Digital or Analog? Life Insurers Have to Do Both

By Cyril Tuohy

InsuranceNewsNet

U.S. life and annuity carriers, which have spent the past several years reducing risk exposures, repricing products and rebuilding their capital base, are well positioned for 2014. Now another challenge comes knocking: marketplace bifurcation.

Younger buyers, attracted to – even weaned on – alternative distribution channels, require carriers and their distributors to be online, whether through robust websites or social media. Indeed, for large swaths of Gen Y, there is no other way.

Today’s 20-somethings, many who only know how to communicate using mobile devices, have never sat down with an insurance agent, if they even have insurance coverage at all. They are a mobile breed to whom carriers must adapt.

Not only do they represent billions of dollars in future income for carriers and advisors, but Gen Yers have more choices than any previous generation, and they are able to take their business elsewhere – and quickly.

At the other end of the spectrum, older buyers, many with spouses, children and more complex financial needs, prefer and even require the traditional face-to-face contact with retail advisors. Long-term financial planning demands sitting down – even if only through Facetime – with advisors and talking through long-term plans, distant needs and medium-term desires.

For financial advisors baby boomers and pre-retirees represent a more attractive demographic. People in their 50s and 60s have enough accumulated assets and a higher net worth to make it worthwhile for an advisor to protect and manage. Financial advice, after all, doesn’t come free.

Welcome to the age of the dual-track distribution system, an era where carriers and their distributors have to be in both places at once: in the digital-mobile world and in the real-life, face-to-face “analog” world, where the two compete for carriers’ budgetary priorities and management attention.

“Digital technology also challenges traditional distribution channels – the ways customers engage with insurers,” wrote Doug French, an insurance analyst with Ernst & Young (EY) and co-author of a 2014 outlook report covering life and annuity insurers. “Nevertheless, EY insurance consumer surveys show that personal interaction is still highly regarded.”

For the moment, there’s no chance that digital distribution channels will supplant the traditional face-to-face contact, according to French, a principal with EY’s Financial Services and Insurance and Actuarial Advisory Services unit.

The nature of insurance and annuities is too complex, and the need for advice “indicates that personal interaction will remain important to an overall channel strategy,” French noted.

Advisors need to be in the business of planning the long-term financial strategy of clients, and that means treating clients holistically, suggesting core protection and wealth accumulation products that complement a family’s financial situation. Insurers, therefore, need to work with distributors to boost advisors’ financial planning knowledge and advisory skills.

What does an advisor most at ease in a dual-track world look like?

He, or she, is the one in the blue button-down shirt and khakis at ease mapping out a complete financial plan on a tablet computer in front of a client, with both of them sipping the morning brew at the corner coffee shop.

Blending both worlds isn’t as easy as it sounds, not with life carriers’ bias toward conservative, tried-and-true methods of doing business. In truth, however, carriers don’t have a choice. They need to evolve, like everyone else.

Robert A. Kerzner, president and CEO of LIMRA and LOMA, life insurance and operations management research organizations, re-emphasized exactly that point. In the face of ferocious competition, those who stand still face extinction.

“There is also growing competition for consumers’ attention and where to spend their money, which is why it is vital that we offer products and services that resonate with consumers, helping them focus on protecting against risk and saving for retirement,” he said in October, in a speech to executives gathered in New York for LIMRA’s annual conference.

Winds of change are blowing at insurers’ backs, and with a surge in the number of Americans in preretirement or retirement phases showing interest in income-generating products, the time has come for carriers to go on the offensive, French wrote.

Carriers need customer-centric, not product-centric business models, and they need to forge ahead with relentless efficiencies that technology provides, he noted.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].