The insurance industry remains dominated by Caucasians who are "pale, stale and male," said Mark Hug, executive VP of product and marketing for individual life insurance at Prudential Financial.

Buffeted by economic, social and demographic changes of recent decades, life insurers and their agents and brokers are being challenged as never before. If the industry is to surmount competitive threats, then it will have to thoroughly revamp long-standing business practices.

Do you imagine the source of this call for change to be an independent market researcher? Think again. Actually, it was industry insider: Mark Hug, an executive vice president of product and marketing for individual life insurance at Prudential Financial.

Hug was the sole presenter of the closing general session of the 2015 Life Insurance Conference, held in Arlington, Va., April 13-15. During a one-hour talk, Hug offered an unvarnished perspective on the overhaul — to underwriting, recruiting, distribution, technology and processes — the industry will have to spearhead if it is to regain the market penetration rates it enjoyed in past decades and fend off growing competition from unconventional players, including potentially the tech giants.

A tale of woes

Hug traced life insurers’ current problems to their failure to adapt to long-term trends that have beset the industry in recent decades. Among them: a continuing disconnect between the nation’s growing diversity and the ethnic make-up of the profession. The field remains, said Hug, dominated by Caucasians who are “pale, stale and male.”

Hug also attributed the industry’s troubles to the U.S.’ shrinking middle class, leaving American workers with less disposable income to pay for protection products, and to cultural changes. People are marrying and having kids later, and therefore deferring life insurance purchases and financial planning.

“In the minds of many, we’ve lost our relevancy in the consumer market,” said Hug. “By doing nothing in a changing world, you become irrelevant. And you leave yourselves vulnerable to non-traditional players who ready to change the market for you.”

Reduced life insurance ownership (only 44 percent of U.S. households own life insurance, according to LIMRA) has led to a corresponding decline in the agent field force, and to fewer insurance companies. Today, about 850 companies sell protection products, down from a high of 2,300-plus.

Yet the need for life insurance, said Hug, has never been greater. Every year, life insurers pay out $60 billion-plus in death benefits, an amount totaling about two-thirds of Social Security benefits sent to recipients. Given historically low market penetration rates, the opportunities have never been greater for advisors and insurers still in the business, said Hug.

But to fully leverage those opportunities, the industry has to rethink practices that have been in place for decades.

The path to renewed industry growth, he noted, lay in imagining, and acting on, 6 “pretends” — starting with a heightened focus on the customer.

“The consumer needs to be all-consuming in our minds,” said Hug. “The industry has done a tremendous amount of research on what consumers want. But are we listening? We need to do a better job of this.”

Insurers, he added, also need to more effectively apply cutting-edge tools (pretend 2) that can help facilitate product sales. Among them: neural marketing techniques, widely adopted by other industries, that use MRI technology to determine whether certain advertising makes a prospect more favorably disposed to buying a product or service.

Invoking the 3rd of his 6 pretends, Hug said products and contracts also need to be made simpler. Newly issued policies can run to dozens of pages; and the provisions therein can be difficult to fathom (even by, Hug acknowledged, people like himself who were trained as actuaries).

Upshot: The documentation contributes to a perception among the public that life insurers are less than consumer-friendly; and, particularly since the financial crisis of 2007-2009, are not entirely trustworthy.

Surmounting such negative optics, said Hug, will depend in part on recruiting and retaining more agents and brokers who reflect America’s increasing diversity (pretend 4). To that end, Prudential, among other carriers, has made the multicultural markets — African-Americans, Asian-Americans and Latinos — a high priority.

These groups represent significant growth opportunities for the carriers. And so do other markets: women (who now account for more than half of heads of households and disposable income), the LGBT community and millennials, the oldest of who are now in their mid-30s.

“We as an industry have to start developing and bringing in new people — fresh blood, said Hug. “We have to be much more inclusive and diverse in our recruiting.

“If we want to represent what the United States looks like, and what our market looks like, then we must have employees who better understand that market at all levels,” he added. To say that you can’t find anyone other than a qualified white candidate for the position “is not an acceptable answer.”

Hug insisted, however, that agents and brokers don’t have to be of the same ethnicity, gender, sexual orientation or age groups as their prospects to close sales. What’s required, rather, is an understanding of the client’s culture, preferred ways of doing business and financial priorities. He noted that in industry surveys, more than 90 percent of people say that products “don’t have to be sold by a person of same culture.”

The industry is falling short not only at the point of sale, but also in the follow-up. Too many insurers and advisors, said Hug, fail to stay in contact with policyholders after the sale.

By maintaining regular communications through electronic and print media such as e-newsletters promoting ways to maintain a healthy lifestyle or product/plan reviews that should be undertaken following certain life events, such as the birth of a new baby, companies can instill greater loyalty in their customer-base (pretend 5).

Insurers also need to interface more with death benefit recipients when an insured dies (pretend 6). The tendency among policyholder beneficiaries is to cut the relationship with their insurer, or with the agent or broker who sold the life contract, because no one thought to engage them about their own financial needs.

Expanding on the fourth of his six-point prescription, Hug said insurers must also change their mindset about recruiting inexperienced people or those who have worked in other industries to handle home office functions — medical underwriting, product development, marketing, agent training/support and the like. Companies still wedded to an old hiring model, one that puts a premium on skills and work experience that dovetail closely with the positions on offer, risk excluding from their candidate pool talented individuals who can have a transformative impact on the business.

To what degree might the industry benefit by carrying out Hug’s 6-point plan for growth?

“If we do these six things, then we will transform our industry and become the disruptive force we aspire to be,” said   Hug. “Our industry has a phenomenally bright future.

“We have opportunities galore in our products, distribution, people and customers, he added. “It’s never going to get any better than this.”

See more of our coverage of the 2015 Life Insurance Conference:

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