Sluggish sales trends in the life insurance and annuities sector beg the question: Will life insurance and annuities as we know them be relegated to niche products one day? Are they not already there, so far as consumers are concerned?
Nasty, ugly thoughts unwelcome at the tail end of the splendid summer months. To be sure, musings that may even stretch credulity given the billions of dollars’ worth of life insurance and annuity sales every year.
Yet - still an idea worthy of more than passing contemplation in the eyes of actuary MaryPat Campbell. Campbell is vice president of insurance research with Conning & Co. and author of a recent report on life insurance, annuities and consumers.
When it comes to consumers, life and annuity carriers are in competition with other segments of the financial services industry: broker/dealers, online traders and mutual funds, for example.
Those segments are really good at grabbing consumer wallet share. This is either because consumers find it convenient to do business with Merrill Lynch, ETrade or Vanguard, or because these companies react more quickly to what consumers want and how millions of people do business.
“They (carriers) are in competition with other financial services - period. Not just with younger people but with older people as well,” she said.
Consumers, who are so used to buying from Amazon Prime or the online channels of established retail brands or chains, simply don’t understand why they can’t do the same with life and annuities, Campbell said.
There are all sorts of reasons why this is the case.
Why Is This So Complicated?
The sales cycle is long, the tail on the product drags on for 30 or 40 years, regulation goes on forever, products are complicated, annuities don’t easily lend themselves to a digital world, life insurance is a “one-time” sale of rigid units of $100,000 or $500,000 limits, there’s little or no flexibility in the product.
Low interest rates are another reason for sluggish growth in the life insurance and annuity sector.
True enough, but subsegments of the industry indicate that change is uneven, which implies that excuses about why the industry isn’t growing very much only go so far.
Some property/casualty carriers re-price their coverage at six-month intervals and consumers can bind policies online — no paperwork required.
Consumers Want It Now
Why is it that when consumers click on an ad for a life insurance policy, a message invites them to call a 1-800 number, Campbell asked. Why are insurance companies telling consumers to stand pat while an agent gets back to them?
“Adults 20 or 30 years old, they don’t want to talk to people on the phone, they want to text. They don’t want to talk to a voice,” said Campbell, author of the report titled Life-Annuity Consumer Markets 2015, published last month.
Campbell said she often finds herself on airplanes explaining to people the difference between term life and permanent life. But everybody seems to know what mutual funds are, at least that’s the view from the consumer trenches.
“Understanding and awareness of mutual funds is widespread into relatively young ages,” Campbell said, as any extra money for savings are usually funneled into a fund of some kind, not an insurance policy.
Insurers should remember that mutual funds were once considered “complicated,” she said. How complicated are they now?
Even annuity carriers, which sell the only products “guaranteed” to deliver income, may want to look over their shoulder at “drawdown” mutual funds.
Drawdown mutual funds may not have the guarantee seal of an annuity. But if drawdown funds are easier for consumers to understand, buy and invest in, are consumers likely to side with their mutual fund choices, or with an annuity?
For life and annuity carriers, which sell through financial advisors and distributors, the consumer is the advisor or the broker/dealer, not the policyholder. That was OK — in the closing decades of the 20th century.
But in the 21st century, competing financial services companies are prepared to do anything to grab wallet share and that’s what life and annuity carriers are up against, Campbell said.
Carriers Must "Get" Consumers
For carriers, it’s critical to understand how consumers perceive the industry’s products and services.
For every carrier that “invites” a consumer to speak with an agent or print out a policy, there is a retail buyer who perceives the gesture as a signal to move on. Offering consumers to print out a document yields one more excuse for consumers to click away, opening the door to a broker/dealer or online trader.
With fewer Generation Xers to replace dying baby boomers, life insurers may not have as much time as they think they have to change the way consumers perceive them.
Remember, Campbell said, insurers aren’t so much competing for consumers as they competing against broker/dealers, online platforms and mutual funds who are going to find a way to win over that wallet, if they haven’t done so already.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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