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Glass half full: seismic shifts in the life insurance industry

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It is not coincidental that LIMRA recently released a study indicating that 30 percent of U.S. households lack life insurance coverage at the same time that MetLife announced its decision to spin off its sputtering life insurance business.

This was a landmark decision. MetLife started out as a life insurance firm in 1860, but it is this unit that is being spun off as Brighthouse Financial.

Related: A brief history of life insurance

Both are red flags because life insurance serves multiple purposes. Up until the 1980s, it was seen as a must-buy product for all consumers.

It is also a pocketbook issue. Consider that membership in the National Association of Insurance and Financial Agents (NAIFA) has dropped from approximately 144,000 agents in the mid-1990s to roughly 38,000 today. The organization’s shrinking enrollment coincides with the disappearance of a former industry staple: the door-to-door agent who collected weekly or monthly, or the so-called industrial agent.

Marvin Feldman is president and CEO of Life Happens, the Arlington, Virginia-based non-profit affiliated with NAIFA. He said the industry is well aware of its problems.

During a recent interview, Feldman referenced an industry event earlier this year where MetLife officials spoke about life insurance sales now constituting only 20 percent of company revenues, while an official from Lincoln Financial indicated that life insurance represented only about 40 percent of that company’s business.

“We need to come up with viable solutions, but that is going to take a long time and some trial and error,” said Feldman, who believes that industry compensation practices played a role in the problem.

“Companies don’t hire insurance agents anymore,” he said. “The psyche of the advisors is that it is it is much easier to sell investment products.”

Feldman also acknowledged that the life insurance industry tends to be slow and methodical in its decision-making.

“There are going to have to be various changes, and the industry will survive,” he said. “But how it will survive (and) what form it will take, remains to be seen.”

Snoopy served as MetLife's coporate mascot from 1985 through 2016. (Photo: iStock)

Snoopy served as MetLife’s lovable corporate mascot from 1985 through 2016. (Photo: iStock)

Consider MetLife’s significant recent rebranding. Snoopy became MetLife’s mascot in 1985. But now Charles Shultz’s fun-loving beagle is being phased out because, as Feldman said, it was “aimed at consumers.”

MetLife’s new branding will likely be aimed at clients that are corporations, not consumers.

Some possible solutions that may help change the momentum in the life insurance business include introducing revolutionary distribution models, and simplifying the buying and underwriting processes.

“The industry has to look at the current, low interest environment, how this is going to impact products, (and) how they are going to redesign the product,” Feldman said. “Because if consumers don’t like the product, they are not going to buy it.”

The industry also must reestablish the notion that life insurance is a financial staple. Good for more than just death benefits, consumers may need reminding that life insurance also can provide retirement income, and that the government provides a huge tax incentive for people who buy it. This goes back to the early Twentieth Century, when a devastating flu epidemic took a bite out of the American workforce, and spurred the government to provide a tax incentive to encourage consumers to purchase life insurance.

But clearly consumer thinking has shifted in the last century.

LIMRA found that one in five households with children under age 18 are uninsured, according to its 2016 study. This amounts to 3.7 million fewer households with life insurance than the 2010 results. 

The study also found that the average amount of coverage owned, and the average household income replacement ratio, have decreased over the past 12 years, leaving many households underinsured. Researchers estimated that 48 percent of households (60 million) have an average life insurance coverage gap of $200,000, which amounts to more than $12 trillion in total market need.

The good news is that insurance companies still believe in the viability of insurance products. With the phase-in of the Department of Labor fiduciary standard rule looming next April, industry officials are aware that they must re-emphasize their traditional, risk-based products — like life insurance.

See also:

Racing to insure: 8 questions for LIAM’s Danica Patrick

LIMRA: Social media wins the business marketing race

LIMRA study reveals importance of agents

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