Life insurance ownership rates have hit their lowest point in recent years, according to a Life Health Pro report. In fact, the life insurance sector has remained at sales of 6 million policies per year for over 20 years. Total premiums have also remained largely stagnant during that same period. This comes despite the fact that some providers have continued to reduce prices for policies, while others have increased their services and performance levels - further still, some have done both. However, the result has been a gradual drop in life insurance ownership to its lowest-ever point.
"Insurers must demonstrate clear value propositions to consumers."
Why life insurance ownership rates are lower than ever
One of the major issues associated with life insurance sales is that for most of the industry, price is the primary consideration. The Life Health Pro report noted that at a consumer commodities level though, price is not the only deciding factor involved in purchases. Consumers look for a value proposition - the benefits versus the price. Therefore, the report illustrated that this is a fundamental flaw in life insurance sales practices because definitions of the benefits and quality of policies are outweighed by the illustration of price points. The end result has been sales stagnation across the board as consumers have not been motivated to buy the product due to lower prices. Without demonstrating the value propositions of life insurance policies, the price will not matter.
Another primary issue with life insurance policies listed in the report was the fact that life insurance coverages may not be reliable projections of real outcomes in the future. Many life insurance policies have underperformed predictions, which has made marketing more difficult. In fact, this has served to alienate many providers from their consumers.
Solutions to the approach
The report listed a three-pronged approach to adjusting sales practices for life insurance policies based around products, payments and processes. As most providers emphasize the price points and performance aspects, many consumers may not see the value in life insurance policies due to their complexity and intangibility. Therefore, an approach to circumvent any confusion over the opaque nature of policies is to simplify sales practices with tangible data in easy-to-understand forms.
The payment structure of these life insurance policies is also a deterrent. For most contracts, the sales compensation is paid within the first 12 months, despite the fact that these are long-term policies. Life insurance brokers and agents receive their commissions up front on the sales of policy contracts. However, the report argued that adjustments to the payment structure to evenly distribute compensation payments can simplify and significantly enhance the marketability of the product to consumers. This may lead to more consistent returns for life insurance companies and brokers, while also ensuring that sales practices offer more value proposition with the payment structure.
The lifecycle of the life insurance evaluation process is exhaustive and deeply invasive. This level of underwriting is a large undertaking that can be streamlined and made more palatable through similar technology used across other insurance and medical sectors. In turn, this technology will expedite the sales transaction process as well, which will make life insurance policies much more consumer-friendly and simpler to buy.