The Latest Data, Evolving Business Models, Challenges And Opportunities
To borrow from Bob Dylan, for life insurance carriers, brokerage general agencies (BGAs), brokers and agents, The times, they are a-changin. Based on the research and findings of leading business consulting groups, research firms, industry associations and insiders, the past few years have ushered in new industry dynamics reflected in many trends already underway in 2022 and will impact the industry in 2023 and beyond. According to S&P Global Market Intelligence’s US life outlook 2023, last year the U.S. life industry experienced a 3.4 percent increase in combined individual and group life insurance premiums year over year for the first nine months of 2022. In fact, LIMRA and the National Association of Independent Life Brokerage Agencies (NAILBA) reported that BGAs and independent marketing organizations (IMOs) had increased revenues in 2022 over 2021, with 50 percent of these intermediaries reporting 2022 revenues of $5 million or more compared to 35 percent in 2021.
While LIMRA’s Corporate Vice President and Director of Insurance Product Research, Elaine Tumicki, projected 2023 life insurance sales to be “flat to down,” the year ahead is not without its opportunities for insurance professionals. Beyond those introduced through digital transformation, consumers’ awareness of the need to take greater responsibility for their financial security and not rely on government programs is growing. There are strategies that can be deployed to capture new markets, extend sales with existing customers, and leverage industry partners, resulting in increased revenue. Gaining greater insight into today’s market will help BGAs, brokers and agents position themselves for a strong 2023.
Navigating Today’s Life Insurance Landscape
Consider what has not materially changed within the life insurance industry over the past year. McKinsey & Company reports that:
- Nominal GDP growth at a Compound Annual Growth Rate (CAGR) of four percent continues to outpace premium growth with its CAGR of two percent.
- The industry continues to struggle to generate returns in excess of the cost of capital, as well as to revise their performance in order to lift themselves out of the bottom performance quintile where many have languished for a decade.
- Carriers have not yet addressed their cost base from a structural standpoint such that, since 2003, their costs as a share of revenues have increased.
The industry is feeling the effects of the pandemic, not to mention rising inflation and related inflation-driven pressures on disposable income as well as rising interest rates. With that said, there are expectations that there will be a turnaround in 2023 assuming easing of inflation and interest rate pressures. In its Sigma 4/2022 World insurance inflation risk, front and centre, Swiss Re predicted global life insurance premiums to increase an estimated 1.9 percent.
The Haves and Have Nots
Currently in the U.S., an estimated 106 million Americans lack life insurance or have inadequate life insurance coverage according to LIMRA’s and Life Happens’ 2022 Insurance Barometer Study. That same study found that 68 percent of life insurance owners said they would be financially secure if their households’ primary wage earner was to suddenly pass away. This is in contrast to just 47 percent of non-life insurance owners who felt this way. LIMRA’s 2022 data shows the life individual market share breaking down as follows:
- Brokers, broker-dealers, personal producing general agents, and registered investment advisers: 50 percent.
- Agency building, multiline exclusive and home service agents: 39 percent.
- Remaining 11 percent of market share going to direct response marketing efforts with no agent involvement, and financial institutions, worksite, and other channels.
Gaps in insurance are evident in two distinct markets—women and black Americans. Notably, LIMRA reports that the life insurance ownership rate for women is actually declining, having dropped 10 points to 47 percent. This is due largely to their lack of knowledge and related misconceptions (e.g., that it is too expensive) about life insurance when compared to men. LIMRA’s studies also found that 56 percent of black Americans own life insurance and that many of these individuals recognize its valuable role in protecting their families. Still 46 percent of black Americans also realize they need to purchase life insurance or buy more coverage. Like many women, a majority (75 percent according to LIMRA) of black Americans overestimate the cost of life insurance and also hold the misconception that they would not qualify for coverage. Clearly, each of these markets where insurance coverage is lacking represent opportunities for insurance professionals.
From a geographic perspective, there are some states in the nation where life insurance sales are particularly low compared to other states. According to the American Council of Life Insurers, the states/district with the lowest individual life insurance ownership include Alaska, Delaware, the District of Columbia, Hawaii, Idaho, and Maine. Those with the lowest group life insurance ownership include Alaska, Arkansas, Hawaii, Idaho, Iowa, and Maine. For insurance professionals serving these regions, there are untapped market opportunities to capture.
A survey by Forbes found that less than one in five U.S. adults is covered by both an employer-based life insurance policy and a personal life insurance policy. Approximately one in four American adults are covered only by an employer-based life insurance policy. Therefore, selling voluntary life insurance policies at the worksite presents another sales opportunity for insurance professionals.
Opportunities and Challenges
In addition to capturing untapped or underserved markets, insurance professionals have an opportunity to leverage current market trends. Chief among these are:
- Utilizing advanced digital and online capabilities to increase productivity and improve customer engagement and service. Digitalization is also effective in capturing sales with the younger “digital native” generations who value online capabilities in their product/service providers.
- Partnering with professionals in aligned fields (e.g., estate planning attorneys, wealth managers, financial planners, bankers, other insurance professionals) to expand one’s network.
- Considering creating partnerships whereby life insurance products can be embedded in other product/service sales such as opening a bank account.
- Anticipating Environmental, Social and Governance (ESG) to win over socially conscious consumers who value doing business with organizations that show a commitment to protecting the planet, social causes, and workforce diversity and inclusion.
Along with leveraging these market opportunities, insurance professionals will need to be proactive in order to mitigate ongoing challenges that include:
- Capturing and converting sales leads not only by targeting underserved markets, but also by following best practices in sales follow-up, customer engagement and ongoing communications.
- Overcoming consumers’ lack of financial literacy, specifically as it relates to life insurance misconceptions, by being fully transparent with them and taking the time to educate them on policy features and terms, both during in-person meetings as well as through online information and product videos.
- Mitigating increasing cybersecurity threats by ensuring that your information technology systems and customers’ sensitive personal data are fully-protected by contracting with a third-party cybersecurity service provider that can provide cyber threat penetration testing, vulnerability assessments, remedial measures for detected threats, advanced technologies, employee education and training on best practices, review of incident response and business continuity plans, and ongoing information and monitoring for the latest threats.
While it is true that marketing life insurance today in an environment of shifting models, increasing economic pressures, the demand for digitalization, and an underlying lack of consumer understanding of life insurance and its value proposition is not for the faint-hearted, those with the inclination to evolve along with the industry are most likely to succeed.