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Spurring growth in the life insurance industry



The opportunities for growth are there, but only for those willing to undertake the right strategic initiatives while improving the effectiveness and efficiency of core activities.

For the past decade, the life insurance and annuities industry has struggled to find growth. Insurers have increasingly focused on the needs of affluent individuals, who tend to be more profitable—but increasing competition from adjacent sectors has cut into even the most successful insurers’ market share.

Further, insurers have been slower to integrate digital channels and need to resolve challenges of an aging workforce accustomed to traditional modes of selling.

Moreover, the industry continues to face strong headwinds including low interest rates, cost pressures, product focus shifts, changing customer behaviors, increased competition and new regulatory initiatives. These and other factors are forcing life insurers to rethink their approach to the market.

The news is not all bad. Interest rates are ticking up and the economy continues its gradual improvement. Change in consumer behavior has become the biggest threat to long-term, profitable growth.

The consumer’s path to purchase was once linear and confined to a single channel. Thanks to technology, that path is now dynamic, accessible, and continuous.

Buyers no longer enter and progress along one channel; rather, they move rapidly from one channel to another. Consumers have become more aware of, and more sensitive to price. When coupled with competing financial priorities, this has led to decreased levels of loyalty and trust.

Consumers have higher expectations for service and expect more transparency from service providers, especially when using online channels. The focus has switched from purchase to evaluation, with consumers constantly re-assessing their choices.

We have seen, across all age groups, increasing use of digital and social media along with mobile devices such as smartphones and tablets. Consumers are exposed to content beyond the brand’s control, and that content is more insistent and more influential. In this challenging environment, insurers need to quicken the pace of change and move forward on multiple fronts.

The opportunities for growth are there, but only for those willing to undertake the right strategic initiatives while improving the effectiveness and efficiency of core activities.

The Four strategies to spur growth

The challenge for life insurers is to tailor outreach to specific consumer segments, better prepare to help consumers respond to life’s milestone events, ensure that their company is part of the initial consideration set (ICS), and facilitate the process for evaluating and purchasing insurance.

On all counts, insurers, as an industry, have work to do. In their quest for growth, where should these insurers, especially those with captive distribution, focus their efforts? To capture the next horizon of growth for the industry, insurers should pursue these four interlocking strategies.

Lead with advice and redefine the life value proposition as ‘living’ insurance

For mass-market and middle-market customers, protection in case of death or injury is not on the list of top concerns.

Instead, their main priorities are achieving good financial health (for example, maintaining their standard of living or paying off debt) and planning for retirement (that is, ensuring they don’t outlive their savings).

To appeal more broadly to consumers and embed themselves at the center of clients’ financial lives, life insurance carriers need to redefine their value proposition around a holistic set of financial solutions focused on ongoing “living” benefits.

This shift will require changing the sales conversation to address the client’s overall financial goals and situation, redeploying product strategies focused on the longevity market, and tailoring products to individuals’ financial context.

In mortality, for example, carriers could offer a student loan rider to pay off debt first, reward healthy life choices by adjusting premiums, offer budget tools that help reduce expenses, and divert a portion of savings to increase coverage levels over time.

Catalyze demand through targeted outreach during trigger events

The research clearly demonstrates that engagement at the time of life trigger events is critical for both mass-market and middlemarket consumers—and financial advisers are essential to boosting purchasing rates.

Activities led by a financial adviser, such as devising a financial plan or performing a financial checkup, can increase the likelihood of sales to non-owners of longevity products by 1.7 to 2.4 times. Together, combining triggers with targeted outreach and engagement with a financial adviser increases the likelihood of purchase significantly.

The birth or adoption of a child combined with agent interaction can increase likelihood of purchase by 14 times over a baseline scenario. The second-most likely trigger event is the need to start supporting an adult relative financially, which combined with agent interaction increases purchasing likelihood by 10 times (Exhibit).

Carriers should invest in data management and predictive analytics to enable distinctive micro-targeting and identify the highestpotential consumers on the verge of life milestones. The following tactics demonstrate how these tools can provide greater visibility into consumers:

  • Use advanced analytics to build microsegments of consumers with the highest propensity to purchase, drawing on data from carriers’ existing customer bases, external data, and market research.
  • Identify the highest-value prospective customers in a region (by zip code or work location) and tailor campaigns for that particular segment.
  • Create targeted campaigns with microsegment value propositions across traditional channels (for example, phone, mail, and email) and digital (such as targeted mobile ads) to build brand awareness and further direct high-value leads to agents.

