This was the title of an interesting conference that took place in London in 2013. While it was focused on the UK, a number of the issues addressed are pertinent across the globe. So what is the future of the protection market – that is, primarily the market for term life? Or, possibly more fundamentally, does the protection market have a future?
There was lot of discussion around the so called ‘protection gap’. This is the vast difference between the total face amount nationally of theoretically adequate levels of protection coverage and what is actually in place. Swiss Re estimates that in the US in 2010 the gap was US$20 trillion, while in Canada it was a mere trillion. (In the UK it is reckoned to be US$4 trillion.) According to Swiss, the average family headed by a breadwinner under the age of 55 had its own individual protection gap of US $378,000.
So there’s a lot of work to do. Or, put another way, there is a huge opportunity to write more business.
Of course, there are many reasons why the gap exists: complex products poorly explained by carriers and their distributors (although there’s not much that is simpler than term life), lack of consumer understanding of the need to protect dependants, mistrust of financial institutions, and simply competing priorities for hard-earned dollars. And in some markets the number of producers is reducing as a result of tightening regulation and a lack of new blood. So on the basis that life insurance is sold, not bought, the industry’s ability to penetrate the market is weak.
Is it true that life coverage is sold and not bought? That is certainly the traditional view. But the world is changing: direct-to-consumer sales around the world are climbing at a pace (albeit from a small base), and there are some interesting models from carriers and distributor firms who, believing in a different future, are challenging convention with some success.
After all, buying patterns of consumers are changing. You only have to look at retailing. In bricks-and-mortar retail, life is tough and getting tougher as people increasingly buy on-line. Established retail brands in sectors such as electricals, travel, music and photography are going to the wall and others are being forced to change their business models to meet head-on the seemingly inexorable rise of e-tailing. Some of the business failures have been due to economic stagnation in the wake of the global financial crisis but much of it is down to the inability of firms to adapt to changes in the business environment. To apply Darwinian theory, the species that survive are not necessarily the strongest but those that can respond best to change.
But that is retail. Do the same rules apply to life insurance too? Who can truly say? But it would be unwise to ignore what is happening elsewhere. And think about it, the main reasons for going to a store now are a) you need to try it on, b) you want it right now, and c) you need some advice about what to buy. The first two don’t apply to insurance but the third does. So if you need advice, talk to an agent or broker.
Will folks really buy on their own initiative, without prompting from a sales person? Sure, it’s happening now. And it will happen more once our industry has got better at devising new sales messages and established new means of communicating them – in today’s world the number of media choices is huge.
For a glimpse of the future take a look at Beagle Street (www.beaglestreet.com), a UK direct-to-consumer start-up with less than 20 employees (although it is part of the international BGL Group). Distributing via the Net, it offers straightforward easily understood products, fully underwritten, at competitive prices and with a simple buying process.
Or visit Pinnacle Life (www.pinnaclelife.co.nz) a New Zealand life insurer that has a neat customer journey.
Or check out Hollard Group (http://www.hollard.co.za) that offers interesting propositions to diverse target groups through a variety of channels and partners throughout southern Africa but also elsewhere, including Asia.
If you visit Compare the Market (www.comparethemarket.com), a strongly branded UK aggregator (that also happens to be part of BGL Group) you will see how definitive quotes from a range of providers can be generated from a single question set. Currently there is nothing like that for life insurance… but it is coming soon.
And this is the way that the big, relatively under-penetrated so-called ‘middle market’ in the US is going to be served: simple products, simple underwriting and a simple process. Risk selection based on declarations on the app and information on MIB, MVR and Rx databases. A binding quote at the end of that process – and in fact much more useful and meaningful than the usual indicative quote that very often can’t be met as a result of ratings or preferred category switches. And all very quick.
This is the future of simplified issue. Carriers won’t be competing on product features, although price may still have a bit of weight. But they will be competing on process.
To answer one of the questions posed at outset, the protection market does have a future. The next question is whereabouts in the protection space will your company sit? And don’t forget Darwin.