As the life insurance industry enters the deep-water zone of transformation, the current development of the industry is facing problems. The first problem is that the extensive operation in the past has caused inefficient consumption. Many customers are not educated about insurance, and many insurance policies are driven by personal relationships. Certain radical operation methods also make future risks not fully valued. For example, a decline in long-term interest rates is the consensus, but lifetime guaranteed returns remain high.
The transformation and upgrading of the life insurance industry need to be reviewed from both the supply and demand sides. From the demand side, the demographic structure has undergone significant changes. Generation Z has become the main consumer of insurance, and their needs, understanding of risks and purchasing methods have become more personalized and diversified. Second, the penetration of insurance is gradually increasing. More people are beginning to pay attention to insurance. The problem of “from 0 to 1” was solved, but now the problem of “from 1 to N” needs to be addressed. Finally, the degree of information transparency has improved. The industry has entered the “customer sovereignty era,” and there is less information asymmetry. Consumers tend to use big data for self-learning and have a personalized understanding of insurance information.
From the perspective of the supply side, competition in the life insurance industry is fierce, and many alternative industries are grabbing resources. There is a mismatch between the product service capacity and the demand of the bank insurance and marketing channels. With the changes in customer demographics, the industry also begins to transform from one of product management to customer management, which requires employees who have this professional ability.
There is a mismatch between supply and demand in the life insurance industry. The development of the industry is mostly from the perspective of life insurance rather than a focus on customers, which is both a pain point and an opportunity. How to turn the pain point into an opportunity to promote the development of the industry is a question for all industry practitioners.
In this Q&A, Fisher Zhang, FSA, CEO of AIA China, shares current development trends in the industry and the issues that need attention as transformation occurs. His unique insights and in-depth analysis can help the industry break down the situation and develop better in the future.
How should the life insurance industry define itself, defuse risks and find the right direction for development?
Zhang: We have been emphasizing high-quality development, a focus on the customer and technology—but these are just at the metaphysical level. The plan is perfect, but it lacks execution. We need to do more than talk about it—we need to do the actual work on the ground.
From the perspective of the macro-framework, there are five dimensions that need our attention and practice. I call these the five key pillars:
- The strategic positioning should be clear. The transition process should first answer a few core questions: How is success defined, and is the evaluation system consistent? Which is the most important: to be bigger, stronger or longer term? How do we create effective unity? A clear strategic positioning is crucial. Taking AIA China as an example, under the guidance of the corporate vision of “building the most trusted insurance company in China” and the development strategy of “building a customer-driven insurance company,” a series of upgrades and changes were carried out. By defining and finding the company’s core values and core competitiveness, this process is a continuous revision and polishing of the enterprise’s self-definition.
- The strategic upgrade needs to be integrated. Business upgrading should be the overall behavior of a company rather than one-sided and individual adjustments. Strategic upgrading needs to cover all aspects of the company. In the past, the partial improvement of only solving specific problems has been unable to meet the current deep-seated transformation. In this regard, AIA China’s statement and practice are highly consistent, which is based on the enterprise strategy of “building a customer-driven insurance company.” AIA China has comprehensively upgraded the company’s system; strengthened customer stratification research; continuously upgraded the customer service and business systems; and structure process, product, channel and resource matching are adjusted toward the established goal.
- Strategic determination should be strong. The industry transformation period is often accompanied by a sharp increase in performance pressure followed by frequent personnel changes, and transformation actions are prone to change. In this regard, “having both fish and bear’s paw” is an illusion. The company should learn to make choices, clearly define the bottom line and maintain strong strategic concentration. The pressure and difficulties are often the touchstone to test the strategic determination of insurance enterprises. Only by withstanding the pressure and holding the bottom-line thinking under extreme conditions can we achieve transformation in the throes of transformation.
- Continuous innovation is fundamental. In my analysis, the reason for the involution of the industry is the lack of innovation. The industry should not only focus on harvesting, but also think about how to leave seeds for the future. The insurance industry also needs basic research. For example, there is still a lack of relevant data research on “substandard” customers. In the future, the insurance industry will move toward an era of refined operations, which will require a variety of technologies, such as artificial intelligence (AI), big data and so on. AIA China has two innovative goals: One is precise customer management, and the other is sophisticated company operations.
- Good company culture is a must. Many advanced technologies and creative models are inseparable from the support of good company culture. The sustainable development of a company is inseparable from the forging and retention of outstanding talent. In the past, people often used the word “demographic dividend,” but it is different now. The demographic dividend is gradually disappearing. A talent bonus and loyalty bonus will become the driving forces for enterprise transformation and upgrading. Therefore, building a purpose-driven company requires corporate culture as the spiritual pillar to help employees realize that the company is meaningful to not only them, but others and the industry at large.
What is the actuary’s role in the development of the life insurance industry? How do you think actuaries should give full play to their own advantages to promote the development of the industry?
Zhang: Actuarial technology has always been an important technical guarantee for the insurance industry to prevent and resolve major financial risks. Actuaries also adhere to their own deep understanding of the insurance industry and insurance business model to conduct risk assessments for insurance enterprises. Therefore, with interest rates declining and the industry involution, there is no doubt that actuaries can give full play to their professional skills to reduce risk uncertainty and help with the innovation and upgrading of the life insurance industry.
As previously mentioned, the development of talent in the industry has entered a bottleneck period, so actuaries need to constantly hone and strengthen their professional skills, play up the professional advantages of being an actuary, and formulate long-term and sustainable strategic plans for insurance companies to broaden industry boundaries. At the same time, actuaries should also abide by actuarial ethics, guide the transformation of the insurance industry from interest orientation to value orientation, create customer value and promote the high-quality development of the insurance industry.
Finally, lack of innovation is the reason for the emergence of the involution. Breaking the involution will naturally start with innovation. The development of digitization not only affects the consumption habits of customers, but it also affects the development of enterprises and actuaries themselves. From an individual level, digital development provides an opportunity for actuaries to improve their skills. Actuaries can formulate a more comprehensive and unique strategic plan for the company through big data, AI and other skills. At the same time, they can also deeply understand the needs of consumers for product innovation. From the enterprise level, grasping digitalization provides unlimited possibilities for enterprises to serve customers and society, which is the only way for enterprises to transform and upgrade.
The traditional extensive development of life insurance companies has reached a fork in the road, and there is a long way to go down the road of transformation and upgrading. Life insurance companies should examine the insurance industry from a broad perspective, actively respond to the policy call of China’s 14th Five-Year Plan, pursue high-quality development and upward thinking, solve the problems of imbalance and insufficiency, turn the pain points into opportunities and break the involution of the industry. In the process of improving and defining self-worth, actuaries will help the life insurance industry successfully find the way of reform and innovation to promote the innovative development of the life insurance industry.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
Copyright © 2021 by the Society of Actuaries, Schaumburg, Illinois.