Embed the brand at the right time in the consumer decision journey

Carriers need to ensure they are included in the ICS for mass-market and middle-market consumers—which means they must prioritize digital marketing channels that can reach consumers where they consume information, thereby elevating their market profile and building their brand.

Understanding the most effective channels to boost awareness and ICS inclusion is the first step. Traditional advertising, such as print, radio, and television ads, is responsible for 15 percent of ICS inclusion.

Meanwhile, the internet accounts for 29 percent. Agent interaction is still important but costly (24 percent of ICS inclusion but almost twice as expensive as the cost of digital advertising for carriers).

Since our research found that many customers find online chat and videos to be nearly as helpful as in-person meetings with financial advisers, carriers should create and offer virtual education tools to support consumer engagement at a low cost.

Create a dynamic and seamless consumer experience, including m u l t i c h a n n e l distribution and engagement that does not rely on a human adviser Carriers have an opportunity to both delight consumers and generate superior economics through a multichannel engagement model that reduces reliance on in-person agent interactions by harnessing remote and digital capabilities to provide similarly consultative solutions.

Our research found that two-thirds of consumers want to be able to chart journeys across in-person, online, and virtual modes of interaction.

Consumers are increasingly comfortable gathering information from online and remote sources: more respondents prefer remote and online sources (36 and 35 percent, respectively) compared with in-person advice (29 percent).

The experience also needs to be tailored to different consumer types within the mass-market and middle-market segments. These consumers look fundamentally different from traditional, affluent customers in their starting knowledge around the industry, carriers and products, financial situation and needs, barriers, and preferences around shopping experience.

Carriers that delight consumers throughout the purchasing process and offer best-inclass service before, during, and after the sale could dramatically improve client experience and opportunities to deepen penetration with clients.

Making the transition from a predominantly in-person, agency-based distribution system to a portfolio of models, including digital direct and call center– based remote advisers, will require carriers to change the way they operate in several important areas.

Carriers often focus on the needs of advisers when building new capabilities, but in the future they will need to adopt a more consumer-centric mind-set and reorient their strategies and processes accordingly. Improving customer experience and engagement can also drive cross-sell and up-sell opportunities.

Existing customers are 2.5 times more likely to buy additional products within 12 months of their initial purchase and twice as likely to return to the same carrier.

In summary, growth has been a long-standing challenge for life insurers, and changing customer preferences—namely toward a multichannel, digital-enabled experience— have proved to be obstacles.

However, these changing behaviors represent an opportunity to rethink distribution in ways that meet the needs of consumers and address the economic challenges associated with traditional agentbased distribution.

Carriers that succeed will be well positioned to capture tremendous growth, improve profitability, and provide comprehensive solutions to consumers, many of whom are underserved today.

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How Much Life Insurance Should an Individual Carry?



Very few people enjoy thinking about the inevitability of death. Fewer yet take pleasure in the possibility of an accidental or early death. If there are people who depend on you and your income, however, it is one of those unpleasant things you have to consider. In this narrative, I’ll approach the topic of life insurance in two ways: First I’ll point out some of the misconceptions, then I’ll look at how to evaluate how much and what type of life insurance one needs.


Does Everyone Need Life Insurance?

Buying life insurance doesn’t make sense for everyone. If you have no dependents and enough assets to cover your debts and the cost of dying (funeral, estate lawyer’s fees, etc.), then it is an unnecessary cost for you. If you do have dependents and you have enough assets to provide for them after your death (investments, trusts, etc.), you still do not need life insurance.

However, if you have dependents (especially if you are the primary provider) or significant debts that outweigh your assets, you likely will need insurance to ensure your dependents are looked after if something happens to you.


Insurance and Age

One of the biggest myths aggressive life insurance agents perpetuate is “insurance is harder to qualify for as you age, so you better get it while you are young.” To put it bluntly, insurance companies make money by betting on how long you will live. When you are young, your premiums will be relatively cheap. If you die suddenly and the company has to pay out, you were a bad bet. Fortunately, many young people survive to old age, paying higher and higher premiums as they age (the increased risk of them dying makes the odds less attractive).

Insurance is cheaper when you are young, but it is no easier to qualify for. The simple fact is insurance companies will want higher premiums to cover the odds on older people, but it is a very rare that an insurance company will refuse coverage to someone who is willing to pay the premiums for their risk category. That said, get insurance if you need it and when you need it. Do not get insurance because you are scared of not qualifying later in life.


