Life Insurance & Annuities

In Search of Growth

Distribution dominates the 2015 strategic agenda

by Doug French

Mr. French is the managing principal of the Insurance and Actuarial Advisory Services within Ernst & Young LLP in New York. He can be reached at

Heading into 2015, prospects for the US life insurance and annuity sector are generally bright, with multiple reasons for optimism. As customers return to simplified, tax-deferred products, annuity sales have shown recent improvements.

Similarly, rising levels of consumer confidence and personal wealth, both driven by the ongoing economic recovery, give insurers and annuity providers a foundation to build on.

Yet, these opportunities are not evenly distributed across the industry. Breaking into underpenetrated markets with new products, strategies and advice models will challenge many companies. Intensifying competition is another concern, with new players developing new business models and market approaches to better align with customer expectations.

It’s clear that technological advances in underwriting, customer service and – especially – distribution will be required for tomorrow’s market leaders. It’s just as clear that the time to act is now.

Disruptions in distribution

Distribution priorities rank high on the strategic agenda for companies across the industry. In fact, it is no overstatement to say that most of the disruption in the life and annuity sectors will come from this area. The focus will be on expanding market opportunities. For instance, while the high net-worth market drives sales and attracts distributor attention, the unmet needs of the middle market offer a potential source of future growth.

The challenge for insurers is to execute an effective middle market strategy, without disrupting the industry’s mainstay business of serving high net-worth individuals and families. To put it more bluntly, the face-to-face retail model that has served the industry for so long is not well suited to the needs and preferences of today’s consumers (and potentially less so for tomorrow’s either).

Economic pressure has reached the point that more insurers now accept the need to fundamentally change the ways they interact with customers and how they offer advice in particular. That is why much effort will go to creating new digital “storefronts” to reach more diverse and demanding customers and distributors. Self-service capabilities will empower both constituencies and widen participation in voluntary marketing channels. The bottom line is that early adopting and forward-looking organizations have a real opportunity to seize competitive advantage by mastering distribution via digital channels.

New and repositioned distribution strategies are key to expanding market opportunities

Just as they have in other sectors, digital technologies will continue to alter consumer expectations and behavior in the life and annuity sectors. Industry observers have been making this claim for years, but there is an increased sense that the time has finally come. There is likely to be clear evidence of digital disruption in the near term as life and annuity providers expand beyond traditional distribution paradigms.

To do so successfully, they will reposition products to fit new distribution models and work to ensure they have the right technology and customer experience in place. As exemplified by shopping and purchasing trends in industries ranging from apparel to travel, more consumers are comfortable researching, shopping and buying directly through digital channels.

The financial services industry, including insurance, is no exception. Take automobile insurance as an example. More consumers buy coverage on the internet without the involvement of traditional insurance agents. (They are also submitting claims on their mobile phones, but that’s another story.) The purchase of health insurance has similarly moved in this direction, particularly with respect to the online exchanges created by the Patient Protection and Affordable Care Act.

There is nothing to suggest the move to digital channels will abate in insurance or any other industry. In fact, EY’s 2014 Global Consumer Insurance Survey addressed consumer readiness for digital channels. A notable 80% of respondents are willing to use digital and remote channel options for many tasks and transactions, ranging from research to purchase to updating information.

That figure includes life insurance, as well as a surprising proportion of seniors (44%) who are open to using digital and remote channels for all types of interactions. While conventional wisdom in the life insurance industry has long held that its products are too complex to be bought directly, there is ample evidence to the contrary from other financial sectors, whose leaders once believed much the same thing about their products.

Consider the widespread consumer adoption of online banking and investment services to manage their finances. In fact, many investment firms now offer online financial planning tools complementing more personal financial planning methods. Aggregator sites enable consumers to compare prices and products before purchasing insurance and annuity products.

Wearable technology

The increasing trend toward wearable tech devices, already seen in health and fitness, may also impact the insurance industry. These changes will likely shift the traditional role of insurance agents and advisors. To address the digital expectations of customers, tomorrow’s market-leading insurers will invest further in direct-to-consumer advice models, online marketing and self-service capabilities.

Focused testing of online sales, perhaps with some internal agent support, will be another ongoing effort. These investments will enable insurers to build competencies that may one day evolve into significant online distribution capabilities. To meet the expense of these distribution changes and respond to more price-conscious online consumers, insurers will re-evaluate their pricing margins and recalibrate compensation structures.

The need to adjust compensation may intensify, as various regulatory agencies settle their differences around fiduciary standards and advisor compensation. This expansion of the life-annuity distribution landscape will begin in force in 2015. To reduce costs and meet customer expectations, insurers will need to simplify products and reduce friction in the sales process. As they expand distribution beyond traditional agents, insurers will seek greater opportunities for competitive differentiation. There are two ways to achieve this: simpler products and a high-quality user experience (with easy and intuitive shopping and buying processes).

Digital becomes the new storefront

The full range of digital channels, including social and mobile, will continue to play a crucial role in insurer marketing, sales support, administration and customer service. Indeed, EY’s Global Insurance Digital Survey 2013, a survey of the digital practices of more than 100 leading US and European life and non-life insurers, indicated that most insurers are focusing their digital efforts in marketing (83% of respondents) and sales (78% of respondents).

The survey further demonstrates that insurers are as focused on improving and streamlining the processes around the purchase of life insurance as they are on designing and developing new products. Leading insurers with the best digital offerings are likely to outgrow their competitors, increase self-service capabilities, reduce business risk and enhance productivity.

On the distribution front, insurers must begin figuring out how to “digitize” the advice model – that is, provide access to guidance for consumers who need some help in figuring out the right life policy or annuity to purchase. Though many consumers are comfortable researching their options, an easy-to-use advice model may help close more sales through direct digital channels. Such an offering will be critical to serving the mid-market consumers who don’t possess enough assets to support the traditional model of compensation for agents or advisors they meet in face-to-face or retail settings.

The rapid pace of change in online access to insurance products challenges insurers in presenting a consistent digital customer experience. Insurers also have struggled with uneven data capture and sub-optimal analysis of consumer online activities. They will need to retool their digital and distribution strategies and systems to create a consistent omni-channel customer experience, breaking down product, customer and prospect data silos.

By delivering superior and uniform customer experiences across all digital touch points and effectively capturing and analyzing online consumer behaviors, successful insurers will achieve competitive differentiation in 2015. These factors are also important in that they support the aggregation of services. Increasingly, single companies are seeking to provide a broader range of financial services products – from banking and mutual funds to life insurance and annuities.

The success of these models – especially when they can be marketed to a “captive” customer base (i.e., via exchanges or through employers) – pose a significant competitive threat to standalone life or annuity players, with limited product lines and broad-based, retail distribution networks. As the line blurs between these product categories, the value of having an agile digital platform for marketing, distributing and serving customers increases dramatically.

The way ahead

The changes in life insurance and annuity distribution will be profound and have the potential to reshape the industry. More to the point, they are absolutely necessary for those that want to meet the needs of new customers in the middle-market space and take advantage of the potential efficiency gains offered by “digital-first” models. These are reasons for optimism in the life and annuity sectors.

But there is much work to be done for insurers to develop the technology platforms and digital experiences that will allow them to attract, advise, transact with and serve tomorrow’s customers. After all, those customers don’t think they’re disrupting when they take to digital channels to research and buy insurance and annuity products; they are just doing what comes naturally and using their preferred methods to buy the products they want and need.


The views expressed herein are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or the global EY organization.