Sales of life insurance, and specifically individual life insurance, are not where the industry would like them to be. LIMRA nailed the problem last year, when it has announced individual life ownership had fallen to a 50-year low, and III 2010 industry fact book showed that life insurance sector had fallen behind health and disability insurance in terms of overall revenue, making it the smallest segment of the life and health industry. (The largest, of course, went to annuities, which accounts for nearly half of the industry’s revenue. health insurance accounts for another quarter, and life insurance comes in just under that.)
Life numbers are starting to recover, it would seem, but still growth is slow, and sales are difficult to make. For many in the industry, the problem is one of educating the consumer as to what life insurance really can do for them, why it’s a heck of a bargain, and how under-insured most Americans really are. It is a sensible strategy, since life insurance remains, even for an insurance product, a relatively unknown thing. Folks know what life insurance is, but many assume that the group coverage they might get from work is adequate. They typically have no clue how much coverage they really need, nor do they have a sense to go out to find life insurance. This is a product that for many people, they wait for it to come to them in the form of a sit-down with their local agent or financial advisor.
Clearly this approach isn’t working enough, and there are other factors at work, also. Just one might be the way in which life insurance commissions work – it’s a lot easier and more lucrative for many agents to sell annuities than life insurance, and so they go where the business is. Makes sense. But there is something else at play here that is more troubling, and it is something that the industry has complete control of. I’m talking about pricing transparency.
Brian Fechtel, an agent himself and industry blogger, has made this topic a crusade of his for quite some time. He is one of those folks who has some serious problems with how the industry is run, but his intent is not to burn things down, but to improve the industry itself–one that he is still a part of and intends to be for some time still. Fechtel writes that insurers routinely fail to disclose the costs of their insurance products, mentioning them only in oblique terms when listing the cost of the product as it weighs against the value build-up of a life policy. But rarely, if ever, do we see insurers break down what their costs actually are, and certainly not in a way that enables consumers to see how their insurance products are priced. When you’re done with this article, check out what Brian has written on pricing transparency. I found it to be pretty interesting stuff, but be warned, it is fairly in-depth, and it’ll take a few minutes to get through it all.
I get where Fechtel is coming from, and he has a point. If we want people to buy more life insurance, than it would help to be able to engage them on a level where the consumer himself or herself can be made to feel like they are making an informed purchasing decision. Charam Singh of SelectQuote said as much when I heard him speak a few weeks ago. He noted that the industry has a default image in the heads of consumers that it is up to no good simply because of the towering wall of ignorance people have about insurance, how it operates, what the products actually do, and most of all, what people are actually paying for. Purchasing decisions are simply not nearly as informed for insurance as they would be for buying a car, or even a house. Why is that?
If I can offer a personal anecdote, every time I have had a sit-down with an agent or advisor to consider life insurance, I have never been offered a range of different life insurance policies from different carriers to choose from. The person facilitating the purchase never gave me an opportunity to see if I could get cheaper insurance from a different carrier, or whether I might be interested in more expensive insurance that happened to have some features that merited a higher price tag. Rather, the conversation was always geared toward illustrating my need for a certain level of coverage, and what kind of insurance I’d like to meet that need, but never what brand of insurance, or what specific products. I’ve never had a chance to comparison shop or look for a deal. And while that has not stopped me from buying life insurance, it also is the kind of transaction that provides me with more room for buyer’s remorse than almost any other retail transaction I can think of. I can only imagine how many sales are scotched at the moment of truth simply because folks get nervous about buying into something that in their heart, they do not fully understand.
It doesn’t have to be this way, and to be sure, there must be agents out there who do present to their clients a spread of options, and are there to help their clients make the most informed decision possible. Maybe I have just been unlucky with my agent interactions. But if what Fechtel is saying holds water, it isn’t just bad luck keeping buyers in the dark. It’s a bad approach to selling a product everybody needs, and yet, not everybody is buying.