All the sales peaks and valleys of recent years, all the hot products and features that have burst on the scene only to be eclipsed by the next big thing, are just subplots to the real storyline in the life insurance market, one that Deloitte neatly captures in three words in the subtitle of its 2014 Life Insurance and Annuity Industry Outlook: “Transforming for Growth.”
These are words that advisors who are active in the life insurance market—and indeed, the entire life insurance industry, from carriers on down—would perhaps be wise to heed. For as Deloitte emphasizes in its industry outlook, “the time may have come to initiate more fundamental changes in their business models to generate sustainable growth over the long term.”
Why the sense of urgency for an industry that has reported solid overall sales growth in three of the last four years? Because, as Kevin Sharps, a Deloitte principal who heads the firm’s life insurance and annuity practice, asserts, “the life insurance market is challenged to grow. It has been challenged to grow out of a pretty consistent range for the past few decades.”
Only by transforming their sales approaches, marketing strategies, business practices and product offerings will the life insurance industry — and by extension, individual advisors — find sustained growth in the life insurance segment.
Advisors who stay tuned to the storylines and subplots shaping today’s life insurance landscape — check out the Q&A that follows for answers to eight burning questions that confront the industry and its participants — not only arm themselves with insight to maintain an edge in a highly competitive marketplace; they position themselves to be part of the industry’s transformation, and the growth that it stands to deliver.
Q. Where does the life insurance market stand today, in terms of its growth prospects and the obstacles it must overcome to continue growing?
Sales trends support Sharps’ contention about the life insurance market being range-bound. A three-year surge in individual life insurance new annualized premium came to an end in 2013, as sales flattened for the year due largely to an 8 percent decline in new annualized premium in the fourth quarter, according to the research organization LIMRA. Total individual life insurance policy count fell 3 percent for the year. The overall decline continued in the first quarter of 2014, as total individual life insurance new annualized premium fell 7 percent and policy count 4 percent.
The largest contributor to the drop in 2013 was a 7 percent decline in universal life (UL) new annualized premium. Still, UL held 38 percent of the total individual life insurance market, thanks to upticks in sales of indexed universal life, which ended last year up 13 percent.
Meanwhile, variable universal life sales jumped 24 percent for the year, though representing just 5 percent of new premium market share, according to LIMRA. Whole life sales were steady, with a 4 percent premium increase for the year, while term premium gained 3 percent.
It all points to a market that, according to Sharps, is “very mature” in terms of distribution and products, but one that is nonetheless struggling to find new ways to get its message to resonate more loudly with consumers “who have a need [for life insurance] but for whom life insurance hasn’t evolved to the top of their list of priorities because it’s competing against health care costs and other concerns.”
Q. What’s the life insurance industry doing to overcome these obstacles? In what ways are insurers and other stakeholders are working to generate sustained growth over the long-term?
Finding new avenues for growth and efficiency must be a group effort involving not only insurers, but distributors, producers and planners, contends Sharps. To that end, he sees progress being made on several fronts:
(1) In the use of big data— analytics, plus more localized, cost-effective, cloud-based CRM systems — to unearth new buyers. Partnerships between carriers and producers will be crucial to these efforts;
(2) In more efficient underwriting using technologies such as predictive analytics; and
(3) In the development of a coordinated, coherent consumer awareness and marketing campaign to elevate life insurance on the public’s priority list and to find a foothold in the underserved middle market.
Q. What client issues and needs are driving the life insurance business for advisors, and what products are advisors relying upon most to answer those needs?
A desire for asset protection and preservation is the top life insurance sales driver “across the board, whether it’s for someone in their 30s, 40s, 50s, 60s or older,” observes Elaine B. Eisner, JD, cofounder of Eisner Gohn Group, an insurance-focused practice in Cleveland, Ohio.
Replacing income and transferring wealth are also key drivers to life insurance purchases, adds Karen Terry, assistant managing director at LIMRA.
On the legacy planning front, Eisner says custom-tailored whole life policies are especially appealing for their guarantees. UL also can be effective in this context, but only with a guaranteed level premium out to an advanced age (such as 110).
Combination products that afford policyholders access to funds for critical illness and/or long-termcare events are also gaining appeal as an asset-protection tool, Terry and Eisner note.
