Life insurance in the digital age, well, digital/analog age

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There’s good news for the life insurance market and there’s the same news- the market potential is dramatic, the product mix is profitable, customers understand the basic product pretty well, there’s not much for a carrier to do once a policy is sold, benefits aren’t paid for years, and there are clever folks coming up with digital improvements to sales acquisition.  Why then is the product’s penetration level contracting in many markets?

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.             Image source

It’s estimated that the coverage gap for life insurance in the US alone is more than $12 trillion, and with current economic factors the market needs to grow almost 3% per annum, or $340 billion each year.  It’s a huge opportunity for an industry whose assets represent an amount equal to 20% of global GDP (top 20 countries noted below, per theglobaleconomy.com):

chart life assets GDP

There are even greater numbers of potential policyholders representing the life insurance coverage gap in Africa, LatAm, India, south and southeast Asia, and China.  It’s a market for product that is clear in its basic purpose- protection of the livelihood of beneficiaries to the policy.  Choose a face value, pay the premium for a set term, and upon the death of the insured person the policy pays.  Sure, there are variants to the basic premise, e.g., group life where an employer supports the policy payments, whole life (investment option as a well as death value indemnity), annuities, and others.  But at its root life insurance is the ultimate parametric product- benefit payable upon confirmation of a trigger.

Why then is there a multi-trillion USD market value deficit across the globe, and can InsurTech innovation be a significant force in addressing the shortfall?

I asked two finance and insurance tenured smart persons, Jake Tamarkin of Everyday Life, and Geoff Tetrault of InsureLife that and other questions as we discussed their respective life insurance startups.

The two firms approach the challenge from differing perspectives- Everyday life being a digital entrée to life products for insureds, and being a ‘partner service’ that helps insureds in the evolution of life products needs as time progresses.  The core of the firm’s innovation?  Clever (and proprietary) algorithms that in a few moments with indicative information produce suggested cover breadth and depth for the insured.  Yes, that’s been done before, but Everyday Life does not follow the aggregator’s path, but a path that takes the customer to underwriting by an A rated carrier.  It’s still a sold, not bought approach in many respects since the customer acquisition model is primarily referral by financial institutions as service value addition, but it’s a departure from a cold call, sell what the company wants tactic.

InsureLife has found its path into a ‘pull’ transaction option, customers accessed via outreach triggered in part by life events and through omnichannel digital access to the platform.  Once reached a prospective customer prompts short video clips (20 seconds or so) that confirm/explain potential insurance products and lead the prospect to a salesperson who facilitates the transaction.  It’s not a commissioned shop- agents are on board to provide a path to what the customer expresses as a need (and not just life insurance), are paid for their time and a static amount for the transaction.  Customer acquisition costs are one fifth of a traditional call center or cold call, the firm represents products for many carriers, and the respective carriers own the customers policy and service after the policy is bound.  InsureLife, like Everyday Life, is appealing to the coming market that is accustomed to digitally native methods, one solving product features through digital tools, and the other solving distribution barriers through omnichannel digital methods.

As fine of strategic plans as the firms have, the problem of under-served customer base remains.  The fundamental customer perceptions of life insurance remain, including but not limited to:

  • It is too complex and takes too long to purchase
  • A medical exam is needed
  • The cost is too high
  • I won’t qualify
  • I don’t have time to meet with an agent, and I’ll be sold more than I need
  • I can wait until I am older
  • I have other things I need to spend my budget on

Without belaboring each point, the reader can understand that the biggest barrier to full capture of the market opportunities that are present in the life market is- customer education (and another point to be made later on).  The product simply doesn’t resonate like other financial products.

In the US participation in a company 401(K) program is at a higher rate than life insurance take up, in great part because the option is there.  Not much effort to join, and with employer contribution there’s a tangible growth to the fund. Often an employer provides group life benefits and few employees opt out.

Group life has existed for decades, but 401(K) only since the early 1980’s. Term life has existed for more than a century- why isn’t it a ubiquitous part of a family’s plans?  Will digital innovation change the thought process, or simply the distribution and administration of life products?

Both Mr. Tetrault and Mr. Tamarkin launched their firms based on a realization that insurance carriers were not making purchase of life products efficient or responsive to customers’ expressed needs.  Life products (including financial products like annuities) have been sold on a sell high to gain commission basis, or on a meet a quota basis.  It’s interesting in my discussion with Geoff Tetrault that his firm’s approach is a Ulysses Contract variant, as the sales reps ‘hands are tied’ from upselling to the carrier’s (and rep’s) benefit because commission is not part of the transaction.  It’s a less pure application than that spoken of by Dan Schreiber of Lemonade Insurance, but a variant none the less.  Action by the rep to help the customer acquire a benefit, but upon a more equal footing within the sales pitch.

Everyday Life needs to share its vision of life insurance needs changing over time with its distribution partners, and helping customers understand and leverage that concept- it’s an analog thing.  Jake Tamarkin knows his firm has a suitable digital tool but even with Everyday Life proving its customer acquisition costs dropping compared with the sector the challenge of scale remains to overcome.  A tie in with challenger bank Chime has potential in terms of being part of a nascent financial ecosystem.  As Chime’s customer base grows into millions of digital native customers with the exposure of life products as an expected part of financial life.

InsureLife recently was selected as the winner of a Solvathon contest sponsored by annuity firm and reinsurer Nassau Re, and with the other carriers beginning to populate the firm’s stable of insurers the digital strength of omnichannel sales response will be enabled to accommodate customers entering the market through apps, phones, tablets or computers.

The promise of innovation helping the life market grow, but the analog, educational, remove the barriers efforts must be joined in conjunction with clever technology.  As I often say, “a correct answer is not always a right answer” , and the other favorite, #innovatefromthecustomerbackwards also applies.  My thanks to Geoff Tetrault and Jake Tamarkin for their input and exuberance in sharing their messages.

Both founders have extensive finance and insurance backgrounds and exemplify the wealth of talent within the Insurtech community.  One must appreciate the enthusiasm and knowledge they bring to their firms and customers, yet at the same time there must be clear recognition that tech innovation in its best form facilitates analog service.  Service begets sales. Maybe $12 trillion worth.

This discussion has focused primarily on the US market; rest assured the vibrant life product carriers in other geographic markets will be a topic of future articles.  Different challenges but surely similar needs.

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