Insurers Can Close The Coverage Gap While Helping Underserved Groups

Consumers showed a greater interest in buying life insurance during the COVID-19 pandemic, but how can carriers continue to capitalize on that interest? How can insurers close the coverage gap while bolstering diversity, equity and inclusion?

A recent report by Deloitte Center for Financial Services, “Financial Inclusion And The Underserved Life Insurance Market,” analyzed ways insurers can navigate the coverage gap and help underserved markets obtain coverage.

The report showed that, during the pandemic, Black and Hispanic consumers had the highest interest of any U.S. ethnic groups in buying life insurance, possibly due to both groups being the hardest hit in terms of death and unemployment rates as a result of COVID-19. But policyholders in those two groups were not as familiar with different life insurance options compared with white and Asian policyholders.

Interest in agent-driven sales is trending downward, the report found. In 2011, 64% of consumers said they preferred to buy life insurance in person; by 2020, only 41% felt that way. Since January 2020, interest in online life insurance sales that have the strongest digital capabilities increased to 50% from 30%. Even buyers over the age of 61 (29%) had a greater interest in buying insurance online.

Interest in life insurance heightened since January 2020 as the pandemic’s impacts unfolded. However, the fear of mortality, forced virtualization and lockdown-driven consumer savings are expected to diminish going forward.

Despite this heightened focus, the “underserved” life insurance market — those who have declined to buy life insurance, have inadequate levels of coverage, or have yet to be approached about buying a policy — is still vast. The Deloitte report said insurers have an opportunity to help close that gap by improving engagement with underserved segments to drive profitable growth in a low interest rate environment.

How Life Insurers Can Capitalize On Key Events To Drive Growth

Looking at the longer term, the Deloitte survey findings uncovered other influences that may impact the future of life insurance growth.

More and more adults have a life insurance coverage gap. About 102 million Americans, or 40% of the adult population, say they are uninsured (own no coverage) or underinsured (do not have enough insurance to cover household expenses if they were to die tomorrow), according to LIMRA's 2021 Insurance Barometer Survey. This represents an estimated $12 trillion coverage gap.

In this high-mortality environment, carriers that offered a diverse set of life, health and wealth products in addition to their core mortality offerings may have experienced lower negative impact from a portfolio standpoint. This could be an avenue to penetrating those segments who are more apt to consider a life insurance purchase as part of a holistic experience for their health, wealth and wellness.

The current low interest rate environment is compelling carriers to find sources of growth. And increasingly, financial institutions are expected to be called upon to proactively enact positive changes to improve diversity, inclusion and economic equity. By aligning these priorities, insurers can venture out of their traditional sweet spot in the life insurance market and cast the net wider to include underpenetrated segments.

The pandemic set the stage for life insurance growth. Still, insurers will likely need to distill the underpenetrated market into segments and customize propositions to the unique needs of these various demographic groups to sustain it.

Making the most informed decisions on the various segments will likely first require insurers’ understanding which demographics most need coverage, their propensity to purchase, the top obstacles and the amounts of coverage they seek. Insurers should also examine how each group prefers to interact across the life insurance life cycle, as well as their preferences for product features and holistic financial portfolios.

Identifying And Activating Underserved Segments

Capitalizing on pandemic-fueled savings and awareness could help fill gaps, the Deloitte report said. The survey revealed the top deterrents for respondents to buy additional or new life insurance were the same across all ethnic groups. Those deterrents are the perceived cost of coverage and competing financial priorities. But, despite the rise in unemployment during the period, the pandemic-driven surge in savings among the U.S. population could make consumers more open to buying coverage now than they were prior to the pandemic—at least in the short term.

Still, some consumer segments may first need to be educated on the value of life insurance coverage before considering a purchase.

For example, nearly twice as many respondents in the youngest age segment (21- to 30-year-olds) revealed they were unfamiliar with the value of life insurance products compared to older respondents. Not surprisingly, the lowest-income groups knew less about these products than higher earners did.

Similarly, 18% of Blacks surveyed said they were not familiar with the purpose of life insurance compared to approximately 12% of whites, Hispanics and Asians.

The Deloitte survey shows interest in purchasing life insurance over the next 12 months was highest for Black and Hispanic respondents.

Interest in purchasing coverage also appears to be highest among younger consumers (under age 50): More than half of respondents between 31 and 40 years old said they plan to buy a life insurance product in the next year. The surge in application activity throughout the pandemic was highest among respondents younger than 44 (7.9%) and decreased as age increased.

Given the financial literacy disparities among segments, insurers have an opportunity to build on the increase in awareness of the need for coverage, the report said. They can explore new ways to educate underserved populations by focusing on demographics that are least likely to understand the value of mortality coverage.

The study listed seven long-term strategies insurers can use to help fuel growth, penetrate underserved consumer segments and achieve inclusion. They are:

1. Use data and analytics to accelerate underwriting, target marketing efforts and generate leads.
2. Develop educational initiatives to strengthen financial literacy across all segments.
3. Continue to accelerate innovation and digitalization.
4. Innovate products and services to offer greater control, simplicity and flexibility.
5. Offer integrated financial wellness propositions.
6. Develop partnerships to collaborate on finding growth opportunities and improving the customer experience.
7. Diversify advice programs and resources to drive financial inclusion.

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.

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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].