Trends in the Marketing and Distribution of Life Insurance
by Jeff Root
InsureTech has been around for years with 100’s of millions of dollars being pumped into these technology companies and there hasn’t been a dent in life insurance distribution.
Life insurance companies are so focused on short term sales targets, that it’s stunting long term innovation. They’re are not adopting technology as fast as vendors are building it and they’re certainly not building products as fast as markets are being developed.
As a BGA on the front lines of the digital life insurance agent movement, we believe it’s going to be a while before there’s any big changes to life insurance distribution.
What’s Happening Now
Innovation is happening through APIs. In other words, connecting systems together.
It’s not the life insurance companies innovating, they’re simply connecting with other technologies.
Even with these connections, there hasn’t been any big innovations to life insurance distribution because of new technologies.
Life insurance companies are slowly adopting tech. When they do adopt tech, it takes them some time to get it right.
Take LexisNexis for example – an integration being adopted by many life insurance companies. We thought this would speed up the underwriting process, but it really just added another layer to underwriting and didn’t really cut any underwriting time out. When carriers initially do integrate, they have to work on tightening/loosening up their LexisNexis underwriting and it takes some time to get it right. This leaves the agents in the field getting inconsistent declines/approvals.
All this to say, even with carriers adopting new technology – they’re still learning how to use it.
On the distribution side of things, we’re seeing a consolidation industry-wide. There are a declining number of life insurance companies, a declining number of BGA’s and a declining number of agents.
To many that are on the distribution side of the life insurance industry, it appears that some disruption in life insurance is happening based on these facts, but correlation does not imply causation.
Is Life Insurance Distribution Feeling
Any Disruption?
No.
Beyond more consumers researching online and buying over the phone, there really hasn’t been any life insurance disruption when it comes to distribution.
We hear about all this funding for direct to consumer life insurance startups that are going to simplify the way life insurance is purchased.
For the most part, these companies are:
(1) Partnering with a life insurance company who is allowing them to API into their system for decisions.
2 examples: LadderLife ($54 million in funding) and GetEthos ($11 million in funding). LadderLife is writing their policies through Fidelity Security Life and Ethos is writing theirs through Assurity Life.
What we know is there’s a very small percentage that actually start the process and then get approved (low single digit percentage). A big portion of the sales are happening on those that abandon the process and have communication with an agent, which I think is very telling that consumers still need the help of an agent.
(2) An agency selling life insurance products that are already openly available.
2 examples: PolicyGenius ($51 million in funding) and HealthIQ ($81 million in funding).
With both of these well funded agencies, licensed life insurance agents are helping the consumers after they complete their online requests.
What all of these direct to consumer startups have are a beautiful user experience and application process. Combined, they’re only actually helping a very small segment of the market.
With that said, ALL of these companies are advertising in the same channels as everyone else.
None of these well-funded startups in the industry are getting NEW market share and the funding rounds are mostly going to marketing.
Very relevant to this is data we’ve collected internally regarding the amount of consumers that will complete an entire application online, AFTER speaking with a life insurance agent. One of the biggest boosts to DigitalBGA happened after we developed a piece of software that let the consumer self-complete the application online.
We’ve had over a 40% completion rate on the links generated within our software turn into complete applications – including social security number, driver’s license number and even scheduling the exam. This tells us that consumers are willing to engage with “buy online” products, they just don’t trust them yet. The key control for this statistic is that an agent spoke with the consumer first.
Trust will never leave the sales process of life insurance. All the InsureTech startups marketing life insurance products direct to consumer are having low completion rates because of trust and the lack of a disruptive process.
How can life insurance distribution be improved?
That brings us to a bottleneck in distribution. The lack of disruptive products being designed.
All of the simplified issue, no exam, and guaranteed issue products can and will be done much better in the future.
The current process for life insurance is too long and cumbersome. Back in 2010, HSBC had it right with their simplified issue term to $500,000 with 14 health questions and consumers could apply online or with an agent and get an instant decision. There hasn’t been that HSBC moment since 2010.
