How will the life-insurance industry survive?
by Bob GaydosMr. Gaydos is the Founder and CEO of Pendella where he leads a team of innovators in the insurance industry, automating the underwriting process through AI and big data.
For those who work in life insurance, it’s no secret that the industry has faced major challenges the last few decades. In many ways, life insurance has simply lost a lot of its appeal both for consumers as well as those working in the field.
For instance, from the consumer perspective, there is a widely held belief that life insurance is too expensive, even though the average cost of a life insurance premium per U.S. household is less than $100 a month. Just 50 percent of Americans have either a group or individual life insurance policy. This is a marked difference from just three years earlier when 57 percent of Americans were policy owners, a decline that’s been ongoing since the 1980s.
For insurance agencies, declining customer numbers coupled with the rising costs of traditional underwriting processes and the need to digitize their operations have made it very difficult to turn a profit selling life insurance. According to a recent McKinsey survey, life insurers failed to profit from the most recent bull market, and the growth of premiums is struggling to match GDP. This situation is bound to grow worse with the current downturn that markets are facing around the world. Given this bleak picture, it’s no surprise that 90 percent of new insurance agents quit within the first year.
All this raises a large question: how can the life insurance sector invigorate customers and save the market from further decline? As it turns out, the answer is staring everyone in the face – closing the gap between the agents who sell individual policies and benefits brokers who provide group insurance to employees.
The Broker’s Role
Insurance agents and brokers are both vital players in helping customers secure the best policies for them. While these titles are often used interchangeably, there are key differences. For instance, agents represent the insurance companies themselves: picture the door-to-door salesman going directly to the consumer. Often these agents would be people from the community whom the buyers would already know and trust.
By contrast, brokers work directly with employers. Many businesses engage what are called “benefits brokers,” licensed insurance professionals who specialize in creating customized benefits packages for employees at an organization. They tend to work alongside employees in the same organization and have access to vast amounts of employee data that can be useful for policy underwriting.
But here’s the thing. Benefits brokers primarily provide group life insurance policies, not individual policies. Group policies tend to be low-cost and, unbeknownst to most employees, often provide insufficient coverage. Most group policies would barely cover a year and a half’s worth of a loved one’s salary, which is woefully insufficient for a family that’s just lost the breadwinner.
Even worse, group policy benefits don’t transfer when an employee leaves an organization, which means if you were to suffer a fatal accident one day after leaving your job, your family would get nothing. Zip. Nada. What’s more, consumers often have no idea how to supplement their group coverage to truly protect their families, which prevents them from looking for alternatives.
Nevertheless, it should be clear to everyone that brokers are in the best position to educate individuals about how to supplement their group life insurance policies. That task has grown a lot easier in recent years thanks to new tech developments.
New Insurance Tech
As in almost every industry over the last few years, there have been huge technological changes in the life insurance sector that have changed both customer expectations and how the insurance industry operates. For instance, according to LIMRA and its 2022 Insurance Barometer Study, there’s been a massive shift in consumers preferring to shop for life insurance online. In fact, there’s been a 29 percent increase in this online purchasing preference in the last six years alone. This shows that customers are now more comfortable than ever with online self-service, especially after their experiences during the pandemic.
At the same time, the insurtech sector has really taken off as companies rush to provide digital services aimed at improving the standard insurance model. Some of the benefits that insurtech is already bringing to the table include digital channels that allow for a faster and more streamlined online policy transaction experience.
But the greatest benefits from insurtech lie in big data and AI analytics, which allow insurers to quickly work out a customer profile, decide on a suitable risk class and form a pricing model all in a matter of minutes. A near-instant underwriting process will mean not only a greater level of customer satisfaction but also time and cost savings for insurers.
However, with all these tech developments, it’s no wonder that agents have felt the impact. In fact, 50 percent of insurance agents admit that they have struggled to keep up with the advancement of technology. Therefore, providing training for how agents should operate in a digital landscape should be a top priority for every insurance company going forward.
But even a highly digitized business operation won’t do much good for insurance agents who can’t find or connect with a customer base averse to purchasing individual life insurance. That’s where benefits brokers come in.
Bridging The Gap
Since benefits brokers have a closer relationship with employees, and better access to data that can be used for near-instant digital underwriting, they present the missing link that can connect insurance agents with new customers. As such, agents should reach out to brokers and pitch them on individual life insurance policies that can be offered to employees as a supplement to their group coverage.
Having someone on the ground who can provide in-person advice to customers can make all the difference, because even as online insurance purchasing becomes the norm, customers still prefer to talk with a real person before making any final decisions.
In addition, agents and brokers should aim to work more closely together in sharing key customer data that can be helpful in designing new policies that target specific demographics. Increased automation of insurance practices will also be important, with the broker stepping in to provide the more personalized service that a machine cannot.
The life insurance market is clearly in a state of flux. Amid the backdrop of shifting consumer habits and the emergence of insurtech, it’s quite a challenging time to be working in the insurance sector. But it’s also a time that is rife with opportunity for those who recognize the underlying problems and how to fix them.
For both agents and brokers, bridging the gap that lies between them will not only allow them to reach new customers but may also ensure the survival of the life insurance market.