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Is Life Insurance Niche?

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How can the industry’s bulwark product–life insurance–ever be described as, or treated as, a niche product?

To some industry professionals, that’s like saying the product is off, not mainstream–even sub-par.

Yet, as new policy sales have flatlined for the past few years (with notable exceptions, of course), the niche-word does come up. It typically happens when people try to explain away the flatline by saying the product has “gone niche”–meaning, “What can you expect from it except specialized sales once in a while?”

Niche-talk actually has a long history.

For instance, universal life insurance enjoyed a meteoric rise in the early 1980s, accompanied by predictions that UL would become the industry’s new standard product–the policy for all comers. Then, in the mid-1980s, when UL sales swooned, the product seemed to go on life support until marketers found ways to sell it for specialized uses. Soon it was tagged a niche product and no longer was king. (Curiously, UL has since enjoyed a nice rebound in the early 2000s, so does that mean it’s not a niche product anymore?)

Variable universal life went through a similar switcheroo. There was one period, during the hot-market part of the 1990s, when some advocates predicted VUL would be the dominant life policy of the land–because of its flexibility, market sensitivity and multiple investment options, including fixed account, etc. But after the market crash in the early 2000s, VUL sales went south and suddenly VUL was being vetted as the “right product for the right person.” In other words, niche, niche, niche.

Even term life insurance has had some repositioning going on. For instance, while basic term insurance is still viewed as the standard bedrock of group benefit plans, the advent of level term (10-year, 20-year, etc.) has brought individual term insurance into the world of meeting very specific time-limited needs (read, niche, niche, niche). More recently, the return-of-premium term policies have taken on that same role.

Life sales for the older age set is another form of niching that’s been going on–not by policy type but by market.

Then, there’s the newcomer: index UL. Sales here have been growing for the past 2 years, and more carriers are putting toe in water. However, having an annual premium volume of just $338.2 million in 2006, according to Advantage Compendium, St. Louis, IUL is still more “newbie” than niche. But given its unique design, it certainly has niche potential.

In all of this, the term niche refers to a product that serves a unique market or need that the industry’s standard products don’t serve (or don’t serve efficiently or effectively). By comparison, a “standard” product would be a garden variety policy that is suitable for (almost) all.

In today’s life insurance market, it seems there are a vast array of product types and coverage solutions to meet a myriad of unique needs. That sounds pretty niche-y to me (the products, that is, not the companies and agencies). Yes, some products are basic (like group term) but many others are very unique, very targeted.

What does all this mean for industry professionals? Here are some suggestions:

o It’s time to stop talking about life insurance as if it were one well-understood commodity. Life insurance products serve an increasingly diverse buying public with an ever-deepening menu of choices, options and strategies to meet targeted needs. To know one life policy is not to know them all. They’re niche. They need well-trained advisors to present them and, yes, to sell them–customized for the niche and the person, as the case requires.

o It’s time to stop explaining away any industrywide sales problems as, “Oh, it’s a niche product.” The entire industry is niche product heaven. There are life policies for all seasons and reasons. One niche may be down while another is up, but if the entire industry is not ringing bells, the sales problem may lie elsewhere (operations, business models, service, image, market conditions, education, etc.).

o It’s time to stop putting down a product because it’s niche. Niche is not bad or good by nature. It just is the result of living and working in and selling to a multi-cultural, multi-lifestage, multi-demographic society. If a competitor is making headway selling the niche product ROP term, then ROP might be worth considering for one’s own practice too. To simply write it off with an “Oh, that’s niche, we don’t do that” hardly seems rational.

Who knows, uncovering new niches may help rejuvenate sales, even as they address the protection needs of the target market. It worked in the past.


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