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Go Outside The Box To Sell Them Life Insurance

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For every one of the jumbo life insurance cases sold today, there are hundreds if not thousands of households in critical need of a $100,000-$250,000 life policy.

A recent LIMRA study showed that 68% of adults in the United States are covered by life insurance. So, the remaining 32% have no life insurance at all. Among the haves, 33% only own group insurance obtained at work, typically covering 1 to 3 times salary, the study says.

A 2002 MetLife study suggests the situation is even worse. It too found that 68% of adults are covered by life insurance, but it also found that ownership among the “Prime Needs Segment”–individuals with full-time jobs and dependents (spouse and/or children under 18)–was only 64%. The study also showed that 58% of Prime Needs households had life insurance equal to less than 3 times annual household income. In fact, only 27% of these households had potentially adequate coverage of 5+ times annual household income. Bottom line: Only about 17% of these households may have adequate life insurance.

Census bureau projections for 2010 point to 32 million households with children, so there are likely over 25 million U.S. households in need of more life insurance. The 2005 census data indicates that 60% of those households have income ranging from $25,000-$100,000.

Many surveys have been published probing why people do not buy life insurance. Common responses include “confusion over which type to buy,” “not a financial priority,” “too expensive” or “uncertain about right amount of coverage.”

Another challenge is that the traditional method of selling insurance through an agent is difficult because of the relatively low commission on a low face amount policy. Insurance companies have tried to make it easier to sell insurance at these face amounts by reducing the amount of underwriting, but then they have to contend with higher mortality rates.

Insurers have also tried to reach the mid-market by selling direct through the mail, and more recently via the internet, but with relatively small success. Life insurance still needs to be sold, and it is difficult to convince someone of the need without direct contact. The internet may become a bigger part of the answer, especially for computer savvy Generation-Xers and particularly as more people pay bills, transfer money to and from bank accounts, and buy stocks online.

Another method of reaching the mid-market is selling through the worksite, but this too has had relatively small success. A LIMRA study shows that worksite-sold life sales grew by over 10% from 2005 to 2006, but this distribution channel is still relatively small.

The bank channel has potential for reaching the mid-market, but it has also had relatively little success. Insurers and banks are working together more closely than ever to try to increase life insurance sales here, and simplified products and underwriting have helped. However, technological advances have reduced the direct contact banks have with their customers.

There is no one magical way to solve the problem, but thinking outside the box could reveal other non-traditional distribution channels yet to be tapped.

For instance, one challenge is the cost of underwriting. As more employers focus on promoting employee health, one idea is to leverage an employer-sponsored health fair. If the fair includes an opportunity for general check-up information and potentially some blood work, this could present an opportunity to leverage this information for a life insurance application. Doing so could significantly reduce the underwriting cost, particularly at small face amounts.

A related idea: The health fair could be promoted to employees as a physical and financial health check-up.

Another challenge–the uncertainty concerning amount of insurance needed, as mentioned earlier–could be met by leveraging information developed during the annual income tax preparation. During this time of year, people regularly gather data on income, dependents, mortgages and related data. An insurer could consider establishing an arrangement with a tax preparation firm, particularly one focused on mid-income clients, in which the firm offers a life insurance assessment. Any potential tax refund could be applied toward premiums. A licensed life insurance agent would have to be involved in the transaction, but possibly only by phone.

An alternative would be to leverage a relationship with a tax software package firm. A feature could be added that would quickly recommend the amount of life insurance the person needs, based on the financial information entered into the software. A direct link to a website could offer quotes, a quick Medical Information Bureau query and prescription drug check could determine the proper underwriting selection, and the coverage could be purchased relatively easily.

Finally, the distribution cost challenge might be addressed with a “Japanese housewives” type model. That is, add financial products to the number of home-based businesses that people already run (such as for cookware, clothes and makeup). An alternate distribution method such as this may be just what is needed. As mentioned earlier, life insurance is often sold, not bought, and a personal interaction is often the best way to do this.

Many details would need to be worked out to implement such ideas. However, it certainly seems that a problem as large as the underinsured mid-market calls for some fresh thinking.


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