Life Insurance

Choosing Disruption

One year after taking the helm at John Hancock, CEO Marianne Harrison seeks to boost customer engagement and possibly reinvent the life insurance model, saying: "I love a challenge.

Jeff Roberts

November 2018



Key Points

Going All-In: John Hancock will no longer sell traditional life policies, instead integrating its interactive Vitality health and wellness incentive platform in all policies.

John Hancock will no longer sell traditional life policies, instead integrating its interactive Vitality health and wellness incentive platform in all policies. Reaching the Consumer: Digital channels, direct to consumer products, meaningful engagement with customers and innovation are the new focus.

Digital channels, direct to consumer products, meaningful engagement with customers and innovation are the new focus. Pioneer: Harrison is the first female chief executive in the life insurer’s 156-year history and the only one among the 20 largest life companies in the U.S.

The witness remained quiet for a moment, collecting her thoughts as a hush fell over the Senate hearing room.

One second of uncomfortable silence turned to two, then three.

Nine U.S. senators stared down at Marianne Harrison from the rostrum, waiting for a response from the John Hancock executive to a series of confrontational questions asked in swift succession.

The nation and the economy were still reeling from the financial crisis on that Wednesday in October 2009. And the senators were hosting a hearing to address the rising premiums of a long-term care program for federal employees—and trying to pressure the life insurer to absolve those rate hikes.

In that tense setting, John Hancock's future chief executive officer struck a sympathetic yet confident tone in her testimony, standing her ground despite answering for decisions made before her tenure. The people who worked for her noticed. So did her bosses.

“This program is set up very uniquely…” she told lawmakers. “Yes, there seems to be a lot of confusion, and I admit that there is confusion.”

The financial crisis proved to be “pivotal in my own reinvention” as a leader, Harrison said, thanks to the challenge it posed her and the LTC unit. And a year after rising to president and CEO of John Hancock, she is trying to reinvent the life insurance paradigm for the company and just maybe for the entire industry.

The insurer will no longer sell traditional life policies, instead integrating its interactive Vitality health and wellness incentive platform in all new coverage, and eventually in its in-force block.

But before Harrison became the first female chief executive in the life insurer's 156-year history—the only one among the 20 largest life companies in the U.S.—and changed its business model, she had to face Congress and the financial crisis.

“It was an enormous challenge to deal with these things,” Harrison said while sitting in her window-lined Boston office, overlooking the harbor and Logan International Airport. “And I love a challenge. I like to win.”

Her latest challenge is reshaping John Hancock, the U.S. division of Toronto-based Manulife Financial. She is pushing to reinvent its culture, continuing a transformation from legacy life insurer to a tech-savvy company relying on behavioral scientists and software engineers as much as actuaries.

She is betting heavily on digital channels, direct to consumer products, meaningful engagement with customers—especially younger consumers—and innovation through experimentation.

“Marianne Harrison sees technology not as a disrupter, not as a threat. She sees it as an opportunity,” said Colin Devine, principal and senior adviser of C. Devine &Associates, a consulting firm in the insurance and investment management sectors. “You have to have the vision to embrace technology and put it out there. And she does.

“She's one of really only a half a dozen executives in the industry who see it that way. She's a top CEO.”

Harrison's push begins with Vitality, the first behavioral-based life insurance program in the U.S. to focus on health, fitness and nutrition rather than death-benefit planning. She announced in September that John Hancock has “decided to go all-in” on Vitality, building it into all new life policies at no additional cost.

It will integrate the program—which had been an optional benefit since it was launched in 2015—into its existing policies starting next year.

The end goal is delivering the next generation of holistic protection and wealth management products, marrying behavioral economics and consumer technology through wearables such as the Apple Watch in Vitality and smartphone applications such as its Twine financial robo-adviser, she said.

