A.M. Best Analysts: Today’s Life Insurance Industry in the R&D Phase
October 2, 2014 by Lee McDonald
OLDWICK, N.J. – A.M. Best’s Tom Rosendale and Rosemarie Mirabella close out A.M.BestTV’s special series on Life Insurance Awareness Month by outlining the opportunities and threats facing the industry.
John Weber: Welcome to A.M.BestTV’s special series for life insurance awareness month. Throughout September we spoke to a number of primary life executives.
Michael Fanning, executive vice president, MassMutual Financial: We as an industry, I think are way behind.
Kent Sluyter, chief executive officer of individual life insurance and distribution at Prudential Financial: What we’ve been doing is not adequate for the future given the results we are seeing as an industry.
John B. Deremo, American International Group life distribution chief: I’m confident on the future of our industry and our ability to capture many of the growth opportunities we see now and expect into the future.
Weber: To wrap up this special series we now speak with two A.M. Best life analysts, assistant vice presidents Rosemarie Mirabella and Tom Rosendale, to gain their perspective of the life industry. Rosemarie, what’s the biggest opportunity facing the life industry today?
Mirabella: I think the biggest opportunity facing the life industry today is meeting the challenges of increasing growth, finding a way to crack the technology code and how they’re going to market via potentially alternate distribution channels such as utilization of social media, direct to consumer channels and just increasing awareness of the need for life insurance because the market remains underserved.
Michael Doughty, president and general manager of John Hancock: Ownership of life insurance is at a 50-year low. But between a quarter and half of all the households in America actually say they need more life insurance.
Fanning: You have 50 million Americans that don’t have insurance or don’t have enough insurance.
Nick Lane, senior executive director and head of U.S. life and retirement at Axa: Less than 40% of American consumers today are properly insured.
Rosendale: People realize that they are underinsured and ownership of individual life insurance is at a 50-year low, according to LIMRA. But on top of that, there’s a related challenge and the related challenge is that insurers, not life insurance per se, but there’s a big opportunity to deliver to the needs for retirement income and a stable retirement income for individuals. People who are in their retirement years are not likely to be purchasers of life insurance. That business, while there is a big opportunity there, represents a pretty good risk hedge against the mortality business that they have on their books. To the extent that they can take on longevity risk as a hedge against their mortality risk it’s not only a good risk management tool but also another opportunity to build the business.
Weber: Tom what do you see as the biggest threat to the industry these days?
Rosendale: Some people would probably point to shorter-term threats like the low interest rate environment, regulatory challenges. I think in the grand scheme of things this is a long-term industry. It’s going to be around for a long time. It really relates back to the ability of companies, as Rosemarie said, to crack that code on delivery models for people who clearly need life insurance, not only life insurance, but disability insurance, long-term care insurance. Right now the delivery models that they have don’t effectively address how people want to buy. The ability to crack that code on how you develop delivery models targeted to specific target markets and allow them to coexist and manage the potential channel conflict that would exist is a huge challenge for companies. It’s been there for many years.
Fanning: We’ve got a career agency system now over 5,000 strong. We continue to invest and grow our captive distribution organization. We absolutely believe that face-to-face distribution of life insurance products and other protection products is the most effective way to get to the marketplace. We continue to make major investments there.
Mirabella: It’s well-known in the industry that the traditional distribution channels, the career agency channel in particular, is aging and is not really effectively being replaced at a meaningful level.
Sluyter: It’s been pretty well-publicized that there is a decline in the number of dedicated insurance focused advisers in the marketplace.
Deremo: The number of new advisers joining the industry is declining. But the need for professional financial advice is stronger now than ever before. All of us in the industry need to develop the infrastructure, the tools, training and support, needed to effectively attract and train the next generation of advisers and agents.
Mirabella: The challenge is the aging of the distribution workforce and also the potential for significant distribution disintermediation that’s likely going to take place as companies figure out ways to innovate and reach the consumer directly. That only has market relevance likely in the lower end of the market where their products are simpler.
Doughty: Distribution models are changing. People are going online to both purchase and research their product decisions. We as an industry have to keep abreast of those changes.
Mike Burns, senior vice president of life solutions Lincoln Financial Group: We’ve done some things such as introduce the ability to e-submit policies, e-applications, as well as on every one of our individual life policies, the ability to have that policy delivered electronically, making it more effective, more efficient and the way increasingly advisers want to have their business transacted, with policies being delivered electronically.
Lane: We’re investing in digital technologies so that consumers can research, buy or get information about their existing policies anywhere and anytime they want.
Fanning: We continue to make significant investments in technology, rebuilding things like our website, but more importantly, mobile and social.
Mirabella: I still think there will always be a need for the more sophisticated distribution channels in the higher end of the market, the affluent market. I think you’ll see more market segmentation. It’s important for companies to be proactive about how they view those markets and how they approach them because, as Tom mentioned, it’s important not to have that channel conflict, particularly if you go to a direct consumer model.
Weber: What do you see the industry doing in response to all this?
Mirabella: The industry is sort of at its infancy stage. There’s a lot of thought going on. Some companies are creating teams to almost incubate it, have strategic think tanks on how to deal with two areas: one, how data analytics and predictive modeling might enable a better insight into execution of the sale and give more insight into consumer behavior paradigms and processes. There’s a lot of thought going on but that’s very early stage there. Then secondly, I would say that companies are trying to refine their overall market presence and figure out where they’re going to compete effectively. The products need to be simpler in that direct to consumer distribution model if it’s going to be successful.
Lane: We’re developing new products and services to help meet new needs and serve a broader array of customers.
Burns: We’re accelerating life insurance and the focus of life insurance as a wealth protection tool as part of a broader view towards wealth protection expertise.
Doughty: We’ve taken an approach that we need to have a broad shelf of insurance products that can be customized to meet the unique needs of every single individual American family.
Fanning: We are actually developing a set of products, particularly around whole life insurance, that are affordable and easy to buy at the workplace.
Deremo: There’s a real need for smartly structured combination products to address their concerns and also fit their budgets. Combination life insurance products with accelerated benefit riders are changing the way we think about life insurance.
Rosendale: Rosemarie and I speak to a lot of companies in the course of a year, maybe between us close to 100. To a person they would tell you that they are fully aware of the issues. And I think they are. There are a lot of smart people in the life insurance industry. But I think we’re still in the R&D phase of developing an understanding of the consumer, an understanding of how that would translate to a delivery model that could effectively operate in conjunction with other delivery models in an effective way. That’s something that’s ongoing. It’s probably going to take some time. It’s probably going to fall more heavily on the shoulders of the large companies with significant resources. When you think about the type of research that’s involved and the type of development and testing that’s involved, that’s a pretty cost intensive process. Very small companies are really not in a position of being able to do that. They’ll be able to piggy back on that once that development has been done and proven. But I think it does still fall on the shoulders of the big companies to make those breakthroughs.
Weber: That concludes our special series for life insurance awareness month.
View this and other interviews at http://www.ambest.com/v.asp?v=liam914
