The middle market remains a largely untapped opportunity for life insurance carriers, worth approximately $20 billion of potential revenue, according to a McKinsey & Company study. But carriers intent on capturing the middle market will need to both rethink who they sell to and break the mold of how they sell.
The approximately 40 million householders comprising the middle market are between 25 and 64, with incomes between $35,000 and $99,000. Despite this simple classification, the middle market is hardly homogenous. Insurers need to understand the variation in needs and behaviors of the many sub-segments to find the best ones to target.
For many, that would be millennials. They have overtaken Baby Boomers as the largest living generation, and are quickly taking their place as the largest segment of underserved middle market.
Millennials won’t be millennials forever, as they start to marry, buy homes and have children. With many millennials becoming adults during the Great Recession, “they are more concerned about protecting their financial well-being than prior generations at the same age,” according to a new LIMRA“2016 Household Trends in Life Insurance Ownership Study.”
This report found that approximately 70 percent of millennials own life insurance — individual, group or both. Individual life insurance has increased 48 percent since 2010. LIMRA identified three reasons why millennials purchase life insurance:
to pay for final expenses, such as funeral and burial costs (49 percent of millennials surveyed)
to replace income (35 percent); and
to pay off their mortgage (22 percent).
Even within the narrower millennial middle market, not all segments are equal. For example, a LexisNexis analysis found that middle-income, young working families with children are nearly twice as likely to buy life insurance as the general population. Within this sub-segment, individuals with at least a college education are more likely to be interested in life insurance than their less-educated peers.
Cultural demographics matter, too, as non-Western European ethnic groups represent a significant opportunity for carriers. Hispanics, in particular, show a greater propensity to buy life insurance than the other ethnic groups in the middle market.
The lesson for carriers is that success in the middle market will depend on how well:
their target markets best match their ideal risk types; and
their products align with prospects’ needs and preferences.
Most millennials are data-driven, accustomed to using devices for all of their interactions, both personal and professional. (Photo: Thinkstock)
Millennial case study
Consider two prospects:
Dave, a 35-year-old millennial living with a common-law partner and their two children; and
middle-aged Joe, who is married with no children.
Most carriers today would identify each prospect equally in the broader middle market and target them the same, without the more nuanced understanding of each prospect’s unique profile. Yet Dave and Joe fall into distinct niches within the middle market. Carriers need to move beyond segmentation by simple demographics.
These variables point to the need for data to be successful in the middle market. Most millennials are data-driven, accustomed to using devices for all of their interactions, both personal and professional.
And data with advanced analytics are needed to sift through the demographic variables to find the right opportunities. Each carrier has a specific risk appetite; and each enjoys a healthier book of business when targeting customers whose risk profiles align tightly with that appetite.
The data also points to a new approach to acquiring customers. Millennials shop differently and want instant answers. Carriers need to rethink the traditional agent-based sales model, in particular how they brand life insurance to a millennial consumer; and how they can help agents better serve these consumers.
Data analytic tools are now available to help carriers better understand an individual’s unique risk profile in near-real-time. The analytics require blending internal customer data with external third-party data to develop accurate predictive models. Billions of public records are available from tens of thousands of sources that, when linked, can help deliver precise, individual risk profiles.
For example, motor vehicle records (MVRs) are effective lifestyle indicators of an individual’s all-cause mortality. Public record and other sources of third-party data can further reveal valuable data points such as when a customer:
Gets married or divorced
Retires or changes job
Buys or moves to a new home or secondary residence
Acquires or pays off a major debt, like a mortgage or student loan; or
Inherits money or other assets from a relative
Analytic tools can process this data to assess a proposed insured’s risk profile and distill it into a numeric score in real-time. The tools can also filter customers into appropriate risk classes so that policy applications for good-risk millennial customers get fast-tracked. Underwriters thus see only see the more complex cases that require their valuable expertise.
Related: Cultivating clients: millennials
Life insurers can use data analytics tools to verify identities, detect fraud, determine conversion potential, and score a prospect’s long-term value instantly at the point of contact. (Photo: Thinkstock)
Other apps for analytics
Analytics can also be used to identify key characteristics more precisely so that they can better target their communications and plan marketing campaigns. For example, Millennials ages 25 to 34 with children comprise about 10.8 million households and generate 80 percent of U.S. births, a life event that often triggers life insurance purchases.
But young working families are no longer exclusively made up of married heterosexual couples with children. This segment may include unmarried couples, same-sex couples or single parents. In fact, 57 percent of these millennial moms are unmarried.
Having a more nuanced understanding of each market sub-group can help carriers find the customers they are best equipped to serve. Insurers can thereby refine their messaging, positioning and timing to capture prospective policyholders.
Carriers can also benefit from data and advanced analytics to extend its capabilities across the insurance continuum with a millennial customer. For example, they can use the technology to verify identities, detect fraud, determine conversion potential, and score a prospect’s long-term value instantly at the point of contact.
When a customer goes shopping, analytics can better route leads and applications. At the point of underwriting, the technology can help enhance onboarding strategies with streamlined tools tailored to millennials. And at the point of service, analytics can help refine messaging and cross-sell offers.
Many life insurers are looking to the middle market as a source of profit and growth. It’s no wonder: Given the $16 trillion in unmet need and the estimated $20 billion in revenue up for grabs, millennials now comprise the most promising segment of the middle market.
But the opportunity hasn’t gone unnoticed outside the industry, as non-traditional entities like banks and online service providers try to tap into this attractive market. These non-traditional players are data-smart.
Consequently, carriers should add data-driven insights to their approach to the middle market. By integrating data and advanced analytics into their processes, they can capture one or more lucrative niches before the competition does, with intelligence and services tailored to the lifestyles of millennial customers.
Elliott Wallace is vice president and general manager, life insurance, for LexisNexis Risk Solutions. Read his full bio here.