“You can either be the disrupter or you're going to get disrupted,” said Harrison, 54, a Canada native whose gentle accent sneaks out when she pronounces words like “out” and “about.” “If we did not shake this up ourselves, it would happen to us. We wanted to take this into our own hands and disrupt ourselves as it relates to the life insurance industry.

“That's the gamble. We're the only ones out there right now. But I do know that a number of our competitors are trying to do something very similar to this. It's changing the game.”

Colin Devine, C. Devine & Associates Marianne Harrison sees technology not as a disrupter, not as a threat. She sees it as an opportunity. You have to have the vision to embrace technology and put it out there. And she does.

Taking a Risk

Harrison believes in taking chances.

She took a gamble in March 2008 on a new job in a new nation, moving her family to Boston to run a business unit she knew little about in long-term care. Then Lehman Brothers failed, and the financial system was in peril. Interest rates soon plummeted, requiring painful but necessary rate hikes that often reached 40% or more.

But Harrison also believes “that I thrive when there's a crisis.” She forged a shift in strategy for the besieged unit, stabilizing the product line before the insurer stopped selling it in 2016 due to costly premiums and shrinking demand.

Her strategy hinged on transparency and thinking like a policyholder as much as a shareholder. It resulted in John Hancock developing alternative solutions to rate increases called “landing spots.” They offered reductions in inflation protection to lower the increases and help many consumers keep their benefits.

“Some of the letters from consumers about the rate increases were pretty hard to read,” Harrison said. “Knowing that you had to rate increase these people, it wasn't easy.

“I think we were very unique in how we approached it. No other carrier had offered alternatives to customers to avoid the rate increase.”

Through that experience, Harrison developed a reputation as a calm, supportive leader who emphasizes bold thinking and calculated risk-taking. Her management style evolved into encouragement over blame, teamwork over hierarchical decision-making.

“The drumbeat on the need to innovate is constant, and the support is complete,” said Brooks Tingle, president and chief executive officer, John Hancock Insurance. “She shares the passion that I have for needing to disrupt this industry. She's great.”

Harrison became CEO in October 2017 and spent her first six months plotting John Hancock's future amid a rapidly evolving landscape and a legion of challenges.

Years of low interest rates, stagnating sales and volatility in businesses such as variable annuities and long-term care have inflicted significant pressure on life insurers since the crisis, including John Hancock and Manulife. The largest life insurer in Canada announced in June that it is cutting about 700 jobs—5.3% of its Canadian workforce—as part of a plan to digitize and consolidate back-office functions.

And then there is the industry's self-inflicted damage. Namely, creating complex life products sold through a lengthy application process that often involves invasive medical exams and harrowing paper forms.

So the life space is striving to redefine itself as changing customer attitudes, millennial apathy and the delayed embrace of technology threaten traditional insurers' hold on the market.

Fully aware of those sizable headwinds, Harrison and her management team commenced a strategic review, then crafted a plan for growth.

John Hancock will continue to concentrate on its primary businesses in life insurance, mutual funds and pensions. But the market leader in the small- and mid-case retirement market, mutual funds and individual life insurance will do so driven by customer needs and focused on digital products and services, it says.

And it's seeking to reach a new customer segment: Younger consumers who won't necessarily turn to advisers but instead are drawn to simpler, direct-to-consumer products.

“It took a long time because we were really questioning a lot of what we were doing,” said Harrison, who will relocate after Thanksgiving to the insurer's Back Bay location, a short walk from Boston Common and the Charles River. “We weren't always that aware of what the consumer wanted and needed and felt sometimes that we knew best.

“So we've got to change our way of doing business to make sure we can interact with our customers the way they want, which is everything now. Part of that is thinking big, taking chances and learning from those chances.”

A Pioneer

Harrison is a pioneer, even if she's a reluctant one.

She joins Progressive's Tricia Griffith as the only female CEOs running a top 20 U.S. life or property/casualty insurer, according to A.M. Best data. Anthem's Gail Boudreaux is one of the few in the health space. Meanwhile, Lloyd's CEO Inga Beale is stepping down next year.

