Life insurance isn’t selling like it used to, and one industry organization wants to find out why.
The Association for Advanced Life Underwriting is undertaking a year-long initiative aimed at the root cause of why the consumer “protection gap” continues to grow. That root cause? Consumer relevance.
The protection gap is a persistent problem, the AALU study showed. In 1965, Americans purchased 27 million policies, individually or through employers. By 2016, a population that was more than 50% larger still bought only 27 million policies.
AALU wanted to find the answers to two questions:
What makes life insurance relevant to some consumers and not others?
What barriers stand in the way of making a purchase, particularly for people who say they need a policy but don’t yet have one?
In the survey, 500 adults who don’t own individual life insurance were asked why they haven’t bought a policy.
Most of the respondents (38%) said they believe they need life insurance. But a nearly equal percentage (37%) said they do not. An additional 25% said they are unsure if they need it. About half of the respondents said they believe life insurance is relevant to their financial needs.
But it seems that a sizeable percentage of the population is more concerned about living too long than about dying too soon. Eighty-four percent of those surveyed said they would be likely to buy a life insurance policy with living benefits.
What About Agents?
Consumers still want to have the option to explore coverage online, but they also want to be able to talk to a professional, the survey revealed. More than two-thirds of those surveyed (68%) said they would buy life insurance through an agent, while 38% said they would likely buy coverage online.
The percentage of respondents who said they would rather buy life insurance through an agent instead of online came as a surprise to Bill Shelow. Shelow, president and CEO of LifeMark Partners, is chairman of the AALU Future of the Industry Working Group.
“I think there’s this assumption – because so much other stuff is done online – that online would be the natural way people would want to buy life insurance,” he said.
What’s driving the preference toward agents, Shelow said, is that life insurance is viewed by consumers as complex. “So I think people want a professional to guide them through the buying process. And I think buying online is intimidating when you’re buying something you don’t have an understanding of.”
Even though agents are still in demand, the survey indicated their role will change in less than five years. Quantitative forecasting shows an extremely high likelihood (92%) that most consumers will buy life insurance using third-party online platforms by 2023. Most consumers will also likely self-manage their insurance policies and make changes to their coverage using digital tools.
When consumers want help from a human being, they will likely connect on-demand via these digital platforms. Hiring and compensation models for agents and advisors will probably change as well to align to this future.
The human element may be important in the life insurance buying process, but consumers reported some level of mistrust toward insurance agents. Consumers said they want agents who are listeners and not salespeople. When asked to describe their ideal agent, 85% of those surveyed said they don’t want pressure to make quick decisions. They also want advisors who show empathy, teach without judgment or condescension, and tailor recommendations to their specific needs rather than promote a “one-size-fits-all” solution.
Competing Financial Priorities
Consumers have only so much money to spend, and life insurance often takes a back seat to financial priorities such as reducing debt, buying a house and saving for retirement.
These competing priorities are exacerbated by the consumer belief that life insurance is too expensive. More than half (51%) of those surveyed said they have not bought coverage because the cost is too much. Forty-four percent said they plan to buy life insurance eventually, but it is not a priority.
In addition, a knowledge gap adds to the protection gap. Less than half of the survey respondents said they think they have enough knowledge to manage their own finances. This leaves a large percentage of people who are looking for guidance and feeling insecure about their financial decisions.
The Buying Process
One surprising survey finding was that the life insurance buying process does not seem to be a roadblock to obtaining coverage. Most survey respondents said they believe the buying process for life insurance is quick, easy to understand, straightforward and ultimately worth it.
“People understand there will be a process to buy life insurance,” Shelow said. “But since our survey respondents haven’t experienced the process, there’s no real reason for them to either be afraid or frustrated with it.”
Even if consumers were told that the buying process would include a health exam or some other requirement that would be a step toward buying life insurance, Shelow said the survey results show that those requirements would not be a barrier to buying insurance.
“One thing that came out of the survey was that respondents said they believe the exam would be a positive for them, that they would have access to the results and have some information about their health they could use,” he said.
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.