Closing the U.S. Life Insurance Coverage Gap
The life insurance coverage gap has been growing over the past several decades. Today, there are 102 million uninsured and underinsured Americans. David Levenson, president and CEO of LL Global and Neil Sprackling, president of Swiss Re’s Life & Health US Business, discuss current and future trends.
Consumer interest in life insurance surged due to the pandemic with 31% saying they more likely to buy life insurance due to COVID-19. Do you think this level of consumer interest will continue throughout 2021 and beyond?
David Levenson: If history is a guide, we will see increased consumer interest in life insurance persist for at least a couple of years. According to data collected from three of the largest Mutual insurance companies, policy sales increased well into the early 1920s following the Spanish Flu pandemic of 1918. I believe the challenges of COVID-19 will result in more Americans ensuring that they have the right amount of life insurance as they plan for their financial futures. But, realistically, the more distant the thoughts of the pandemic become, the more consumer demand will wane.
Prior to the pandemic, consumers were more concerned about saving and planning for retirement, paying down debt and covering basic living expenses than they were about life insurance. While all of these financial goals are important, one cannot underestimate the financial toll of a wage earner dying unexpectedly to a family’s financial wellbeing. Our 2021 Insurance Barometer Study finds 42% of American households would face financial hardship within six months should a wage earner die, and 25% would struggle financially within a month. With nearly 600,000 lives lost due to COVID, the hypothetical has shifted to a reality for far too many Americans.
Neil Sprackling: On the sales side, looking forward, one would naturally assume that life insurance sales should increase once the pandemic has waned. When employment is more secure and lockdowns and social distancing are a thing of the past, agents and financial advisers can return to face-to-face meetings. When you combine this traditional interaction with the pandemic-driven willingness to purchase life insurance digitally, I believe we may see a significant increase in sales. In years to come, we may look back at this moment as the beginning of a historic shift, where life insurance finally began to be more valued by customers as a way of providing them with the protection they need.
After 9/11 the uptick in sales proved to be short-lived. With the pandemic I see the increase in sales as being more sustainable. Digitally driven D2C channels are demonstrating their value, however, it goes deeper than this as we are seeing evidence of more established brokers and agents finding the process easier and more streamlined to get consumers underwritten and cover in place. This includes intermediaries who may have previously focused more on investment or retirement products.
COVID-19 disrupted many industries, including life insurance. Can you discuss how life insurers and distribution responded and do you think the changes they implemented will be maintained post-pandemic?
David Levenson: No other event in recent memory has had such a fundamental impact on the economy and the broader financial services industry as the coronavirus pandemic. Pre-pandemic, life insurers and distributors were leveraging technology to better engage consumers through social media, video conferencing and improved processes like automated/accelerated underwriting to make it easier and faster for people to buy the life insurance they need. COVID-19 accelerated and expanded these efforts not only to address these immediate business continuity needs, but also to realign companies’ go-to-market strategies to meet the customers’ evolving expectations.
Even as people get vaccinated and our day-to-day lives return to some level of normalcy, we expect these changes will likely become permanent for many companies. In fact, a new survey LIMRA conducted with McKinsey & Co finds 7 in 10 companies plan to increase their digital investments for virtual sales capacities for agents and advisors and digital applications over the next year, and 6 in 10 plan to invest more in customer decision support tools and e-delivery.
The pandemic has not only raised awareness and demand for life insurance among consumers. It also increased the industry’s awareness of the need for an engaging digital experience to better serve today’s consumers.
Neil Sprackling: From an operational view, we hit the fast track button as an industry. I think we have shown that we are much nimbler and can implement new ways of doing business and technology much faster than one would have predicted before the pandemic. Many of us had no choice but to learn different ways of working and I can’t see us going back to the old ways. Thankfully Swiss Re had a well-established “Own the Way You Work” program, and like many companies, we were able to quickly transition thousands of employees around the world to be actively and effectively working from home. Our IT teams and technology platforms allowed for a seamless transition and we’ve remained fully operational. Amazingly enough, despite not being able to see our colleagues or clients in person, we have somehow deepened our professional relationships in a way that would probably never have happened. With video calls from home you get an even deeper insight into people’s lives as we chat from our living rooms, dining rooms and basements!
Despite the increased awareness about the importance of life insurance, life insurance ownership fell to its lowest level in 2021. What can the industry do to get more people to take the steps to purchase they need?
David Levenson: Consumers’ general lack of knowledge about life insurance is the primary reason why people may not be properly insured. The concerns range from not knowing who to consult for help to more granular misperceptions like the cost of insurance or how the insurance process works. Our 2021 Insurance Barometer study shows that just 1 in 3 Americans believe they are very knowledgeable about life insurance.
As an industry, we have 330,000 life insurance licensed financial professionals. We certainly need to ensure that these financial professionals have the right tools, training and resources to properly educate and engage consumers. But we also need to attract a lot more people to our profession given the challenge to meet the growing consumer need.
