With Google and Amazon now making tentative forays into the life insurance space, an urgent question arises: What are the implications for producers?
The two tech titans, among others, have become key players in spaces once owned by other established companies. Amazon alone now dominates the market for e-books, diapers, cloud computing services and other offerings of which “the everything store” now avails consumers through its web portal. Could Amazon and its tech/online brethren push aside a key distribution channel for life insurance products — licensed agents and brokers — in their drive for new sources of revenue?
The short answer to the question is a qualified “yes.” Absent the ability to deliver value-added expertise and superior product, producers could find themselves undercut by the technology giants, not to mention other providers that are already marketing product, notably inexpensive term insurance, directly to customers through online channels.
These include leading life insurers. Examples: MetLife, Colonial Penn and New York Life, the last of which has partnered with the American Association of Retired Persons to market directly to AARP members.
Direct sales initiatives offer consumers certain advantages, including an expedited purchasing process, notably for simplified or guaranteed issue term insurance that can be purchased in small face amounts or that require no medical underwriting. For consumers, especially young Millennials, who have become accustomed to “one-click” buying, direct sales programs also more closely align with their expectations for a hassle-free transaction.
What many direct sales providers do not offer, however, is the expertise of a well-trained sales professional able to secure the best product at the lowest, long-term cost. Nor can they be counted on to correctly determine (given the prospect’s financial needs) the policy size or type, which individuals should be named as parties to the contract, or how best to integrate the life product into a financial plan (e.g., via an irrevocable life insurance trust.)
“We [advisors] can insure that the policy is properly owned and payable to an appropriate beneficiary,” says Herb Daroff, a registered investment advisor with Baystate Financial Planning. “Online and direct sales can take care of the do-it-yourselfers. That leaves the cream — educated consumers who understand the value of working with a trained professional — to rise to the top.”
Even in cases where they’re only competing on price, direct-to-consumer sellers (the tech companies included) could face challenges in gaining market share, adds Daroff. Among them: avoiding alienating affiliated producers who are forced to sale the same product at a higher premium; and meeting state-mandated practice standards and capital reserve requirements.
Ultimately, whether producers can face down the threat from the tech giants and other direct vendors will hinge on their ability to distinguish themselves through their product knowledge, service capabilities and business acumen — the same attributes that can give them a competitive edge over other advisors.
For those concerned about the supposed advantages of the online world, that should be a reassuring thought.