Trends In Financial Services: Where Do We Go From Here?

Companies and industries around the globe are facing unprecedented disruption — and there’s no clear return to normal in sight.

But although many things may seem uncertain right now, I see a number of trends in the insurance industry that are moving us forward into a better future — for insurance companies, financial professionals and consumers alike.

Electronic Applications

Until recently, most carriers didn’t have e-applications, and those that did weren’t requiring their use. Due in large part to the COVID-19 crisis, the majority of carriers now have e-apps — and a few of them are requiring producers to use them.

But even without such a requirement in place, advisors should run toward e-apps. These digital tools help reduce errors and ensure applications are in good order. When an application that is not in good order is submitted to the insurance company, it has to be returned and updated. And if the advisor does not already have all of the information needed to correct the application, it has to be sent back to the client, which inconveniences everyone involved and slows the process down.

Paper applications have a longer processing period and require more effort, which makes them more expensive. Ensuring that an application is in good order upfront makes the process better for everyone involved. Quicker submission and processing gets clients their policies faster and shortens the turnaround time for the commission to be paid.

I have seen apprehension surrounding e-apps from many advisors, partly due to a lack of familiarity with technology. It may seem easier to keep doing what’s familiar, but when a new tool is more efficient and beneficial for all parties, it’s worth investing the time to learn it. We’re early in the e-app trend, but I foresee more carriers requiring electronic applications some point — and probably soon.

Regulation

Insurance is highly regulated and most of that regulation was put in place for consumer protection. It’s important for financial professionals to stay educated on current regulations, but there are times when special attention is necessary, such when a new regulation comes into effect.

Last year, the Securities and Exchange Commission adopted Regulation Best Interest, which went into effect at the end of June. Its purpose is to establish a best interest standard of conduct for broker-dealers and financial professionals making recommendations for consumers.

Reg BI brings a requirement for greater transparency and record-keeping than before, but it provides greater protection for financial professionals as well as consumers. If you are required to keep more detailed notes and track relevant factors in your recommendation process, you are more easily able to demonstrate your rationale and confidently stand by your recommendations.

Regulation is a continuing, evolving thing in our industry. Financial professionals must be ready for more regulation, more oversight and more scrutiny of transactions. But in the long run, it benefits both our industry and those we serve.

Longevity

The average life expectancy in America continues to increase. On top of that, many people who are living longer are also living healthier lives.

This impacts insurance in a few main ways.

1. Pricing should go down as the average lifespan goes up. For a 30-year-old customer with an expected lifespan of 70 years, there might be a premium that spreads out the company’s risk and the consumer’s cost over a longer timeframe. Companies are able to reprice their products, a clear benefit for consumers.
2. Annuities become more important as part of a retirement strategy. When your life expectancy is longer, you either need more upfront money in your retirement strategy or you need to work longer in order to fund your retirement. Starting to think about and plan for a retirement strategy at a younger age becomes much more important, with durable, reliable vehicles a critical component.
3. Other kinds of insurance, such as long-term care, have been increasing in price. As the average individual lives longer, there is a greater likelihood of some level of care being required at some point in their life. An estimated 50% of Americans will need at least some sort of assistive care during their retirement. Insurance companies pay attention to extended morbidity and mortality, and adjust their prices accordingly, knowing that people live in long-term care situations for longer than they used to.

The bottom line: The cost of life insurance should trend downward, but the cost of long-term care insurance will go up.

Generational Differences

There are significant differences between generations, but not all advisors seem to approach their clients with that understanding. Smart advisors don’t begin a conversation with a plan in mind — they start by learning about their client and understanding their specific situation.

Where are they in their life cycle? What are their liabilities? Who relies on them to bring home an income? Answers to these questions should drive the way you and your client approach a retirement strategy.

Right now, millennials tend to be first-time homebuyers and starting families. Retirement feels far off, but when they are young and healthy is the best time for them to buy insurance products.

For Generation X, life may be hectic — and expensive. College tuition, cars, extracurricular activities and more may be taking up a share of income that should be going toward retirement funding. And with higher expenses comes greater liability if an income earner doesn’t make it home. Life insurance is critical for this demographic, although it may also be an afterthought.

Baby boomers may find themselves in the position of reflecting on a successful career and enjoying retirement. But trends reveal that people don’t spend less during retirement than they did during their earning years. Now may be the time to aggressively pursue retirement savings strategies and life insurance to protect whatever working years may still be in the cards.

Holistic Planning

When planning a retirement strategy, it’s best to look at the whole picture — taxes, investments, savings, health, etc. — in order to discover the optimal solution. Holistic planning does just that, starting with a discussion of a client’s wants, needs, aspirations and goals. The client and the financial professional then decide together what types of strategies will best address those.

You wouldn’t go to a shoe store and take the first pair of running shoes the salesperson points out to you. You want that person to ask what you do while on your feet and find the shoes that best suit your specific needs. So why shouldn’t someone expect that same level of service with their financial strategies?

Holistic planning is fantastic for consumers, but for agents it’s a much more involved process. If you previously only sold life insurance and haven’t been involved with equity investing, you’ll need new licensing, additional continuing education, affiliation with new entities and so on. And there’s a financial investment to add those to your practice. But it diversifies a sales portfolio, and it’s more appealing to the consumer.

The next step for a financial professional who has specialized in insurance may be to become a securities-licensed fiduciary. You will be held to a higher standard under fiduciary duty, but if you’re focused on supporting your customers and their needs, there shouldn’t really be any difference in your approach. Putting your clients interests first will always be in your best interest, too.

Greater Adoption Of Technology

In the last six months, the adoption of technology has accelerated due to the pandemic. But the truth is that this trend that has been in the making for a long time.

Cold calling to prospect for customers is a thing of the past. Younger people tend not to use the phone as much as prior generations, and they usually don’t want to meet in person. You’ll have to use technology if you want to connect with those people.

Try using digital lists and social media channels, such as Facebook and LinkedIn. They can be an excellent source of potential customers and referrals. If you’re going to reach out via email, make sure you do something to differentiate what you send. It’s so easy to shoot high-quality video on a cell phone; consider filming a brief introduction and send that with your email.

Technology is playing a bigger role in planning and visiting with clients. And I don’t see the age of digital appointments ending when we move beyond social distancing. Many agents have found videoconferencing to be a huge benefit: Someone who was unable to come into the office for a meeting is often willing to have a 20-minute videoconference. Across generations, financial professionals are adopting it quickly, and the same is true for clients because of the convenience and time savings such technology offers.

Indirectly, this trend is going to shift the insurance industry to a model with more online direct sales. The average financial professional makes roughly a quarter of their sales online today. As greater numbers of customers look to the internet for education and a path to purchase for their financial planning needs, that number is only going to climb.

Mark Williams is CEO, Brokers International. Mark may be contacted at [email protected].

© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.