“I was very surprised when I came into this role how much press I got, to be quite honest, to be the first female CEO of John Hancock,” Harrison said. “I was the first female CEO at Manulife, and in Canada it was never mentioned. But it was a really big deal here. I've said to many people, 'Maybe we haven't come as far as I thought.'”

Men account for 82% of insurance C-suite executives in North America, according to a McKinsey &Company report released in September. In July, the U.K. insurance industry launched an inclusivity pledge aiming to reach workplace inclusion, diversity and fair pay goals.

“I do believe we're at a crossroads now,” said Dawn Miller, a leading senior industry executive. She recently was president and CEO of Axa Insurance Company (US). “We're seeing much more success in bringing women into the leadership ranks. Maybe we're not getting them up all the way to the CEO level, but we're getting past having people be the first.”

But Harrison and Miller are concerned the scarcity of female CEOs in the industry places extra scrutiny on them, defining them as “women CEOs” instead of just chief executives.

Harrison oversees the seventh-largest life insurer in the U.S. based on 2017 admitted assets, and one of the fastest growing asset managers with $276 billion under management and administration. Last year, John Hancock posted net premiums written of $686.46 million and a net income $104.56 million. It holds a Best's Financial Strength Rating of A+ (Superior).

Harrison finds it “uncomfortable” serving as a high-profile role model, mostly because some may think her gender, and not her accomplishments, led to her promotion. But the proud mom of four embraces the opportunity to convince other women that they don't have to choose between a career and a family.

“They need to have that feeling that 'Hey this can be done,'” Harrison said. “That is important to me.”

Harrison is primed to oversee John Hancock over the long haul, despite recent reports indicating Manulife was considering exiting the business.

The Wall Street Journal reported last year that the parent company had been exploring an initial public offering or a spinoff of all or parts of its U.S. business. Manulife completed its purchase of John Hancock in 2004 for $10.3 billion, but has felt pressure from shareholders to sell after years of disappointing returns, the newspaper said. Manulife since has made Asia a priority for growth.

Other companies have made similar moves. In recent years, MetLife spun off its retail life business into Brighthouse Financial, and Axa shed its U.S. life insurance unit in an IPO.

But in February, Reuters reported that Manulife rejected the IPO option and an outright sale after conducting a strategic review. Instead it was considering selling underperforming units such as Hancock's legacy long-term care and variable annuity blocks.

“There are no plans to do that at this point in time,” Harrison said of a sale or an IPO. “My sole focus is growing the U.S. business.”

That means embracing customers where they want to be met instead of relying only on independent third-party advisers. It means reaching younger demographics and the 40% of Americans who don't own life insurance to close a protection gap of $16 trillion.

And it means the expansion of Vitality, which uses gamification and rewards, such as reduced premiums (as much as 15%) and retail discounts to encourage exercise, proper nutrition and medical screenings.

In turn, users share biometric, health and fitness data gleaned from wearables or smartphone apps. That data not only helps inform the insurer when it comes to underwriting, but it also can be used for cross-sale opportunities of its retirement products.

Vitality makes John Hancock one of about three life insurers “that are way ahead of the pack in my view in technology in life insurance,” Devine said. “Technology is disrupting their business, but they're embracing it and taking advantage of what it brings.”

To alleviate privacy concerns, customers are not required to participate in the program or use its data-tracking component, despite its inclusion in every policy.

The result is Vitality customers engage with the insurer an average of 40 times a month, a “remarkable” metric, according to Harrison.

“To me, this is really reinventing the whole life insurance model,” she said. “Historically, we talk to our customers one or two times a year—privacy notices and a bill—and that's it.

“We really don't talk to them again until we talk to their beneficiaries once they pass away. Vitality completely changes that paradigm.”

The question is, will John Hancock entice enough people through Vitality—especially those who may not be living healthy lifestyles?

