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.
The future of distribution