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Redesigning life insurance distribution: How carriers can help

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The U.S. life insurance industry is producing mixed signals. On one level, we’re seeing growth. LIMRA reported that in 2012 total new annualized premium for individual life products grew 6 percent, the third consecutive year of growth. The fourth quarter of 2012 was particularly good, with premiums increasing by 12 percent.

On another level, however, recent years’ sales results aren’t very impressive. LIMRA reported that the number of life policies sold in 2012 grew by 1 percent for the year. That was the second consecutive year of growth for policy numbers, but the industry hadn’t seen back-to-back growth years since 1980 and 1981, according to LIMRA. Imagine a college football team that hadn’t put together two consecutive winning seasons in more than 30 years — it would be difficult to generate much fan support.

Gauging the industry’s success isn’t just about sales results, though. An equally important measure is how effectively we are delivering the product to those who genuinely need it. Those results imply that we still are encountering considerable challenges in making life insurance more relevant to consumers. Consider these findings about life insurance ownership:

  • 3 in 10 American households (35 million) are uninsured, and half say they need more life insurance.
  • More than half of Gen X and Y households — representing 30 million people — need more life insurance.
  • The middle market represents the largest segment of uninsured households, with half (36 million) admitting they need more life insurance.
  • One-third of wives own no life insurance at all — despite the fact that, according to LIMRA research, 7 in 10 households are dual-income households, and nearly 30 percent of wives earn more than their husbands.

Are we part of the problem?

At times it appears that providers are competing primarily on the basis of price or simplified underwriting processes instead of educating and counseling customers. No company can be the leader in both price and process all the time. And, with products continuing to evolve, it’s increasingly difficult to draw a comparison on price alone. Yet we hear from our distribution partners that they find themselves swapping market share with their competitors instead of growing their businesses.

The industry’s standard counterargument is that we’ve been working to educate consumers about life insurance for years. But much of that education was a thinly disguised emotional appeal designed to facilitate sales through concern over survivors’ needs or estate taxes. The mantra that insurance is sold, not bought, still holds true in many cases.

A life insurance analysis should be part of every consumer’s financial plan. LIMRA reports that three-quarters of shoppers who received a needs-based analysis bought life insurance, as opposed to less than half of those who did not partake in an analysis.

Recognizing and responding to trends

Consumers’ changing buying habits and the huge growth we’re seeing in multicultural markets are clear challenges for the industry. We see this with the growing preference for specialists versus generalists. For example, if you have a broken bone nowadays, you see an orthopedic specialist instead of a general practitioner.

That’s also proving true with life insurance, and it will require changes in the way we distribute. Insurance companies need to provide the proper resources to help advisors develop genuine expertise about the problems life insurance can address across a broad spectrum of needs and cultural differences.

The use of the Internet for financial advice and product purchases, in addition to online research, is another major trend. Differences in buying preferences mean companies need to rethink the one-size-fits-all marketing approach. We can’t hope our approach to the institutional market will naturally cross over and work with a changing consumer market. If we wish to become more relevant, we need to reach each market in the way it prefers and understands.

See also: How technology is changing the way producers work

The future of distribution

To address these trends, we need to rethink how we support the people and organizations that distribute our products. To do so, we need a model that maximizes our reach and creates synergies across all channels: institutions, brokerage general agencies and independent and career financial professionals.

There is no shortage of consumers who can benefit from owning life insurance or the number of ways we can make it available to them. The key is in providing our distributors with the level of expertise that can help them best serve the end client — whether they sell life insurance as an ancillary product or focus on life insurance on a day-to-day basis.

For the institutional channel, we need consistency of approach, penetration and accountability across the United States. A custom distribution model for each institution that will consider how it wants to work with the product manufacturer will enable us to help them deploy our products more effectively within their organizations.

Equally important are brokerage and producer channels. Producers are taking a more consultative approach with clients. But given the vast number of products and options that are available, it’s incumbent on product manufacturers to provide expertise and resources that can shed more light on product features and benefits and the needs they serve.

For example, the industry’s more recent focus on “life insurance for the living” brings renewed relevance to conversations with clients about what life insurance can provide. Products that offer financial protection for issues that can surface during the course of a lifetime, such as chronic care or a terminal illness, are clear examples of how life insurance has evolved over the past several years.

From a distribution-model standpoint, we envision supporting these channels with insurance specialist teams that can be leveraged across a large number of firms. By using custom partnership arrangements with the various sales and service partners, we can maximize life sales and ultimately grow what has been a slow-growth business.

Surveys show many U.S. consumers understand life insurance can benefit them, but nonetheless, they don’t buy it for a variety of reasons. The industry’s challenge is to educate these prospective buyers and better meet the needs of distributors by making life insurance easier to understand, access and own.

For more on life insurance distribution, see:

Life insurance’s global boom

The salesman who doesn’t sell

Death of a (life insurance) salesman?


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