Tingle would not reveal the percentage of customers who actually participated in Vitality after signing up for it, but said “it's the distinct majority.” About 20% of customers opted for Vitality in 2015, the first year John Hancock offered it, The New York Times reported. The insurer said that number has since doubled.

Of course, John Hancock is betting on more than just Vitality. Twine, which helps young couples manage money and reach short-term savings goals for milestones such as a wedding, buying a house or starting a family, also figures prominently in its growth plans.

And the insurer launched a four-year project in April to create a single, integrated digital platform for its life and annuity customers. It will consolidate several legacy systems with the help of a global technology services vendor. “It is going to take a long time for that to pay off,” Harrison said. “It takes time to acquire those [digital] customers and build up that trust. But I think it is an important piece for us to invest in today for tomorrow.”

Serendipity?

Maybe it was serendipity that led Harrison here. Well, serendipity and hard work.

After all, she started at Manulife the same day in 2003 that it announced the acquisition of John Hancock. But her future path was hardly clear for much of her career.

“I didn't know what I wanted to do,” Harrison said with a laugh. ”I stumbled into my career.”

She graduated from the University of Western Ontario with a degree in English, aware it likely would not result in a career.

Her father was a businessman and suggested she talk with an auditor he knew. “I didn't know what else to do,” said Harrison, who had minored in business. So she earned a diploma in accounting and worked for PwC and then TD Bank Group.

Then came the call from Manulife.

“It's funny. I always said I'd never be interested in doing the insurance side,” Harrison said. “That was not interesting at all to me. Lo and behold, where do I end up?”

A simple question was the reason she did.

During the interview process, then-CEO Dominic D'Alessandro—a fellow accountant—asked her, “Would you ever consider running a business?”

“That was probably the piece that got me to accept Manulife, just that openness to doing something different,” Harrison said.

After serving five years as corporate controller, she was named one of the 100 most powerful women in Canada by The Globe and Mail newspaper. And she was ready for a new challenge: running the long-term care business.

Harrison embraces the community role in Boston that comes with running John Hancock. The insurer sponsors the Boston Marathon, and she threw out the ceremonial first pitch before a Red Sox game in April at Fenway Park.

“Ohhhh, it was so nerve-racking. Terrifying is the word I would use,” said Harrison, who keeps the Red Sox jersey she wore that day on a coat rack in her office. She's also a big hockey fan who roots for the Toronto Maple Leafs and Boston Bruins.

“When you look up into the stands and see those thousands of people, you don't want to make a mistake when you throw that pitch. It's scary.”

But not quite as nerve-racking as facing down the financial crisis or angry U.S. senators. She did bounce the pitch to the catcher, but it was a near miss.

“Someone told me that the worst thing that can happen to you is you get booed,” Harrison said. “And I didn't get booed, so I was happy.”

