Serving Middle Income Customers Through Financial Institutions

Most life insurance companies have been more talk than action when it comes to effectively providing middle income households with the life insurance protection they need. Similarly, life insurance companies have experienced a relative lack of success when trying to reach this segment via banks and credit unions.

To be sure, these financial institutions have been–and continue to be–reluctant sellers of protection products, but what strategy has the insurance industry utilized to overcome this reluctance? Increasingly, there is a wrong-minded focus on the supposed convenience of transaction-oriented, simplified-issue life insurance products. This, in addition to a lack of meaningful wholesaling support, can introduce suitability and reputation risk to insurers and the banks that distribute these types of products.

According to LIMRA International research, only 12% of all U.S. households buy life insurance in any given year, far fewer than the 27% of U.S. households who say they expect to purchase it in the next 12 months. So what can life insurers and their financial institution partners do to change the tide?

Life insurers

For life insurers, effectively reaching the middle market has become a holy grail of sorts. Unfortunately, fulfilling the needs of this market profitably, and without distribution conflict, has proven difficult. There are a handful of insurers that focus their distribution almost solely on this market. But reaching middle income households via the financial institutions comes with its own challenges.

First, there is a distinction between banks and credit unions, with specific, and often different, strategies required to achieve success. Second, reaching the middle income customer in this channel often means being willing to develop platform (licensed banker) and direct response distribution within the institution itself. Third, providing a small, simple selection of products to meet the needs of this segment is critical. It is difficult for most life insurers to develop, execute and support this distribution and product strategy and do it effectively and profitably.

What some insurers have resorted to is a more passive strategy. For distribution support, this means providing little or no wholesaling and training resources to the licensed bankers who need it most. This has, in part, led to a flat growth trend for bank-sold recurring premium life products (see chart).

For product offerings, the primary strategy has been to focus almost solely on a simplified issue term product that provides greater profitability to the insurer but may often be the wrong product for the uninformed consumer. Some insurers have even moved to providing online applications for term products up to $500,000 of face amount.

This online process guides the often uninformed customer to a “Yes-No” underwriting decision with little or no agent interaction. In this case, the insurer and financial institution may not be providing the most appropriate or cost-effective alternative for the customer and therefore can risk suitability and reputation fallout as a result. In addition, the financial institution will likely face the brunt of the customer’s ire, since the transaction occurred within the trusted confines of the branch or bank’s website.

So what can life insurers do to reach the middle income market effectively through financial institutions?

Getting down and dirty