Evolving Landscape and Implications on Marketing and Distribution

By Tiana Zhao

NewsDirect, August 2024

From economic turmoil during the past few years, to increasing focus on climate change, the insurance industry has faced challenges and opportunities from everywhere. This article looks at three trending topics in the industry and their impacts on marketing and distribution.

Environmental and Social Governance

The past UN Climate Change Conference (COP28) in the UAE has been a significant one in that “it marked the conclusion of the first ‘global stocktake’ of the world’s efforts to address climate change under the Paris Agreement.” Countries and stakeholders collectively analyzed where they were making progress toward the goals and where they were not. One of the calls to action was for the financial industry in general to focus more on environmental and social governance (ESG).[1]

So, what is ESG? In simple terms, ESG refers to having governing structure to focus on environmental and social considerations. E stands for environmental, which includes efforts toward reducing pollution, mitigating environmental risk and active management on impacts of climate change. S stands for social and includes topics such as human rights, diversity, equity and inclusion, labor standards, etc. G refers to governance, which refers to corporate government, geo-political risks, etc. There has been an increasing focus on ESG reporting, which helps investors, clients and other stakeholders evaluate a company’s ESG footprints.

As the importance of climate change discussions rises, there could be more clients making strong ESG a key consideration when purchasing products. According to a study from McKinsey and NielsenIQ, “products that claim to be environmentally and socially responsible have seen notable sales growth, averaging 28% cumulatively over the past five-years, compared to 20% for products that didn’t make such claims.”[2] It is encouraged for distributors to include ESG in their marketing strategies.

Similarly, clients could lean toward products with investment options that include ESG indices, for example, the S&P 500 ESG index, which is a broad-based, market-cap-weighted index that is designed to measure the performance of securities meeting sustainability criteria, while maintaining similar overall industry group weights as the S&P 500. In the past three years, S&P 500 ESG has outperformed S&P 500 overall. Additionally, according to an article published by JP Morgan, nine in 10 asset managers are convinced integrating ESG analysis into their investment strategy improves long-term returns.[3, 4] It is worthwhile for actuaries in distributions and product design to look into incorporating ESG into product designs.

Artificial Intelligence

We can all think of ways that artificial intelligence can help in the marketing and distribution process, whether it is a virtual Chatbot answering basic questions from clients, or a platform offering existing clients other products the company offers that encourages them to purchase multiple products from the same company.

Artificial intelligence certainly seems like the future for the insurance industry, with companies like Zurich experimenting with artificial intelligence tools like ChatGPT for claims and data mining. In fact, according to McKinsey & Company, the insurance industry has the potential to automate 25% of its processes by 2025, with robotic process automation (RPA) technology playing a vital role. RPA refers to the use of rules-based low-code software “bots” to manage the repetitive tasks of human workers, such as collecting client information, extracting data in claims, performing background checks and so on.

Now, what does this mean for actuaries in marketing and distribution? While artificial intelligence has many benefits, one concern is around data privacy issues. Balancing the extent of data being collected and client privacy and fairness is key. It is important to inform clients the uses of data collected, address concerns related to their privacy and clearly communicate the protection of data privacy to clients. It is also important to draw a line in terms of which data can be collected and used and which data shouldn’t be collected or used to reduce the risk of discrimination.

Global Economy and Post-Covid Effects

During the pandemic, insurance companies saw a large increase in sales of insurance products purchased by individuals aiming to protect their loved ones in the case of their death or to protect their income in case they were rendered unable to work due to COVID. Coming out of the pandemic into a world of economic turmoil and high inflation, clients are less focused on health concerns and more focused on their spendings and ensuring wealth accumulation.

According to a paper published by Deloitte, “Due to strong growth in Q1 2022, US life insurance premiums totaled US$15.3 billion for the year, about equal to the record-high premiums in 2021. Despite more than 100 million US adults living with a coverage gap, sales slowed in the second half of the year due to consumer concerns over inflation and the economy, even as worries over COVID-19 declined.”

From a marketing and distribution standpoint, it is important to educate clients on the wide array of benefits that insurance products offer. For example, Universal Life products and its variations like Indexed Universal Life and Variable Universal Life usually offer a guaranteed death benefit and growth potential for the death benefit and cash surrender value depending on the performance of investments like mutual funds, indices, etc. Participating products pass through experiences, such as mortality and investment, to clients in the form of dividends so their insurance policy values would grow overtime. There are also flexible premium payment options if premium financing gets too expensive. Additionally, insurance products offer tax benefits, for example, growth in insurance policy values could be tax-free depending on the jurisdiction. Overall, it is important to show clients how insurance products fit in the macro-environment and can help them achieve their long-term financial goals.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

Tiana Zhao, FSA, CERA, ACIA, is a senior associate actuary in Corporate Actuarial Analysis at Sun Life. She is also part of the section council of SOA Marketing and Distribution Section and can be reached at J.Zhao@sunlife.com.

Endnotes

[1] UN Climate Change Conference—United Arab Emirates, Nov. 30 to Dec. 12, 2023. https://unfccc.int/cop28

[2] Chris Morris, “Consumers Care a Lot More About Sustainability Than Many Businesses Realize.” Feb. 22, 2023. https://www.nasdaq.com/articles/consumers-care-a-lot-more-about-sustainability-than-many-businesses-realize.

[3] Jessica Matthews and Daniel Rourke, “How Smart ESG Investing Could Help Improve Portfolio Returns.” https://privatebank.jpmorgan.com/apac/en/insights/markets-and-investing/how-smart-esg-investing-could-boost-portfolio-returns#:~:text=Companies%20with%20higher%20ESG%20ratings,management%20teams%2C%20driving%20strong%20returns.&text=Similarly%2C%20bonds%20that%20have%20higher,and%20less%2Dfrequent%20severe%20incidents.

[4] Karl Hersch, James Colaco and Michelle Canaan, “2024 Global Insurance Outlook: Insurers Evolving to Address Changing Operating Environment and Precipitate Even Greater Societal Impact,” Sept. 28, 2023. https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks/insurance-industry-outlook.html