How can US insurers adapt, now that consumers’ lives have changed?

Stark impact of the pandemic felt by consumers drives new needs, insurance product appetites and increased importance of social responsibility alignment.

In brief

• An EY survey of US insurance customers provides deeper insight into how the pandemic has impacted their well-being.
  
• The appetite for greater financial health presents an invitation for insurers to innovate and build greater trust with customers.
  
• Insurance providers have a unique opportunity to further connect with their consumers through corporate social responsibility and social activism efforts.

Few people would have predicted what was going to happen in 2020. In the late-2019 EY NextWave Consumer Financial Services Survey1, 83% of consumers rated their financial health as “excellent,” “very good” or “good.” Then 2020 saw a deadly pandemic, natural disasters, political unrest and tragic events highlighting the US struggle with racial inequality. As we enter 2021, that consumer confidence has been shaken, with many US residents anxious regarding their financial well-being due to the shockwaves of the pandemic.

In late 2020, EY Insurance conducted a survey of insurance consumers and small business owners in five countries to understand how the COVID-19 pandemic has impacted their lives. Focusing on the context for Life and Retirement insurance, we found that the shift in priorities brought about by events in 2020 has created new needs for consumers and clear opportunities for insurers.

• Consumers are seeking to restore their financial well-being. Financial anxiety and a desire for greater financial security are top of mind, with more than half of respondents saying they plan to save more as a result of COVID-19. The underlying appetite for greater financial health presents an invitation for insurers to innovate and build greater trust with customers.
• The most financially impacted are still struggling while remaining focused on mitigating impact from future uncertainty. Although there is optimism for the economy, those who have experienced the greatest financial distress as a result of COVID-19 may still be feeling vulnerable as they focus on preparing for future uncertainty. This creates an opportunity for insurers to deliver value in a time of need. It is a critical moment for the industry to live its purpose of providing protection to all — especially to the most vulnerable.
• Pervasive social issues call for clear and active social responsibility. The most impacted consumers place a greater value on social responsibility in their insurance purchasing decisions. Insurers have a unique opportunity to reach this energized audience by amplifying and better communicating their corporate social responsibility efforts.

Financial impact of the pandemic, and concerns in the United States

Our survey methodology allowed us to identify the extent to which the pandemic has affected the financial state of US residents. Similar to the global results, a sizable difference in impact exists between those most financially impacted and those least financially impacted. The most impacted consumers experienced either long-term or short-term impacts (or both).

The most impacted US consumers are typically younger (77% are under the age of 45) and less affluent (66% earn less than $100,000 in annual income) compared with respondents overall.

Their top concerns can be directly linked to the health and financial impacts of the pandemic, particularly loss of income and overall financial well-being.

Finding financial well-being through cost-effective alternatives

In seeking financial security, most impacted consumers demonstrate significant interest in products that cover loss of income, credit card bills and other existing financial commitments.

Given the heightened financial anxiety and focus on financial well-being, these consumers also express willingness to provide personal data in exchange for a discount or customized monthly rates. This readiness for new levels of data exchange provides insurers an opportunity to demonstrate the value of their current data, e.g., for identifying customers in vulnerable circumstances to offer services such as mortgage payment deferral.

Through this data exchange, insurers will be fulfilling an important role of contributing to their customer’s personal recoveries. At the same time, insurers will be fulfilling an important societal support role by helping alleviate the consequences of the pandemic.

Providing trusted support

Those who have experienced the greatest financial impact are more inclined to plan for future financial uncertainty: they are more likely than respondents overall to develop an emergency plan, speak with a financial advisor and increase policy size/amount of coverage.

The study also identified the short-term measures used by those most impacted and found that almost two in five have had to withdraw from an investment or brokerage account to avoid hardship, again highlighting their financial vulnerability.

Despite this group’s focus on financial planning, since the onset of the pandemic, the majority of this demographic said that they have not been contacted by their insurance provider, and a majority of those who had life insurance also said they do not completely understand the extent of their life insurance coverage.

Although the most impacted customers have clear needs, the customers who are less impacted still need proactive attention from insurance providers: anxiety is high throughout the population, and addressing this anxiety is critical to deepening relationships and building trust. Even those who were less impacted have a high degree of concern about their financial well-being. They also do not fully understand their existing coverage and are looking to act to protect their future financial security.

Overall, there is a compelling opportunity for insurers to provide reassurance for customers through proactive communication and to develop closer relationships through communicating the value of insurance and providing appropriate solutions for their needs. This would include finding solutions for those undergoing significant financial hardship and who have limited means to purchase insurance or financial advice, as well as meeting the needs of the less-affected segments.

Why social responsibility and justice matter

Awareness of society’s impact on nature and the environment, as well as growing concern for social inequalities in the US, has had an inevitable impact on how we think about brands. There is growing evidence that consumers now want the brands they buy to reflect their own values. Consumer insurance vendor preferences have therefore evolved to include a focus on a firm’s commitment to corporate social responsibility (CSR) and social activism.

Overall, 7 in 10 consumers indicated that CSR was at least somewhat of an important brand trait to them when they considered providers. This is especially important to those who were most financially impacted by COVID-19, as we can see below.