Reviving A Mature Market
The US life insurance market has reached the mature or declining stage of the product development cycle. Individual US life insurance sales peaked in 2007 to $14.3 billion in annualized new premiums, with impressive sales results in Universal Life and Variable Universal Life policies when suddenly the housing market collapsed, and sales plummeted 14% in the fourth quarter of 2008, the worst decline since 1951. Sales continued to free fall, dropping 10% from 1980 to 2009. Meanwhile, increased competition forced insurers to lower prices and profitability in a play for market share, bringing the real cost of insurance lower than anytime since the 1980s. This decline reflects both tightening household budgets, and a drop in employer-provided coverage due to layoffs or to benefit package cutbacks.
A Huge Underserved Market
Life insurance ownership is now at its lowest level in 50 years, with fully 3 in 10 U.S. households (35 million) having no life insurance at all (up
from just 2 in 10 in 2004.) And with the increasing threat of job loss, households with only group life insurance from work are vulnerable to becoming uninsured.
The need is clear. Research shows that almost 66% of U.S. households would quickly find it difficult to meet everyday living expenses if a primary wage earner were to die. Surveyed households fall far short of their coverage goal, which they say is to replace their income for an average of 6.2 years, as the average insured household owns only enough to cover only 3.5 years of lost income.
The Disconnect in Consumer Attitudes and Behavior
But, despite the need, few take action and buy. Although 50% of all U.S. households (58 million) feel they need more life insurance, only half of these say they are likely to buy in the coming 12 months.
Surveys show that a core reason consumers have not bought more life insurance is that they have other financial priorities, such as saving for retirement or paying off debt. Many also feel that they can’t afford it, influenced by a weak economy. About one third of U.S. households had a decline in income during the recession, making it more difficult to meet day-to-day expenses.
Companies Fail to Understand Consumer Needs
There is a disconnect between consumer motivations for buying life insurance and insurer and adviser perceptions of their motivations, and there is a lack of alignment of the perceived needs met by life insurance among consumers and insurers and advisers: For instance:
- Role of the Adviser: Consumers place far less emphasis on the role that sales professionals play in their decision to buy than insurers and advisors understand. The recommendations of sales professionals do not motivate consumers as much as they used to. The opinion of a friend or relative carries much greater weight.
- Perceived uses of Life Insurance: Consumers place far greater importance on life insurance’s use to cover burial and other final expenses, especially women. They also place more emphasis on life insurance to pay off the mortgage and to fund a child’s college education. Consumers are less likely to cite replacing the income of a primary wage earner as an important factor (those with higher household income or assets are more likely to place importance on this) and they do not place as much importance on life insurance as a way to save and invest or as a means of wealth transfer as insurers think.
- Trust: Consumers place more emphasis on trust in the institution and adviser than on the financial specifics – they seek honesty and ethics. However, they place far less emphasis on the institution’s financial strength and name and recognition.
- Product features: Consumers value price, guarantees, and potential investment returns far more than insurers or advisers do.
Consumer Buying Preferences
A trusted recommendation from a friend or family member was once all that was required to close the sale. Now, rather than having an initial conversation with an advisor, today’s consumers use the Internet for information, much as they do when shopping for a car. If they want to evaluate their needs, they Google a financial calculator for themselves. Even after they get a quote from a financial advisor, they may still check online to compare price.
Even so, consumers still say they rely on insurance professionals as the single most valuable source of information on life insurance, and one third of still prefer to speak with an insurance professional rather than use other sources. Only 1 in 9 consider company websites are the most valuable source of information. The second most trusted source is their company’s benefits department.
The overwhelming majority of sales among all age demographics are still made face to face (around 60%.) This is followed by purchases at the workplace, phone or mail and online (around 12-15% for each.) Only around 2% are purchased in a bank.
Companies Need to Expand their Target Marketing
Most sales professionals (especially those who earn less than $100,000 annually) primarily target the middle income market, which is the most price-sensitive segment, and one of the most and therefore most financially challenged . Two thirds of consumers in this economy have cut back discretionary spending on entertainment, outside dining and vacations.
Lower income households: The perceived need for life insurance is greater for lower-income households (households with income below $100,000 are now more likely to say they need more life insurance.) The challenge is getting them to act. How can they better be reached and engaged? Internet marketing may be helpful here.
Interactive sites with consumer friendly needs calculators can help them serve their own needs.
Small Business Market: Small business owners are typically at a prime buying age for financial products, have sufficient income to buy and families to protect. More than half do not have any executive benefits. Most have not been approached about them.
Affluent Market: This market is more likely to own life insurance than middle or low income households. They are also a diverse group, with varying needs and attitudes based on their levels of affluence. The emerging affluent tend to value life insurance for financial security, and the very affluent, as a way to transfer wealth. The emerging and young affluent have the most favorable attitudes toward life insurance.
Women’s Market: The structure of families and households has shifted from “traditional” families, which, according to the U.S. Census Bureau, represented 60% percent of U.S. households in 1970 and now account for less than 25% of all households.
According to the Pew Research Center’s report Women, Men and the New Economics of Marriage, in 1970, 84% of individuals ages 30 to 44 were married, primarily with the husband working and the wife at home. Today, only 60% are married, and women make up almost half of the workforce. This means that the economic loss to the family if the husband dies prematurely is less than before, and men no longer need life insurance as much as before.
The message for family protection needs to concentrate more on women. The good news is that women tend to be less satisfied with their current financial situation, less certain of the future, and to value life insurance more than men. They tend to be more financially conservative than men, and more attuned to product guarantees, and less concerned with wealth accumulation,
We Need to Innovate
Few companies in a mature stage of product development can survive without a strategy for selling new products to new and existing markets. As the recession gives way to expansion, there will be an increased need for product and marketing innovation. A price-based approach must give way to a consumer-focused one that looks deeply into needs and wants. Instead of repackaging the same products and trying to make consumers understand how important life insurance is, companies will need to make life insurance fit their “life model.” Marketers will need to better position life insurance to meet consumer goals.
Snap Principle of Life Insurance Marketing:
Stay ahead of the curve of consumer attitudes and behavior.