The pandemic has exposed the weak financial foundations of American families. Emergency funds have been depleted, retirement funds prematurely accessed, the lack of individual, non-employer based life insurance protection exposed and the politically charged availability of government provided safety net benefits made clear for all to see.
Most families have come to the realization that they cannot depend on the government to be the last resort protector for their major financial risks.
This is where expanded, more easily accessed private sector solutions are needed. The insurance industry can provide solutions to help minimize or eliminate many of the personal financial risks Americans face. This can only be done, however, if consumers can have wider and better access to the industry’s products and services. In so many ways our current business practices and regulatory framework have a post-World War II look and feel to them.
Despite growing consumer needs for protection and retirement solutions, industry sales of life insurance and annuity products has been stable to declining for decades. New individual life insurance sales do not usually grow at the rate of GDP increase or in excess of the rate of inflation. At the same time individual life insurance ownership continues to decline year after year.
Recently, the pandemic has increased consumer demand for protection products, which is long overdue. The industry’s retirement offering of annuity products has suffered a similar fate with new sales remaining around the quarter of trillion dollar level for a decade.
However, if you really look at new money sales (not including 1035 exchanges), I think we would all be surprised at the amount of new money flowing into the annuity industry. This is occurring at a time when protected lifetime income and tax deferral are more important for consumers than ever before.
So what can be done to expand the industry’s sales pie? Here are eight ideas.
1. Financial Education
We mandate more training to get a driver’s license than we do to manage our personal financial affairs. Most Americans of all ages do not understand the basics of personal financial management. Mandated and expanded financial education is obviously needed. A consumer will not look to purchase a financial protection product if they do not understand the risks they are protecting against.
2. Regulatory Rebuild
We have a state-based regulation system that needs a shot in the arm to promote innovation and creativity. How can the industry deliver Fourth Industrial Revolution solutions when dealing with an underfunded and overworked regulatory framework?