What do distributors need to sell investment-linked policies with ease?
What is an investment-linked policy?
The investment-linked policy, or ILP, is a two-in-one life insurance policy that provides life coverage and investment returns to customers.
Unlike the traditional life insurance policy that has a cash value, ILPs offer a range of investment options where the premiums that customers pay are used to buy investment units of the investment funds of their choice.
Why are ILPs attractive to customers and insurers?
Opportunity in the ILP space is huge. ILPs are expected to be a major source of growth until 2030. ILPs are currently around 8.4% of the total life business in Asia1 and this is projected to grow to at least the global average of 20% over the coming decade2.
In a low interest rate environment, coupled with onerous risk-based capital requirements, the investment guarantees of traditional savings products have become less and less attractive for insurers.
ILPs allow insurers to lower the cost of guarantees because investment risk is born by the customers.
For customers, ILPs can potentially provide higher returns compared to traditional life insurance. ILPs are also more liquid and flexible. Since premiums are used to purchase investment units, customers can, subject to policy terms, partially withdraw the policy by selling some investment units. Similarly, customers can top up ILP premiums on an ad-hoc basis.
Why do distributors find ILPs more difficult to sell compared to traditional insurance policies?
Traditional life insurance plans usually come with a cash value where all or part of it is guaranteed, and sometimes a bonus is offered at maturity. It is appealing for many people because of its simplicity.
Like any other investment product, an ILP carries investment risk, which does not provide guaranteed returns. That means the value of customer’s investments will fluctuate according to market conditions, so customers may need a longer investment horizon to ride out market volatility.
The majority of ILP customers rely heavily on banks, brokers, insurance agents or other insurance advisors for investment advice: like fund selection, asset allocation portfolio rebalancing to achieve their savings goals.
Insurance advisors play a key role in managing a customer’s experience of their ILP – starting from understanding the customer’s risk appetite and their savings goals when embarking on the investment journey. Then providing periodic reviews and further investment advice throughout the policy term.
If advisors cannot provide timely support or effective advice in upturns or downturns, customers may lose confidence and may surrender their policies.
A key selling point of ILPs is the wide variety of investment fund options, which inevitably makes the selling journey for these products focus on knowledge of funds and investment strategy. Advisors, especially the less investment-savvy ones, need support at point of sale and throughout the policy term.
Given the tremendous growth potential in the ILP space and the increased pressure to offer attractive, guaranteed returns as part of traditional whole life insurance policies, insurers need to find a new ILP proposition to encourage distributors to sell ILPs and differentiate their products from pure investment products.
Insurers to adopt cutting edge technology to improve customer experience in the ILAS space and increase market share
Most customers are not comfortable in making investment decisions such as picking investment funds, changing asset allocations. Instead, they are most concerned about market volatility and the ability to accumulate wealth. Should insurers put less focus on investment but put more time and effort in helping customers achieve their saving goals?
If advisors had the right tools to help their customers put their money on autopilot inside an ILP, including tracking their progress, adding contributions, and potentially setting up new goals, it could alleviate some burdens from advisors and increase customer confidence that their money is well taken care of.
Robo-advisory can do most, if not all, these jobs.
Robo-advisory is an emerging trend in wealth management in recent years, so it will not be a new concept to mass market savers. However, insurance is a high touch business.
Advanced technology, such as a robo-advisory algorithms, cannot replace the high touch and the long-term relationship insurance advisors share with their clients. A combination of digital tools and traditional face-to-face advice is the right balance to support ILP sales.
Key elements that digital tools need to include to support new-age ILP product propositions:
- Educational and value-adding functions that will enable advisors to establish and quantify financial goals for their customers
- A robo-advisory algorithm to propose solutions that have a high likelihood of meeting goals at point of sale and can dynamically adjust the solution throughout the policy term to reach these goals
- Simulations that help advisors explain ‘what-if?’ scenarios such as premium top-up, premium holiday, or partial withdrawals to customers
- Ongoing ability for customers to revise their goals, increase their savings and manage investment accounts
Coherent Explainer powered by Coherent Spark, provides no-code new-age ILP digital tools that will help to boost ILP sales
Coherent Explainer is an easy-to-use application builder powered by our core technology, Coherent Spark.
Explainer allows non-technical users to quickly create functional applications based on your business logic and user interface preferences.
Spark can convert any business logic, such as the robo-advisory algorithm, into API endpoints within seconds. Spark feeds the logic into Explainer, and coupled with your user interface configurations, you can build applications or ILP digital tools within minutes.
If you want to learn more about how our technology can help your organization to embark on the new-age ILP journey, contact us to schedule a discussion with our technology team.
- McKinsey: Creating value, finding focus: Global Insurance Report 2022
Product Lead for Coherent Explainer & Managing Director, Actuarial