Neil Sprackling: Consumers are more conscious of what they buy and more focused on obtaining value from purchases. Since other than compulsory lines, insurance is not typically considered an essential purchase, insurers can increase the appeal of products by adapting to changing customer experiences and expectations. This is not just at the point of sale, but rather about developing an on-going relationship with the customer and delivering real value through their lifetime.
Bundling additional services with core insurance products may increase value for consumers. A Deloitte report from prior to COVID-19 estimated that by 2024, 61% of insurers will generate more than 30% of business from service-based rather than product-based offerings, and 33% of premium will come from new propositions. Insurers will need to identify the services of most interest to customers and find ways to integrate them to make the offering meaningful.
Well before the pandemic, 8 in 10 life insurers were adopting or planning to implement automated underwriting to lower costs, improve efficiencies and better serve their customers. What technologies are helping to advance these efforts and what do you see in the future?
David Levenson: Historically, the process of buying life insurance has been cumbersome. Consumers have experienced delays due to medical exams, significant paperwork and long turnaround times to get an underwriting decision. In recent years with the advances in technology, life insurers are progressively moving to accelerated underwriting with rapid decisions. This is an important and exciting step forward for the industry.
Neil Sprackling: For life insurers, COVID precautions and restrictions meant that underwriters had to adapt quickly, finding new ways to gather health information in the absence of physical interactions. This is accelerating trends we were already seeing in underwriting and trends we at Swiss Re were already working on to help our insurance partners. This includes looking for new ways to identify and understand risk using new forms of data and news ways to assess, automate and streamline the process.
We have supported the use of digital health records, extensions of digital sales platforms and the expansion of underwriting methods that reduce or eliminate the need for face-to-face interactions. We’ve been building out our Magnum Automated Underwriting suite of solutions to make this easier for all insurers – those just looking to begin automation to those working on improving product design or continuously optimizing processes. Recently, we announced our partnership with Diameter Health. Through this exclusive partnership, Swiss Re breaks through one of the most difficult challenges our clients have identified: the need to be able to use electronic clinical health data that now comes in the forms of more than a million different codes and sometimes hundreds of different ways to express one specific health issue.
According to new LIMRA survey, three quarters of life insurance executives believe the pandemic has shifted consumer expectations, increasing the appetite for digital shopping and self-service models. How will this impact life insurers and distribution?
David Levenson: During the pandemic, we learned that digital options can and should be part of the equation for selling life insurance. While I believe face-to-face channels will continue to thrive, they will become more digital in nature, as financial professionals use digital tools to engage and service their prospects and clients.
Direct-to-consumer and other forms of online distribution will also play growing roles in how consumers learn about, purchase, and use life insurance. Life insurers will need to optimize — and in some cases modernize — their operations to successfully leverage new technologies and analytics and help them create easy-to-use, engaging platforms that will also drive efficiencies and profitable growth.
Neil Sprackling: COVID-19 has accelerated the scope and reach of the shift to digital, from shopping and eating to entertainment, financial services, fitness, education and more. An FIS Global survey revealed that 58% of US consumers indicated that they were spending more money online; 27% had subscribed to at least one new digital streaming service and 42% had purchased more via mobile devices.
We know digitization will be a driving force for decades to come and the pandemic has accelerated this trend. To take advantage of the digital wave, insurers should go beyond digital distribution and digitize the entire value chain in order to issue, underwrite, collect and indemnify in a customer-centric process.
A big challenge ahead of us is for our industry to evolve not only its systems, processes, and tools, but also our work force. We need to evolve with new processes, systems, and skill sets to meet shifting consumer demands.
Can you talk about the Help Protect Our Families campaign – who is involved, what is mission and what has been accomplished thus far?
David Levenson: The Help Protect Our Families campaign is a year-long effort to raise industry awareness about the life insurance coverage gap in America. Today, 52% of Americans have life insurance coverage, the lowest level we have seen since we began tracking ownership in the United States. There is also a substantial number of Americans who are underinsured, leaving their families at risk.
COVID-19 reawakened consumers’ awareness about the value of life insurance. In fact, our research shows that 31% of Americans say they are more likely to purchase life insurance within the next 12 months because of COVID-19. We believe our industry has an opportunity and responsibility to address the coverage gap and help more Americans get the life insurance they need to adequately protect themselves and their loved ones.
LL Global partnered with seven other trade associations and more than 70 life insurers and distributors to help change the trajectory of life insurance ownership in the U.S. There are 102 million uninsured and underinsured Americans who believe they need or need more life insurance. This campaign, unlike any other I have witnessed in my 30-year career, has brought together the industry in a remarkable way for the single purpose of helping families protect their financial security.
Neil Sprackling: I believe it is the insurance industry’s responsibility to close the protection gap to boost societal resilience. I have been saying this for over a decade and it is now becoming a reality. The COVID-19 pandemic highlighted the value of life insurance, especially with income losses due to lockdowns. I’m thrilled to be a part of the Help Protect Our Families campaign. It’s a unique opportunity for insurers, distributors, and reinsurers to work together on increasing awareness, affordability and accessibility of our life insurance mortality products to achieve this common goal.