These products — linked-benefit offerings and accelerated-benefit policies — appeal because they not only cost less than most stand-alone LTC policies; they also use leveraged dollars to provide both life and LTC coverage, with the money staying inside the policy to eventually pass to beneficiaries if a care need never arises. “They do a great job of answering the ‘What if I never use it?’ issue,” Terry says.
That appeal translated into a 12 percent rise in individual life combination premium in 2013, the fifth consecutive year of double-digit growth, according to LIMRA. Combination products built around whole life and universal life represent the bulk of the market (97 percent), although demand for variable combination products is growing.
Eisner says she tends to favor combination UL policies with an extended care monthly benefit option and combination whole life policies with a chronic care rider. That the benefits paid out of such policies often come tax-free only adds to their appeal, she notes.
Q. Deloitte suggests the market for life insurance among baby boomers is “quite saturated.” If that’s the case, how do advisors find new opportunities in the boomer segment?
Given the multiple (and often complex) priorities in play, including asset preservation, lifetime income and wealth transfer, serving boomers’ life insurance needs “is less about trying to sell a hot product,” says Sharps, and more about tailoring multifaceted products to the client’s specific needs, using a range of features and riders if necessary. This entails developing a strong grasp of the latest products and features and their optimal applications.
Q. If the boomer market is indeed saturated, then where do the biggest growth opportunities lie for life insurance? Are there specific segments that are underserved and primed for growth?
In term of growth potential, it’s hard to match the middle market. Generation X is also fertile territory, says Deloitte, “given the segment’s stated desire to buy life insurance coverage potentially worth $3.6 trillion over a 12-month period.”
The challenge for the life insurance industry has been finding effective ways to tap those segments. As Deloitte points out, “acquisition costs are often too high to incentivize many agents to spend time selling to underpenetrated segments, including Gen X and the middle market.”
Q. How best to tap these underserved markets? What strategies might the industry pursue to tap the vast potential of Gen X and the middle market?
The middle market may well be the holy grail for life insurance growth, according to Deloitte, which asserts that “those who can figure out how to cost-effectively bridge the coverage gap of the under- and uninsured could potentially appropriate the lion’s share of this market.”
Improved straight-through processing and development of more straightforward, simplified-issue life insurance offerings are key to tapping the middle market, according to LIMRA’s Terry. So, too, is the development of new multichannel distribution strategies, says Sharps, whereby a transaction initiated on a consumer’s mobile device might also include touches from an actual agent/producer along the way. “It’s inevitable we’ll continue to move to more of a multichannel distribution environment.”
LIMRA sees carriers moving to mirror other industries by selling simplified products directly to consumers online and even via retail outlets, something MetLife already is doing through Wal-Mart stores. As Deloitte points out, “Gen X and middle-market consumers will likely respond better to simplified products made available through a wider variety of distribution options. Methodologies shift from ‘sharing the proverbial pie’ to ‘enlarging the size of the pie.’”
Q. Is there a role for advisors/producers in a new distribution model designed to serve the middle market consumer? What can advisors who want to make inroads into the middle market for life insurance do to position themselves to be valuable to, and to profit from, the middle market?
The short answer is yes, particularly for advisors/agents who have the creativity and the drive to transform their marketing and sales practices so they cater more to the digitally-driven consumer who’s more inclined to buy through a multichannel process and who’s looking for simpler products with lower face values and simpler underwriting.
Producers will still play a key role in such a model, particularly those who show a willingness to get their foot in the door early by working with carriers to support their push into the middle market, Terry says. “There might be touchpoints there for the agent, where during the process, there’s opportunity to assist the consumer. We have found that Generation X and Generation Y want to do their [life insurance] research online, but six out of 10 still want to speak to an advisor to make the purchase.”
Q. On the product development side, what’s the state of innovation with life insurance? What are some of the interesting and novel features, designs and approaches insurers are bringing to market?
Life insurance products are trending toward two extremes, according to Sharps: “radically simplified” products at one end to cater to the middle and Gen X/Gen Y markets, and at the other, multipurpose, bundled (often complex) products to cater to boomers and buyers in retirement. On one hand, expect to see more simplified-issue UL and whole life products that serve as the entry point for carriers and agents to develop longer-term relationships with consumers, he says. On the other, look for carriers to develop products and strategies whereby consumers can move from one bundled product to another, and move in and out of features, with relative ease as their needs and priorities change throughout life.