The mortality protection gap: how technology can close a gap worth 114 trillion dollars


Millions of people are potentially uninsured or underinsured against the death of a loved one. The mortality protection gap is estimated at USD 114 trillion globally.

Technology can help both insurance customers and insurers when it comes to closing this gap.

Customers are often put off by the thought of physical examinations and lengthy risk assessments – something that the use of online health records and automated but personalised questionnaires could counter.

In addition, the use of algorithms and third party data can help insurers evaluate risks more accurately, speeding up the application process.

In depth

In a world where paying for parking or ordering pizza is just a quick swipe or click away, the lengthy process of buying life insurance can seem like an eternity.

This perceived ‘frictional’ cost is a key challenge for insurersand contributes to the persistent and growing mortality protection gap.

Swiss Re estimates the world population is underinsured by a staggering USD 114 trillion, a figure which is set to rise even further if current economic and insurance market trends continue.

But what if technology could transform the relationship between insurer and customer?  What if it could make buying insurance a pain-free purchase that not only provides protection in the event of your death, but also helps you live a healthier life? 

“It’s an exciting time to be in the industry,” says JJ Carroll, Head of Swiss Re’s New Solutions Group, L&H US, an innovation team dedicated to helping clients close the protection gap. “You see the possibilities for the role that technology can play and you see the connection to the customer experience and how we can help draw those together and really change our industry… I think it’s a great opportunity.”

Minding the gap

In the US, the mortality protection gap was around USD 24 trillion in 2016, with only 45% of a household’s income replacement needs being covered. Three in 10 households had no life cover at all.

While the gap narrowed slightly between 2010 and 2016, in line with slow but steady economic recovery, it remains larger than before the financial crisis. And Swiss Re forecasts the gap will increase by nearly 0.8% annually over the next six years. As wages continue to rise post-crisis, this means higher income replacement needs.

The situation in emerging markets such as India is even more worrying. Despite recent growth, insurance and savings still meet less than 10% of the population’s protection needs.

The mortality protection gap is defined as the difference between the amount needed to substitute a household’s future income in the event a major breadwinner dies, and the existing resources available to repay outstanding debts and maintain living standards.

“If a family wishes to continue their lifestyle after that primary breadwinner has passed away, then life insurance is an important tool,” says Carroll.

Besides the perceived frictional cost of applying for life insurance, many people have a misperception of the actual cost. A LIMRA survey from 2012 found people estimated the cost to be three times as much as the actual price, and 63% deemed it too expensive.

Tapping into customer behaviour

To this end, insights from behavioural economics are being harnessed to help insurers understand why customers don’t buy life cover, even when they know they need it.

For example, a behavioural bias could mean people default to the same level of cover, despite their changing circumstances, or they use mental shortcuts that don’t calculate their full income replacement needs.

A 2017 study by Accenture found that more than a third (35%) of insurers in 30 countries were planning to use behavioural economics to transform the customer experience.  This can include things like simplifying application forms with more straightforward language and fewer options.

Carroll says: “Behavioural economics is deployed anytime you have an opportunity for messaging a customer, where they need to take action. You can help incentivise people to take decisions by creating context around those decisions and nudging them to take action.”

Swiss Re’s Behavioural Research Unit has pioneered more than 150 live client trials within the industry – working to boost online engagement and sales through tweaks to various decision points.

Even more key for insurers is how the unit has facilitated more honest risk assessments – for example, a change in the application form used by one insurer brought a 27% improvement in smoker status disclosure and a 31% improvement in drug use disclosure.

“If you just ask a yes or no question, ‘Do you smoke? Yes or no?’ it’s really easy for somebody to answer incorrectly,” explains Carroll. “So, you help get people more comfortable in answering a question that feels more relevant to them.

People need to feel the assessment is making a personal connection with them, that it's tailor-made and relevant for them", she explains.

Speeding up underwriting

Once someone decides to apply for life insurance in the US, it can take up to six weeks to underwrite a policy. This is partly because almost every individual policy requires fluid testing and possibly a physician’s report.

A LIMRA survey found more than 50% of respondents would be more likely to buy life insurance if they did not have to go through a physical exam.

This is where better use of technology can bring efficiencies, including using data from health records, analytics and algorithms.

“If you could get the electronic health record and be able to analyse that in a machine-learning process instead of waiting and reading a PDF copy of a physician’s report, that’s a pretty significant time saving,” says Carroll.

Swiss Re has also developed a proprietary tool to speed up underwriting and help manage misrepresentation, by using algorithms to work out the likelihood that a self-declared non-smoker is telling the truth.

The Non-Smoker Propensity Model is a triage process that takes applicant responses, along with data from external sources, and predicts the likelihood that the applicant is, in fact, a non-smoker.  If that likelihood is high enough the applicant may bypass traditional underwriting and proceed with a faster, fluidless process.

Personal risk advisor

Besides helping to simplify the customer journey, technology can also help insurers incentivise customers to manage and lower their own risk.

The protection gap is even more of an issue for those with chronic illnesses like diabetes, who can find it hard to buy insurance.

But with wearable devices such as fitness trackers and blood glucose monitors, health apps could be connected to your insurance company, meaning that insurers will effectively become personal risk advisors, explains Carroll.

“There’s a segment of the population who actively wants to understand their risks better and we can help them do that. The idea is to create a mechanism within the insurance policy that you could give people credit for and change the features of the policy alongside changes in their health outcomes.”

Reinventing legacy systems

While embracing technology to reduce the protection gap and open up new risk pools might sound straightforward, in reality many insurers are struggling to adapt.

The approach requires joined-up thinking and a holistic understanding of the customer experience as a single journey, yet different areas of risk are often rigidly compartmentalised within a typical insurance company.

“One of the challenges our clients have is legacy systems and the ability to access data. Our Magnum underwriting automation engine is one of those tools that can really help to gather data and enhance their process over time.

“Another big challenge is  finite number of resources. Insurers are trying to tackle this entire end-to-end value chain of their offering. If you’re trying to reinvent yourself, it’s a pretty monumental task.”

However, as Carroll concludes, " We live in a global society and there are innovations going on constantly across the world that can help insurers help society through closing the protection gap: We just need to continue to learn from each other.”

Talking points

A LIMRA survey found more than 50% of respondents would be more likely to buy life insurance if they did not have to go through a physical exam. Is technology the solution?

Health apps which harvest information from wearable devices could be connected to your insurance company, meaning that insurers will effectively become personal risk advisors, according to JJ Carroll, Swiss Re Head New Solutions Group L&H US.

Further reading