Conventional wisdom is that insurance is sold, not bought. Many people claim that insurance products, especially life insurance, are complex, easily misunderstood, need detailed medical data to be underwritten, and therefore have to be “sold” to customers.
Accordingly, the insurance sector has operated over the past two centuries with a large intermediary agent force (both captive and independent) that carriers have relied on to build trust with consumers, understand their needs and eventually “sell” them insurance products. This means that the insurance sector has a high cost base (due to commissions to independent agents and/or the cost of acquiring and maintaining a captive agent force), complex processes and rules for underwriting, and opaque pricing.
However, advances in technology, changing consumer behavior, the changing nature of advisors, and regulatory and competitive pressures are forcing the life insurance sector to re-evaluate its fundamental belief that insurance is sold and not bought.
Advances in technology
Mobile devices, social media and networking, cloud computing, ‘Big Data’ and smart analytics are some of the technologies that are transforming consumers and advisor expectations and how insurance carriers respond to them. Mobile devices, social media, and online networking are enabling consumers to obtain information whenever and wherever they want, often in entertaining and engaging formats (e.g., YouTube video clips and Facebook savings and even investment games). In addition, consumers are increasingly reaching out to their broader, virtual social networks for education and advice.
Moreover, advances in analytical techniques allow insurers to use external behavioral data (e.g., credit score data, prescription data, and transactional purchase data, such as health club membership or food purchase behavior) in addition to internal historical data in order to supplement and in some cases replace the need for detailed individual medical data. As a result, insurers are developing predictive models to auto-underwrite term and even whole life insurance.
Technological change accelerating and, as evidenced by the enthusiastic adoption of smartphones and tablets, so is consumer adoption of new technologies. For example, 38% of adults have smartphones and three million iPads were sold within three days of the newest version’s release. Consumers, who are now used to price transparency in other sectors (including auto insurance), are demanding the same from life insurers.
Online aggregation and quote comparison, social networking, and the ability to purchase insurance online are changing the buying model. As Gen Y and Millennials enter the life insurance purchasing age, they are demanding greater access to information, better pricing transparency, simplicity of language and products, plus online and social channels to learn about and purchase insurance.
Changing role of advice
In light of changes in consumer behavior the role of insurance advisors (and more broadly, independent financial advisors) is changing. They are no longer the sole authorities on financial matters, and are now one source of information among many within a broader “trust” network of friends, families, and online advisors.