Changing the Life Model The letter arrived on a Wednesday in September. Brooks Tingle had seen plenty of them before. The president and chief executive officer of John Hancock Insurance has received many emails and voicemails praising Vitality, its interactive health and fitness life insurance incentive program, since it launched in 2015. But a few of the messages are special—especially when they arrive on the same day he thinks John Hancock changed the very business model of life insurance. It was the day the insurer announced it no longer will sell traditional life insurance policies, but instead has built its behavioral-based Vitality platform into all new life coverage. And starting in 2019, it will add it to existing policies as well. “I just received a letter yesterday that said, 'Vitality saved my life,'” Tingle said. “I had another note from a spouse wanting to thank us for having made Vitality because it saved their family.” Tingle and John Hancock believe they have changed what it means to own life insurance by making it about living longer and healthier rather than planning for death. But it's only the beginning from their perspective. “Our charge here is to make life insurance easy to buy and fun to own,” Tingle said. “We're halfway there. The next big story is the buying process. “The potential is there to totally transform that process. I think you're going to see an arms race among carriers the next two or three years. Who can underwrite the highest face amount to the oldest person with the least amount of hassle?” Much like the auto industry employs telematics to monitor driving habits and encourage safe driving, Vitality customers use an Apple Watch, Fitbit or an app to record exercise and nutrition habits to incentivize healthy living. There will be no additional cost for using the basic version—Vitality GO—although policyholders can upgrade to Vitality PLUS. The Vitality PLUS program allows customers to claim an Apple Watch, pay a $25 activation fee and then make payments for 24 months, Tingle said. Those monthly payments can actually be reduced to zero if users hit physical activity goals. The metrics seem to prove the benefits to Vitality users—and John Hancock. The platform has expanded the insurer's customer base, attracting “a lot of first-time buyers,” Tingle said. Those consumers tend to be younger than John Hancock's normal policyholders. And the program has successfully incentivized those users to work out more, eat better and go to the doctor for preventive screenings. The average American takes about 5,400 steps a day. Vitality holders take more than 9,000—and those who use an Apple Watch average about 11,000, he said. Data from other countries where Vitality is offered—it originated with the South African insurer Discovery Ltd., and the company chooses to partner with one insurer in each major market—show an increased longevity of 13 to 21 years for its users compared to the rest of the insured population. Then there's the anecdotal evidence. There was a woman whose breast cancer was detected in its early stages thanks to the program. She had undergone a mammogram just to earn extra Vitality points. Then there is Eric Ocrant. The life insurance adviser from the Chicago suburbs bought a Vitality policy after seeing photos of himself on a summer 2017 cruise. His weight had risen to 248 pounds. “I saw the picture and thought, 'Who is that? What happened?'” said Ocrant, 48. He was informed his lifestyle could shorten his life by 10 years. Since buying the policy, he joined a gym and lost 40 pounds, spurred by the gift certificate incentives and the premiums discount. “It literally changed my life,” Ocrant said. “My life insurance policy actually added 10 years to my life.” John Hancock readily admits the longer and healthier its policyholders live, the better off it is. It is the essence of Vitality. The company says it has a responsibility to help its customers. They receive fitness, nutrition and health tips. Meanwhile, the longer those customers live, the longer they pay premiums and the longer John Hancock gets to invest them. The company also gains access to user health and fitness data as well as an unheard of amount of engagement for a life insurer—as many as 264 interactions a year per customer. “From a policyholder engagement perspective, Vitality is absolutely transformational,” said Colin Devine, principal and senior adviser of C. Devine &Associates, a consulting firm in the insurance and investment management sectors. “Yes, it helps policyholders live a healthier, happier life, which is good for them and for John Hancock. “But the key is it changes our business from being transactions-based to relational-based. It sets up ongoing engagement with the policyholder, where the opportunity comes to build a relationship, sell them more products, help them live a better life.” And looking ahead, the data from Vitality offers a whole new world of options. “Eventually you can underwrite people individually,” Devine said. “By having the data from Vitality, I can customize a product option for every single client.” John Hancock also could have the capability to inform users that they have Type 2 diabetes or hypertension, for instance, through rapidly improving wearable technology. Not only can the company save lives by warning policyholders, but also build trust that maybe no other life insurer has with their customers because they have their “best interest at heart,” Devine said. Although data privacy and breach concerns arose in the wake of the announcement, participation is voluntary. John Hancock's CEO Marianne Harrison and Tingle both said customers are not required to use the data tracking component. But of course, the situation has now changed. Will new buyers and existing policyholders who did not necessarily sign up for Vitality use it? “I love our business, but it's hard to find an industry that's had less innovation in it,” Tingle said. “And there are very few products harder to buy in the modern economy than life insurance. “In a world where consumers have all this engaging technology—smartphones, smart cars, smart appliances—life insurance just sat there. In the short-term, we're changing engagement and making life insurance relevant to a generation of consumers.”

Jeff Roberts is a senior associate editor. He can be reached at jeff.roberts@ambest.com.