One New Year’s Resolution
the Industry Must Act On
WITH THE NEW YEAR now receding in memory, many producers and insurers have undoubtedly cast aside their 2011 resolutions. If they fulfill only one, it should be this pledge: to better serve prospects and clients in the middle market.
There is an urgent need to do so, not only for the sake of those
who lack coverage, but also for that of the industry.
Stats on Underserved
Market-watchers have for the longest time wrung their hands
over the industry’s seeming inability (or unwillingness) to meet
the coverage needs of those in the middle market, a demographic
broadly defined as households with annual
earnings ranging between $40K and $80K.
Since I joined NU in 2004, the situation hasn’t
Indeed, it’s worsened. An August 2010
survey undertaken by Limra International,
Windsor, Conn., shows that ownership of life
insurance has hit a 50-year low. Thirty percent
of households (35 million) have no coverage,
compared to 22% of households in 2004. Among households with
children under age 18, 11 million have no coverage.
Why are so many folks uninsured? Part of the answer lay in
changes in the economy and industry in recent decades. In tandem with the decline in real wages and the reduced availability
of defined benefit or pension plans, middle market consumers
must devote more disposable income to meeting basic living
expenses, paying off debt and saving for retirement.
The financial squeeze on midmarket consumers and the
diversification of financial planning products have prompted
many life insurance professionals to jettison the middle market
in favor of an affluent clientele. Hence the findings of a study by
Toronto-based NewLink Consulting: Of more than 1,000 U.S.
policyholders polled, about one-third lost contact with the advisor who sold their policy. In cases involving an agent or broker
(as opposed to a financial planner) the figure rises to 41%. With
no one to turn to, many of these “orphaned” policyholders allow
their policies to lapse.
Rays of Hope
To be sure, industry players are taking steps to close the midmar-
ket coverage gap. The most prominent of these are happening at
the association level. Examples:
The National Association of Insurance and Financial Advisors
has partnered with the Million Dollar Round Table and GAMA
International in a project dubbed Task Force For Our Future. The
organizations are exploring ways to reverse trends—notably the
consolidation of insurance distribution channels and advisors’
increasing focus on the high net worth—that have left the middle
So closing the
coverage gap really
is about the carriers
extending their time
horizon on business
Moving Beyond the Margins
These are all worthy measures. But to significantly reduce the
number of uninsured in the middle market, more has to happen—and at the carrier level.
Since transitioning from mutual to stock-owned companies,
too many life insurers eliminated their direct/career agent channels to cut labor and distribution costs. As a tactic to please shareholders focused on near-term profits that perhaps made sense.
But such disinvestment harms the industry and the very
people carriers hope to serve. Fewer agents receiving basic sales
skills from carriers—forget about BGAs, who mostly recruit experienced advisors—translate to a smaller pool of life insurance
professionals to sell to (and win) middle market clients.
So closing the coverage gap really is about the carriers extending their time horizon on business objectives. What steps, they
must ask themselves, can be taken to boost long-term shareholder
value As regards better serving the middle market, the answer is
clear: restart (or expand) direct sales channels; give new recruits
the training they need to survive in the early years; and help them
build mature businesses in later years without having to move
up-market. Nothing less than these three action items will suffice.
Be it so resolved! NU