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What's really behind the life insurance industry’s sales stall

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Aerodynamics is a tricky thing. Most folks are familiar with the concept of a stall — an airplane going too slowly to maintain lift. During my first flight lesson, the instructor purposely stalled the plane to demonstrate that it could be fixed with a quick drop of the nose to increase airspeed. Thus, one might infer that all stalls are just that easy to fix. Not so.

There’s another type of stall that occurs at high altitudes, where the stall speed converges with the critical Mach speed — in other words, a stall in which the plane is going simultaneously too slow and too fast to maintain both lift and control. The conventional stall remedy of lowering the nose only exacerbates the problem. Little wonder, then, why this type of stall is called “coffin corner.” Escaping it requires rapid, dramatic and profoundly unorthodox maneuvers.

It’s not a stretch to say that the life insurance industry is in a stall. The industry has consistently issued roughly six million policies a year since 1995 and total premium has grown at an anemic annual pace. For the last 20 years or more, we’ve tried the traditional fix — increasing air speed — which, for us, means attempting to grow sales by lowering prices or increasing illustrated performance. The result has been that life insurance ownership is at its lowest in history. Why? I think a couple of simple explanations poke around the heart of the problem.

Think about how you purchase things on a daily basis. Is price your only consideration? I’ve come up with very few, if any, examples of things where price dominates decisions to buy outside of highly commoditized markets. Instead, most people buy based on value — defined as the benefit a product delivers over the price you pay. So why do we, in our industry, focus so much on price alone? The only explanation I can come up with is that we’re all woefully deficient in explaining the benefits and quality of our products to our customers. Little wonder why lowering prices appears to have no impact on overall industry sales. If we haven’t convinced consumers why they should want our product in the first place, why would lowering the price of it make any difference?

With the continued malaise in the price-oriented Guaranteed UL market, a lot of companies have started singing this tune as well and have transitioned to marketing their products based on illustrated performance rather than price. This is equally as confounding. Again, I think a simple question will explain why: Do you believe that life insurance illustrations are reliable predictors of actual future performance? Our history as an industry is a nearly unbroken chain of silver-bullet products sold on fantastic illustrations that have actually underperformed the projections. I’d argue that most customers usually rely on a blunter tool for ferretting out the real story, which is the old adage that if something looks too good to be true, it probably is. Should we, then, be surprised when selling products with ever more fantastical illustrations doesn’t actually grow sales? Marketing life insurance that way is probably doing nothing more than alienating carriers from our customers, other professionals and the real world.

So just what kind of stall are we in? If the usual fix doesn’t work, then we can’t be in the usual kind of stall. The way forward is necessarily a departure from the past and the only way we’re going to get there is to rethink some of the basic tenants of how we do business.

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Product

The way we usually talk about life insurance, focusing on price and performance, is the equivalent of talking about the newest smartphone in your pocket as a computing device that costs $549 with an A9 processor. The good stuff about the phone — the reason you bought one — is how it makes you feel and what it can do for you, not the technical details of what’s inside. That’s the area where we fail miserably as an industry. Our products are generally opaque, complex, intangible and inscrutable to the average consumer, maybe even the average financial professional. That’s a recipe for disaster in a world obsessed with transparency, simplicity, tangibility and understandability. We have to rethink our products from the ground up in order to meet those standards.

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Pay

Life insurance contracts are long-term, so why do we pay the vast majority of the sales compensation in the first year? I have heard many defenses for heaped commissions that all essentially boil down to “that’s the way it’s always been done.” The truth is that moving to a level commission structure will result in dramatically improved and simplified products and service for customers; more consistent returns for insurers; and steadier and more valuable practices for financial professionals. There is no material downside. It’s past time for our industry to make the transition. No excuses.

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Process

No other product or service requires a purchasing process as invasive, arduous and drawn-out as life insurance. It shouldn’t surprise us at all that financial advisors who usually sell investments and annuities shy away from life insurance. Does a customer have to pee in a cup and have their blood drawn to buy a mutual fund? Of course not. Technology already exists that can largely replicate underwriting decisions without traditional medical information. Why hasn’t our industry embraced it? Part of the reason is that agents and brokers are afraid of giving a client a rating and, therefore, a price, without knowing exactly how it was derived. Yet many other types of insurance do just that, and it doesn’t seem to bother those brokers or their customers. If we’re going to grow life insurance sales, we have to make it drastically easier to buy. The only way to do that is to relinquish a bit of control, and that seems like a pretty fair trade.

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The way forward

Escaping the industry’s stall, while also growing and thriving, is going to require rapid, dramatic and profoundly unorthodox actions. It’s going to require some really uncomfortable changes that will rattle the basic tenets of how we do business. The answers aren’t going to be easy, and discovering them will require adopting the mindset of the burgeoning early-stage tech sector, where experimentation, failure and limitless success are all integral parts of the business model.