Changing the Distribution Dynamic Strategies for increasing the value of distribution in life insurance
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This document discusses strategies for increasing the value of distribution in life insurance. It notes several macro trends shaping the insurance industry, including changing competition, shifts in growth markets, increasing risks and regulations, and changing consumer attitudes and behaviors driven by digital technologies. The document also highlights opportunities in the US life insurance market, including among middle-income households, boomer offspring, small businesses, and digital-savvy millennials. It proposes five steps for high-performance distribution: transforming to holistic solutions; embracing team-based models; integrating succession planning; digitizing distribution; and optimizing sales performance.
Changing the Distribution Dynamic Strategies for increasing the value of distribution in life insurance
- 1. Changing the Distribution Dynamic Strategies for increasing the value of distribution in life insurance
- 2. Macro trends shaping the future of insurance Changing face of competition • Brokers and aggregators changing the sales arena • New cooperation models rising • Differentiation in customer servicing Shift in growth • Fast, sustained growth in emerging markets • Longer life expectancy impacting L&H demand Increasing risk & regulatory pressure • Increased fiduciary and regulatory responsibilities • Increased fraud and social media risks • Increasing price transparency and consumer protection Changing consumer attitudes & behavior • Less loyal consumers • Channel preferences shifting to online • New consumer groups and individualization in mature market • Heterogeneous customer base in emerging markets/segments Consumerization of IT • Digital marketing • Mobile internet and devices • Analytics Financial crisis legacy • Slow, uncertain GDP growth • Low interest rates • Volatile capital markets • Tightening regulations • Lower RoE
- 3. An industry grappling with distribution challenges *Morgan Stanley Global Consumer Survey June, 2014 **Source: LifeHealthPro 2012 “Facing up to an aging producer workforce” ***LIMRA, Life InsuranceAwareness Month, September 2013 Over 85% of customers interact once per month or less – among the lowest across industries* Low multi-product penetration Third-party distribution channel owns customer relationship; Insurers have difficulty differentiating Sales and service processes not aligned with consumer preferences • Products are complex • Consumers looking for personalized advice • Want access to multiple channels • Expect to be able to use mobile devices to shop and interact Sales-force is shrinking (-25% over 30 years), getting older (53% of advisors over 50, with median age of 56)** Carriers unable to attract fresh talent; inexperienced hire recruiting declined 1% from 2012 to 2013, while experienced hires increased 10%*** Business leaves after agents retire, creating need for succession planning • Only 29% of advisors have a succession plan • Banks, insurers, traditional advisory firms, and startups are converging on distribution
- 4. There continues to be substantial, increasing and potentially underserved income and protection needs across all demographics of the market. However, the US market has substantial growth potential • Per capita penetration of life insurance is significantly lower than other developed economies, including Japan and the United Kingdom • 44% of American households do not have life insurance • Of consumers who believe they need life insurance, 86% haven’t bought it because they think it is too expensive • Retirement: 82% of consumers are worried about the financial situation after retirement • Wealth Transfer: Wealth transfer from the Greatest Generation to Baby Boomers will see over $12 trillion change hands; and wealth transfer from Baby Boomers to their heirs is estimated to exceed $30 trillion World’s largest Low penetration Need for protection Need for solution • Largest insurance market and projected to grow to $766 billion by 2020
- 5. The untapped potential is staggering Despite the current level of household penetration, there are significant opportunities to increase sales in “untapped markets.” Insurers that use novel approaches and innovative strategies to cost-effectively bridge the life insurance coverage gap within the 32- to 47-year-old age bracket can potentially appropriate the lion’s share of this vastly underpenetrated market. Estimated total size of the opportunity $0.7 trillion $0.3 trillion Source: Trillion Dollar Baby – Growing Up: The sales potential of the US underinsured life insurance market, LIMRA, 2011. Gen Y (Age: 20-31) Gen X (Age: 32-47) Baby boomers (Age: 48-66) Potential opportunity in the 12-month period Untapped market size ($) $7.1 trillion $3.6 trillion $7.0 trillion $2.2 trillion
- 6. Four key ‘white space’ opportunities • Middle market (~52 million households between $35,000-$100,000 annual income) has a particularly low Life insurance ownership level at 4% • The protection gap is estimated to have increased from $6.5 trillion in 2006 to $10.2 trillion in 2012, indicating a substantial untapped market • Small businesses (<100 employees) comprise 98% of US firms, with 42 million employees or about 36% of the workforce. • Only 41% of small businesses offer life insurance, but when they do, participation is 96% • More than 70% of small business employees have no retirement plan available from the company • There are ~80 million digital-savvy Millennials born between 1980 and 2000, with 10,000 turning 21 every day • Millennials are the most motivated to build and pass along wealth: 40% have a strong determination to pass along wealth and 43% identify themselves as conservative investors • 75 million Baby Boomers are on the verge of retirement, and 10,000 people will turn 65 each day for the next 20 years • Baby Boomers will transfer wealth exceeding $30 trillion to their heirs, but 53% say they lack the information to prepare for retirement and 86% have little or no awareness of retirement products offered by insurance companies Middle market Boomer offspring Annual market size: premium and fees ($B) Millenials Small business employees Sources: US Census; SHRM; Accenture Research 12 5 3 8
- 7. • Approx. 44% of US population • $27 trillion in assets • Not a homogenous group, but have shared characteristics • Active investors with higher levels of income, education and assets The new consumer is also extremely Digital – across generations Gen D: 75 million active investors with $27 trillion in assets A set of consumers that has higher levels of education, wealth potential, and positive attitudes toward technology in their lives. This group spans generations. Attributes/ Behaviors Overview Generation D Use of Technology Composition • 26% Millennials (21-30 yrs) • 48% Gen Xers (31-45 yrs) • 25% Boomers (46-70 yrs) • Have a deeply digital lifestyle • For the always- connected consumers, technology—online, mobile, and social— is deeply woven into the fabric of their lives as they strive to create, maintain and pass along wealth
- 8. Five steps on the path to high performance distribution 1 2 3 4 5 Transform from a product and channel constrained model to provide holistic solutions that address customers’ wealth protection, income and investment needs Move to a solutions-driven customer-centric model Traditional solo producers need to join teams that address customer needs holistically, and integrate recruiting, on-boarding and succession planning into teams Embrace teaming Carriers must address this issue, both to save books-of-business and also to ensure a long-term customer experience Integrate succession planning Comprehensive end-to-end and interconnected digital enablement with embedded analytics will become table stakes Digitize distribution Carriers need to proactively address sales performance, leveraging analytics and aligning compensation models to drive desired behaviors Optimize sales performance and compensation