Unbundling and Re-bundling Insurance

February 19, 2024
by Noriyuki Morimoto

In the past, the main offering in life insurance was endowment insurance, which combines savings with insurance. In finance, such practices of combining features are called bundling. With economic changes, the social function of insurance has shifted from saving to death benefits. Endowment insurance, which used to position savings at its center and insurance as an additional component, is increasingly bundled with a term plan, with insurance as the main component and savings at its bottom layer.

Today, pure life insurance without any savings component, also known as a non-refundable policy, is also widely accepted. The main reason for this would be that the premiums are lower without the savings portion. Bundling is a clear form of cross-selling, so sellers should not be allowed to bundle features that customers consider unnecessary.

Bundling would also blur the price of individual functions, making it possible for the seller to price the entire set at a premium. Therefore, as consumers become smarter, they will naturally opt for the lowest premium only covering the death benefit they want, and will be free to choose from a wide range of options for savings.

As consumers change, insurance companies are also forced to change. Such a fundamental transformation is beginning just now: from bunding to unbundling, i.e., dismantling the bundles. At the same time, each unbundled function may be re-bundled, i.e., bundled again in a different form, from the perspective of customer benefit.

Whether to offer separate insurance and financial services through unbundling, assuming that customers are smart, or to re-bundle the whole range of functions from the perspective of customer benefit, is a matter of high-level product policy of the insurance company, as well as a matter of choice for the customer.

If re-bundling is the way, it must be done with guaranteed fairness and reasonable premiums for each component, and there must be freedom of choice in design that accommodates the individual demands of the consumer. Such a sales stance of insurance companies would be what the Financial Services Agency calls customer-oriented business conduct.


[Category /Insurance]

Noriyuki Morimoto
Noriyuki Morimoto

Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.