Whom To Blame For The Coverage Gap?

By Cyril Tuohy

InsuranceNewsNet

The life insurance coverage gap is growing and independent insurance agent Michael A. Masiello thinks he’s found out why: Life insurers simply aren’t selling enough of it.

The reason carriers are not selling enough life insurance is that they have taken some of the business of selling it away from agents and have been going directly to the consumer through the Internet and toll-free telephone numbers.

“It’s the carriers themselves that are expanding the [sales] channels,” said Masiello, principal of Masiello Retirement Solutions in Rochester, N.Y. “They are filling their own pockets at the expense of agents.”

Fightin’ words? No doubt. Sour grapes? That too, maybe, as agents come under pressure from other sales channels. But is Masiello right?

There’s no question that the insurance coverage gap — the difference between the median amount of life insurance coverage in place compared with the amount needed to cover self-reported needs — has widened.

A New York Life survey released earlier this year found that the gap widened by more than $30,000 over a five-year period ending in 2013.

The coverage gap in 2013 was measured at $320,000, an increase of $30,622 compared to the gap that existed in 2008, the survey found.

“We’re going through such a new dynamic in terms of life insurance, and the next generation, other than being grossly underinsured, is going to be facing some serious issues,” Masiello said in an interview with InsuranceNewsNet.

Judging from the latest insurance gap statistics, it seems as if a lot of middle-income families could use some protection guidance from professionals such as Masiello. But are insurance carriers to blame for the gap? Is this a case of insurance carriers wanting to have their cake and eat it too?

Not so, insurance carriers fire back.

Plenty of insurance companies have found a market in selling direct, which means that consumers are more than happy to buy coverage online or over the phone. If the life insurance industry eschewed the online channel, buyers might well walk away from insurance forever.

In that scenario, carriers, agents and would-be insureds would lose out.

Younger consumers who are in the market for life insurance no longer want to buy low-cost insurance coverage from an agent; they prefer going online, carriers say. That segment of the market has long moved past the face-to-face sit-down at the kitchen table, carriers say, so it’s better to turn the lower end of the market into a commodity.

Financial services buyers in the Generation X and Generation Y demographics do their banking online, their investing online, their trading online — through a cellphone or tablet. Why can’t they buy their insurance online?

Besides, online and telesales channels still require a licensed agent at the other end of the line to sell the policy, so the agent is still involved in the sale.

In fact, many carriers say it is the agents who have no interest in selling a term life policy valued at $50,000, $100,000 or even $250,000. The commission on the sale is way too low and no agent is going to earn a living strictly on volume.

Better for agents and advisors to chase higher-value customers and talk to them about asset protection, retirement and life-stage planning services, carriers say.

Masiello says that the more insurance carriers adopt direct sales, the more they erode the relationship with clients.

“If they (carriers) are going to pursue a 1-800 business model, then they should at least do it through the agents,” he said. “Why aren’t they promoting that? Because they want the compensation for themselves.”

But if carriers don’t find ways to sell lower-value, low-margin products more efficiently, other companies will, or buyers simply aren’t going to buy insurance. That means no compensation at all. What, then, is the point in being in the insurance business in the first place, carriers ask.

Could Masiello and the carriers both be right?

Could carriers be sacrificing agents in certain segments in order to sell insurance to buyers who prefer browsing and buying over the Web, a move which ultimately keeps a buyer and the premium revenue within the industry fold?

What about the consumer? With surveys showing consumers underinsured, it’s clear that not enough people are buying coverage, and of the people with coverage many still aren’t buying enough of it.

But those same surveys don’t reveal what else consumers are spending their money on: iPads, Xboxes and dinner at a local restaurant.

The question isn’t whether consumers can afford adequate insurance coverage. They are spending their money elsewhere. Other industries — financial brokerages, retail malls or the cruise line industry — got to them first.

Consumers either have not considered life or disability protection for the family breadwinners, or no one has bothered to sell it to them.

Simple coverage is cheap enough. In Texas, a 20-year term policy paying $100,000 at death from MetLife can be had for as little as $15 a month. Compare that price with that of a daily cup of coffee. At last check, the local Starbucks in Yardley, Pa., was selling a 16-ounce grande latte for $3.87.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may 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].