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Here's what the future of life insurance distribution might look like

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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’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.”

Worksite life sales to the mass market are also a “huge opportunity” for two reasons, says Schwetlick. First, it’s convenient for buyers; additionally, there is an implicit employer endorsement of the insurer that helps build buyers’ trust. That higher level of confidence can jump-start the sales process, he notes. Another attempt to reach employees through an alternate channel is the addition of voluntary benefits, including life and disability insurance, to Aon Hewitt’s private health exchange offering. Companies can leverage their participation in the exchange to have selected carriers offer life coverage and other insurance products as a voluntary benefit to their employees.

Technology’s growing role

Life insurers have a reputation for being relatively slow adopters of new technologies. Nonetheless, companies are modernizing their distribution channels and many of these changes are aimed at streamlining applications and making life insurance advisors more productive. Insurers are seeking operational efficiency in the way they do business and that’s clearly being driven by technology-based applications such as e-underwriting, e-applications and straight-through processing technologies, says Jim Kerley, chief membership officer with LIMRA and LOMA in Windsor, Connecticut.

Tom Scales, research director of Clearwater, Florida-based Celent’s life, annuity and health practice in North America, highlights the emergence of automated underwriting tools. Insurers can use ScripCheck to drive history reports and credit reports without human intervention, speeding the decision-making process. “You get online, fill out your app, electronically sign the approvals to gather the data, the system goes out there and grabs the data and makes a decision on the fly,” he says. Not all channels are adopting these technologies at the same pace, says Herrmann. In Prudential Life’s experience, the adoption rate among captive agencies is approaching 100 percent, and almost all business comes in that way. But among third-party sellers, the adoption rate is only about 20 percent to 25 percent. “Part of that is just breaking the old tricks of the trade and the patterns of experience people have that they don’t really want to change,” he says. 

Implications for advisors

Evolving technologies will help agents on several levels, according to Sushma Viswanathan, analyst, financial services team, India Research Centre in Hyderabad, India. Web analytics and customer relationship management (CRM) tools will allow insurers to generate more in-depth customer insights and create customized products based on buyers’ needs. Insurers’ use of social media can also be leveraged to obtain customer feedback and positively influence prospective customers.

Interactive mobile apps, e-apps and the availability of high definition video conferencing has made it easier for advisors to sell life insurance products while saving their efforts and time with increased efficiency, Viswanathan says. Prospecting and lead management become more efficient and have an expanded demographic reach. Technology can reduce time spent on support tasks while increasing sales time, as well. He cites Genworth’s ePolicy Delivery service of life insurance policies as an example of this benefit. According to Genworth’s site, policy delivery times were cut in half during a pilot run of the service.

Advisors are seeking tech gains on their end, as well. Kerley has met several advisors who conduct business through Skype and through other online methods. Other agents are taking their offices paperless. The life insurance industry is not on the “bleeding edge” of technology, he says, but “clearly, we are on a forced march for efficiency in the use of technology in virtually every corner of our business.”

Scales, who had extensive operational experience before joining Celent, has a clear vision of how he would manage an agency with a multi-channel approach. This would include a website where buyers could purchase insurance. He would also have staff in the office to handle phone-based sales. These channels would allow him to maximize his time in front of prospects with complex cases or those who wanted in-person meetings. “I’d preserve my coming out and sitting across your kitchen table for either older folks [who] have a comfort level with that or I’d be going to the office of somebody that’s going to invest millions with me,” he says. “The people and the website behind me would be picking up all the smaller cases. So, you can tier your business and play in multiple spaces without killing yourself.”