After spending several hours online researching the amount and type of life insurance that fits her needs, the prospective buyer is ready to shop. She signs into Amazon.com’s life insurance site, answers a few questions and uploads the last six months’ data from her fitness monitor, which tracks multiple health indicators. A cloud-based underwriting algorithm pulls her medical and prescription records and rates her risk profile. The site then presents offers from several insurers. She chooses a policy and then sets up an automated monthly premium debit from her checking account. The insurer sends her a text notification that the coverage is effective and her e-policy will arrive by email within 24 hours. Total time from start to finish: 10 minutes.
Admittedly, this is a futuristic scenario, but it’s not implausible, given current trends. Ron Herrmann, CFP, executive vice president, distribution and sales at Prudential Individual Life in Newark, New Jersey, says that roughly 75 percent of buyers are doing online research prior to purchasing; almost half of that research is being conducted on mobile devices. Achim Schwetlick, partner and managing director with the Boston Consulting Group in New York City, notes that life insurance carriers are increasingly more comfortable using direct channels, online and mobile phone-based distribution next to or integrated with their traditional channels. He recently ran a market test for online term life insurance and the results showed a clear trend. “It’s amazing; (if) you did the same thing 24 months ago, you’d get responses from every carrier on the planet,” he says. “But if you wanted to get a quote, they would ask for a phone number to call you back. Today, you get a bunch of quotes within two minutes.”
Industry executives agree that technology is influencing distribution channels. A LIMRA survey released in early 2015 reports that 57 percent of financial executives believe an outside source like Google or Amazon will be a disruptive force in the life insurance market within the next five years. The study points out that while there is currently no source outside the industry providing life insurance, prior LIMRA research on middle-market consumers found 21 percent would be willing to buy life insurance online from a non-traditional source, such as Google or Amazon.
Out with the old
So, are insurance advisors about to go the way of VCRs and be replaced by online avatars? That’s unlikely. Consider the forecasts from the Insurance Intelligence Center of London-based Timetric, a research and consulting company. They report that agencies were the largest distribution channel for U.S. life insurance in 2013 (the latest data), accounting for 53.4 percent of the new business gross written premium. Their forecast is for that segment to increase marginally by 2018 to 53.5 percent. The reason cited for the sales persistence in these channels? “Convincing a consumer to purchase a new product from a different insurer requires a range of agency networks, as the majority of U.S. citizens still prefer personal interaction when purchasing a policy.”
Similarly, the shares of broker-sold and direct marketing, the second and fourth largest distribution channels, respectively, are projected to grow gradually through 2018. Bank channel policy sales have been falling, a trend Timetric attributes to the growth in direct marketing and e-commerce sales. Despite all the focus on online sales, the projected annual increase for the e-commerce channel is a modest 2.5 percent. Timetric reports that 1.2 million new policies were sold via e-commerce in 2009 and 1.3 million in 2013; the forecast for 2018 is 1.5 million. That’s healthy growth, but it certainly doesn’t indicate that online sales will displace traditional channels any time soon.
Changing the channels
The relatively stable sales within traditional channels don’t imply a lack of distribution initiatives, however. Deloitte’s “2014 Life Insurance and Annuity Industry Outlook: Transforming for Growth” report notes that the “bread-and-butter demographic for life insurers — the profitable, affluent baby boomer segment — has become quite saturated.” But gaining cost-effective traction in new markets such as Gen X or the middle market will require different training and sales techniques than those used with boomers.
One possibility Deloitte considers is that the creation of “highly-engaging online communities along with an interactive and easy-to-navigate multimedia website could give insurers cost-effective platforms to engage with tech-savvy Gen Xers and gain deeper consumer insights.” Another option: Bring the sales process to new venues, such as the locations where Gen X shops. That’s the logic behind MetLife’s attempt to sell life insurance in kiosks at Wal-Mart stores, although it’s not yet clear if this approach will pay off. Last July, The Wall Street Journal reported that while MetLife hasn’t disclosed financial results for the Wal-Mart initiative, the insurer “said in June that it expects to suffer about $40 million in losses this year on start-up costs and other expenses tied to direct-marketing initiatives in the U.S.”