Is Life Insurance an Investment?

Many people see life insurance as an investment, but when compared to other investment vehicles, referring to insurance as an investment simply doesn’t make sense. Certain types of life insurance are touted as vehicles for saving or investing money for retirement, commonly called cash-value policies. These are insurance policies in which you build up a pool of capital that gains interest. This interest accrues because the insurance company is investing that money for their benefit, much like banks, and are paying you a percentage for the use of your money.

However, if you were to take the money from the forced savings program and invest it in an index fund, you would likely see much better returns. For people who lack the discipline to invest regularly, a cash-value insurance policy may be beneficial. A disciplined investor, on the other hand, has no need for scraps from an insurance company’s table.


Cash Value vs. Term

Insurance companies love cash-value policies and promote them heavily by giving commissions to agents who sell these policies. If you try to surrender the policy (demand your savings portion back and cancel the insurance), an insurance company will often suggest that you take a loan from your own savings to continue paying the premiums. Although this may seem like a simple solution, keep in mind that if the loan is not paid off by the time of your death, it will be subtracted from the death benefit.

Term insurance is insurance pure and simple. You buy a policy that pays out a set amount if you die during the period to which the policy applies. If you don’t die, you get nothing (don’t be disappointed, you are alive after all). The purpose of this insurance is to hold you over until you can become self-insured by your assets. Unfortunately, not all term insurance is equally desirable. Regardless of the specifics of a person’s situation (lifestyle, income, debts), most people are best served by renewable and convertible term insurance policies. They offer just as much coverage, are cheaper than cash-value policies, and, with the advent of internet comparisons driving down premiums for comparable policies, you can purchase them at competitive rates.

The renewable clause in a term life insurance policy allows you to renew your policy at a set rate without undergoing a medical exam. This means if an insured person is diagnosed with a fatal disease just as the term runs out, he or she will be able to renew the policy at a competitive rate despite the fact the insurance company is certain to have to pay a death benefit at some point.

The convertible insurance policy provides the option to change the face value of the policy into a cash-value policy offered by the insurer in case you reach 65 years of age and are not financially secured enough to go without insurance. Even if you are planning on having enough retirement income, it is better to be safe, and the premium is usually quite inexpensive.


Evaluating Your Insurance Needs

A large part of choosing a life insurance policy is determining how much money your dependents will need. Choosing the face value (the amount your policy pays if you die) depends on:

  • How much debt you have. All of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover your debts (and possibly a little more to take care of the interest as well).
  • Income replacement. One of the biggest factors for life insurance is for income replacement. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. To err on the safe side, assume that the lump sum payout of your policy is invested at 8% (if you do not trust your dependents to invest, you can appoint a trustee or select a financial planner and calculate his or her cost as part of the payout). Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Once you determine the required face value of your insurance policy, you can start shopping around. There are many online insurance estimators that can help you determine how much insurance you will need.
  • Insuring others. Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children cost money to raise. The death of an income-earning spouse, however, does create a situation with both emotional and financial losses. In that case, follow the income replacement calculation we went through earlier with his or her income. This also goes for any business partners with which you have a financial relationship (for example, shared responsibility for mortgage payments on a co-owned property).


Other Ways to Calculate Your Needs

Most insurance companies say a reasonable amount for life insurance is six to 10 times the amount of annual salary. Another way of calculating the amount of life insurance needed is to multiply your annual salary by the number of years left until retirement. For example, if a 40-year-old man currently makes $20,000 a year, under this approach, the man will need $400,000 (20 years x $20,000) in life insurance.

The standard of living method is based on the amount of money the survivors would need to maintain their standard of living if the insured died. You take that amount and multiply it by 20. The thought process here is the survivors can take a 5% withdrawal from the death benefit each year (which is equivalent to the standard of living amount) while investing the death benefit principal and earning 5% or better.


Alternatives to Life Insurance

If you are getting life insurance purely to cover debts and have no dependents, there is another way to go about it. Lending institutions have seen the profits of insurance companies and are getting in on the act. Credit card companies and banks offer insurance deductibles on your outstanding balances. Often this amounts to a few dollars a month and in the case of your death, the policy will pay that particular debt in full. If you opt for this coverage from a lending institution, make sure to subtract that debt from any calculations you are making for life insurance—being doubly insured is a needless cost.




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