The current face-to-face distribution model faces a number of barriers in dealing with the vast untapped middle market. Whether it is an existing policyholder or a new prospect, the low premium, low commission nature of the sale and sheer size of the middle market make it difficult to effectively align a face-to-face sales effort. Of course, every challenge presents an opportunity, and there are a number of tools that proactive reinsurers can utilize to overcome these middle market challenges.
At a conference in New Orleans earlier this year that we hosted with The Covenant Group, more than 70 senior life insurance executives from Canada, the U.S. and Mexico gathered to discuss strategies for unlocking the profits of the middle market. A central theme was a recognition that the middle market presents a potential solution for the flat revenues the industry has been seeing for the past decade. However, to effectively align with the middle market, the industry must look at doing business differently.
Middle Market Research and the Need for Change
In the past 3 years, we have sponsored research aimed at uncovering the distribution issues in servicing the middle market. The first research project in 2004 was aimed at policyholders. The second project, completed in early 2006, was aimed at advisors. Both research projects were conducted by NewLink Group, an insurance management consulting firm based in Toronto.
Life insurers tend to take a sterile view of “orphan” policyholders, who typically represent a middle market profile. In the case of brokerage companies, “orphans” typically don’t exist, as they are an issue for the brokers who “own” the customer. In tied agent companies, “orphans” are often re-assigned, thereby theoretically eliminating the problem.
But at the heart of the issue is what the policyholder thinks. In most cases, the industry has failed to address whether the methods deployed for managing orphan policyholders are really effective in the view of the policyholder. In addition to the true orphans, what about the policyholders who never hear from their advisor? Do they consider themselves orphans, regardless of what an advisor or insurer might think?
Of the total number of customers polled, 65% had never owned a policy, had lapsed a policy, or felt they were orphans. Of those who actually owned a life insurance policy, one-third felt they were orphans.
Clearly, there is a large segment of the market that does not have regular contact with a financial advisor. Would they buy if they had access to an advisor and who would they buy from?
More than 24% of customers are likely or highly likely to purchase a life insurance policy in the next 24 months.
If they are purchasing a new policy, 60% would buy from their existing insurer, whereas 20% would not and 10% are undecided.
It is interesting that 30% of policyholders are undecided or would not buy again from their existing insurer. Could it be that they feel abandoned or under-serviced? Of further interest is that 49% of policyholders are somewhat or very likely to utilize a non face-to-face channel for their next insurance purchase.