do. But the whole risk equation is changing as we collect more data, and the idea that a conversion, for example, is bad for risk, is inherently old school. Let me use that example to elaborate.

InforcePRO, my company, undoubtedly increases the number of conversions that occur by actively, creatively, and consistently marketing them to agents and policyholders. It shows critical ideas like the ‘cost of waiting’ to convert every year.

But we’re stuck in ld arguments when we talk about conversions as generating a negative risk pool. Sure, they have in the past, simply because when conversions are not marketed the folks who convert are those who have to – the ones who ask about it out of desperation. But the conversion is a prudent tool even for a healthy 40 year old with a family, if it’s priced properly. So when the conversion occurs more often, the risk pool improves – becaus there are only so many sick people after all.

A converted policy is a policy that is stickier and more profitable over the long run. As It reduces the constant carrier-switching when term is rewritte. The very fact that term is constantly rewritten with the lowest cost carrier has led to enormous price competition amongst carriers, and indeed a new ‘tier’ of carriers who are term specialists and offer no reasonable conversion options. The combination of incessant price competition and high customer churn at the end of the level period has led even term to become less profitable. So conversion is not a dirty word for carriers, it’s just a casualty in a price battle. The outcomes of policyholders and agents having more transparency into their own policies are not all bad – they’re only bad because the very fact that we’re not transparent leads to a much smaller pool of converters – the pool of the desperate. More transparency will change everything we think we know today.

In fact, we’re not even thinking about lapse risks properly. Life insurance, like every other industry, must embrace customer alignment. It must be closer and more aligned than ever before with actual needs and then, over time, the need for coverage may well go down, and we’ll have reducing face policies based on life stages. That’s a reduction in risk as time goes on, not an increase in risk. As the New York Times reported on John Hancock’s new product, ” The strategy also tries to tap into the way humans are naturally wired: There is generally no immediate tangible benefit to life insurance, but this program is structured to try to change that.”

ut giving immediate and tangible benefits requires inforce data to be easily accessible – online – to the policyholder. Then, we can track social accounts for life stage changes and connect to banking profiles to determine income improvements or strains.

you can se, better data collection changes every measure of risk, and John Hancock’s introduction of Vitality, along with a free FitBit device, means that other carriers had better catch up. John Hancock will not be making that invaluable data publicly available, and every day that others fail to collect better data on policyholders is a day that they lose ground to John Hancock.

Today, agents struggle to access inforce policy summaries, inforce illustrations, and specific contract options and dates. Agents cannot market policy options themselves. They either need technology or carrier level changes. It seems we are starting to see both.

CDJAugust 30, 2017