Are life insurers missing the middle market? (RACHAEL STRECHER)

The life insurance industry will have to adapt to demographic and economic changes that will have a direct impact on the manner in which they market and sell their products in order for them to remain relevant when individuals and families contemplate their options for financial planning.

In order for life insurers to capitalize on a $ 10.2 trillion protection gap for the middle market as detailed in a report by Conning Research, predictive modeling and the utilization of social media will be crucial.

The Conning report, Opportunities in Reaching the Middle Market with Life Insurance exposes how glacial and clumsy life insurers have been to realize where sales opportunities are and the best manor in which to take advantage of them.

There has been an abundance of reports and statistics over the last few years detailing the protection gap and the opportunities that accompany it within the middle market. The MIB Life Index, which measures applications for individually underwritten life insurance recently reported a decrease in activity while simultaneously the number of potential customers was growing (there was a 4.7% population increase between 2005 and 2009).

The report diagnoses a range of issues that have hindered the industry from making the most of opportunities some of which are out of their control and some of which are not. However, there has been dawdling on the part of the industry to adapt when it needs to.

The recession and the economic malaise that has accompanied it have been well documented. Current economic conditions undoubtedly have an impact on the ability to sell life insurance; when families and individuals are in fiscal distress, discretionary spending is one of the first things to get cut. The report makes note of the commission potential when selling to upper-income customers and the allure that agents have to content with to migrate their sales practices towards them to the detriment and isolation of the middle market. Pricing discrepancies in terms of what is affordable for the middle market as well as the intricate and many times esoteric nature of the product can further detach middle market customers during the sales process.

Going forward, Conning contends that life insurers should take a page from property and casualty insurers playbook and begin to implement the use of predictive modeling. The hope is that predictive modeling will streamline the underwriting process, making it much faster and less invasive for the customer. The process has also proven to be less expensive and more accurate than the traditional underwriting process.

Social media will also have to be utilized to close the coverage gap in the middle market. The report indicates that life insurers will have to revamp the manner in which they use social media migrating from using it as just another venue to post material developed initially for other media to a primary channel for selling their products.

Conning maintains that the internet will most likely be the most effective tool to reach the middle market. Younger people who are in the early stages of their careers thus leaving them lower on the economic ladder and therefore more likely to fall within the parameters of the middle market are prime users of social media making it the most effective platform for life insurers to use to close the coverage gap there.

“Over the past five years the missed opportunity in the middle market for life insurers has grown significantly and our latest estimate is that it has reached $10.2 trillion. The financial crisis and recession had far-reaching effects on income, asset values and debt levels, all of which combined to drive the increased size of this missed opportunity. In addition, the rising cost of healthcare, especially in the middle market, may be an emerging, largely unrecognized need for life insurance planning. The question now is whether insurers can harness available new technologies to actually meet this burgeoning need,” said Terence Martin, director of Conning Research and Consulting.