One of the reasons is life insurance companies won’t build these products without committed production – which is a catch 22 not knowing how the market will respond.
Add to that, the products that are being built are being advised by those in the business without any “in the trenches” life insurance direct sales experiences and certainly not any digital marketing experience and data to back it up.
We’ve seen several direct to consumer life insurance products come to market that agents can distribute and each of them had a short shelf life because they weren’t designed properly.
There hasn’t been a disruptive non-med life insurance product because everyone is doing the same thing – using iPipeline’s iGo or even FireLight – both of those processes won’t facilitate non-med life insurance disruption. A life insurance company needs to build the technology OR a tech startup needs to take the reins so they can be nimble with making changes and optimizing the process as they receive data. Using a 3rd party won’t allow for innovation.
To make a dent in distribution, the industry should develop products that are more convenient. This means no exam, a simple application process and even let consumers apply online. And let every contracted life insurance agent have access to walk their clients through it.
Our data has shown that consumers want convenience and are willing to pay for it.
The #1 misconception is that price is the determinant factor for consumers who purchase life insurance.
Price does not sell more life insurance. Convenience does.
According to data collected from NinjaQuoter – a life insurance quoting software where consumers view instant life insurance quotes from multiple carriers with the first results being the cheapest and gradually getting more expensive – consumers chose on average the carrier in the 3rd-5th position, not the cheapest.
Those results that consumers are choosing have product names that say “no exam” or “express”. This is very telling that price isn’t the most important factor.
On top of that, consumers are quoting themselves much higher premiums online than agents are actually selling them. When we combine the average annual premium that NinjaQuoter shows us from various sites and compare them to DigitalBGA’s number of what actually went in force from that website and there’s a big disparity.
For example, there’s one very successful website in terms of the amount of consumers placing coverage inforce (over 80 inforce policies per month). NinjaQuoter shows the consumer quotes themselves $2100 of annual premium online. The average inforce policy from that website is $1300. This disparity happens with every website we track.
Both of these examples are reasons why developing a low cost product isn’t necessary – yet is seems to be a race to the bottom for life insurance companies trying to get more market share.
Lastly, the industry should revisit rebating laws.
Everything today has a referral link. Amazon, web hosts etc. all offer their customers options to refer them other customers to generate a commission. Why is life insurance so distant from this very scalable marketing practice to pay someone for a sale?
Rebating laws were made to protect competition within the industry over 100 years ago. A lot has changed since then and regulators should be focused on protecting the consumer and doing away with anti-rebating laws.
This would open the door for new distribution ideas that are actually consumer focused and could encourage more people to own life insurance.
The Future
No one knows for sure what will happen to life insurance distribution in the future. There are so many x-factors like blockchain technology adoption and anti-rebating laws that could change everything.
We don’t think much will change for a long time.
That’s because the life insurance industry is extremely bureaucratic. Getting any sort of innovation from life insurance companies or even their distribution arms is a monumental task. Everyone has a linear way of thinking and it’s hard to get anyone to think outside the box.
We’re stuck working in an industry with so many bottlenecks that we love so much.
As an agency on the front lines with a lot of real world data, there is no voice. I know the carriers have all their data and statistics, but nothing on what’s actually happening from a consumers point of view, pre-sale. If we want to help make something better it goes through a bureaucratic process and typically gets lost somewhere.
One of the reasons we started our BGA is to actually be able to speak with the carriers directly and influence them. We’ve had several ideas that we’ve brought to carriers who love them, but keep pushing to hit their short term goals leaving our exciting discussions that can really make a dent in improving distribution on the backburner. I hear this from other fast growing agencies as well.
If life insurance companies stopped favoring the well-funded or tenured life insurance executives and really partnered with those agencies experiencing a tremendous amount of growth, we believe life insurance distribution can change sooner and for the better of everyone involved.
