The Case for Digital Self-Investment in an Economic Downturn

As we wrap up 2022, life insurers have multiple factors to consider while finalizing their 2023 roadmaps. Despite the unpredictable financial future of industries around the globe, there is a strong argument for carriers to invest in themselves–especially concerning advancing technology. Assessing how you’re doing business is essential in the current inflationary environment. Economists are increasingly talking about an impending recession–with many saying we’re already in it. In the life insurance industry, we know that can mean many things. 

Fiscally cautious by necessity and risk-averse by regulation, more traditional carriers may be considering their options. Their considerations might include significant belt-tightening not only to remain profitable but to stay relevant. Although spending money might feel contradictory, investing in tech right now is the perfect time for many. 

Digital investments in the 2008 recession

It’s worth looking back at how the life insurance industry handled digital investment during the 2008 recession. Then-American Express CEO, Ken Chenault, told Forbes when faced with a difficult economic environment, it is time to innovate, not pull back.

Forbes agreed that the worst thing to do in a recessionary period is to stop innovating because these building blocks are essential in achieving a company’s long-term goals.

The 2008 financial meltdown drove insurers to be more conservative in pricing products and presenting dividend and interest rate assumptions that could be more realistically achieved. Many sought to offload some mortality and interest rate risk by partnering with reinsurers. SPGlobal reported: “Conservative approaches to product design and pricing through most of the past dozen years by the leading market participants all but eliminate the risks associated with the rich annuitant guarantees that had been relatively common in the marketplace in the mid-2000s. Increasingly robust use of reinsurance of legacy in-force blocks of business also serves to reduce risk.” This strategy still resonates today. By eliminating some of the risk inherent in an in-force block of business, resources and capital can be freed up to meet customers’ and producers’ demands for modernization. These demands won’t disappear during the recession, and will likely come back stronger in the post-recession economy. 

Insurers can now use historic data to broaden their focus from risk and cost reduction to prioritizing greater levels of experimentation to fuel ongoing innovation, competitive differentiation and profitable growth. Instead of a reactive response to the demands of regulators and other industry overseers, insurers with the right digital capabilities can anticipate and fulfill stakeholder expectations–including those of distributors and policyholders. 

Digital acceleration resulting from COVID-19

Digital technology has steadily increased its footprint in life insurers’ business models, especially throughout COVID-19, which demanded modernization. COVID led many insurers to self-evaluate. With the reality of increased mortality throughout the pandemic, and data accumulated over time, life insurers can strengthen their reserves and plan for the future if they have the right digital tools in place.

Mantissa Group’s research in Digital Readiness and Core Modernization found that 58% of survey respondents view digital transformation as a critical business objective. The report was published about two years after the pandemic was declared. At this time in April 2022, all signs pointed towards a recession, yet the majority of insurers were committed to digital investments leading to improving user experiences and essentially profitability. Fast forward to today and it remains beneficial to continue digitalization. 

Why invest in digital technology during an economic downturn?

Generally, the first line of defense against an economic downturn means streamlining human and capital resources. Over the past two years, life insurers have made great progress in updating processes, improving agent and consumer experiences, and cutting costs thanks to digital investments. Reaping the benefits of cost-cutting is especially important in this economic environment. Therefore, it’s not a time to reduce or eliminate digital transformation efforts and staff.

Digital enhancement’s value goes far beyond efficiency. An investment in digital can greatly impact an organization’s reputation, reach and bottom line. Considering the benefits, investing in digital technology may be exactly the right maneuver today. From a 2018 McKinsey study, “More than ever, carriers need to be prepared during a recession and maintain their growth momentum by adopting technology to streamline sales and distribution, adapt to the untapped millennial market and lower costs.” 

Reaching untapped audiences and current policyholders is essential. Most insurers know that even the mention of a recession can cause knee-jerk reactions among prospects and policyholders, causing them to reconsider a planned life insurance purchase, or lapse a policy as they struggle to afford basic needs. Those of us in the industry know that having life insurance coverage is even more critical during times of economic strife. Our challenge is to inform consumers about the value of life insurance. Even though daily necessities like groceries and gas are taking a larger chunk out of wallets, purchasing life insurance can be the best protection against financial devastation if the unthinkable happens. 

The value of digital technology for future success 

Insurance carriers that can see past the current economic hurdles and envision the expected wave of growth on the other side will be positioned for a big win. Technology put in place today will be an essential part of future growth.

Deloitte Insights reported: The pandemic-driven surge in premium growth since 2020 appears to be waning driven by obstacles like inflation-driven disposable income pressure and financial market volatility. Carriers should respond to economic pressure and COVID-19-related uncertainties with proactive measures like doubling down on their pandemic-spurred digital enhancements, introducing new products, services, and distribution options, or by seeking out previously underserved customer niches.

More connectivity is on the minds of clients and professionals, as seen by the expansion of open finance and rising public interest in blockchain technology. Across industries, placing importance on connection will likely be a trend. Managing growth in the life insurance industry demands safe, simple data sharing and omnichannel communication. Customers and agents expect to be able to securely access their accounts and services through their preferred channels.

Committing to technology on the forefront–such as applied AI and open finance–will be the pebble in the water that creates ripples far beyond the current economic downturn. These digital innovations will position insurers to gain ground rapidly as the economy rebounds–and it will as it always does.

As Forbes found during COVID, “Investing in tech during a crisis can better prepare companies for the moment after the crisis is done.”

Life insurers can feel secure when investing in digital

COVID quickly moved the life insurance industry down the digital path. Doing business remotely is now second nature for many. We’ve learned a lot of valuable lessons from the 2008 recession and the recent pandemic that can be applied to the current economic downturn. At this juncture, we’ve seen strategic investment in digital isn’t only wise, but necessary. Areas like customer acquisition, educational outreach, data aggregation and analysis, and customer service remain optimal areas for transformation, and therefore worthy of investment. Putting resources toward digitalization in these areas will benefit carriers resulting in long-term, impactful value. 

If you are a life insurance industry CEO or CTO, how likely are you to invest in your company’s digital transformation during this recession? What outcomes will best help you to ride it out? What SaaS solutions have you already invested in that are paying off as you weather the current economy? I hope you’ll share your feedback.