As consumers question the relevance of life insurance and annuities, it’s time for the industry to rethink its value proposition.

Life insurance in America can seem like a tough business these days.

According to LIMRA, only 44 percent of U.S. households have individual life insurance, matching the 50-year low set in 2010. The income replacement ratio continues to decline, as do retail sales of life insurance, despite lower-than-ever costs of ownership.

The obvious silver lining to this cloud is the growth in direct sales, fuelled by technology. The growth is undeniably impressive. For instance, in 2016, direct sales grew by 26 percent.

But despite such growth, direct sales are still less than one tenth of the life insurance market. They have a very long way to go to address the industry’s underwhelming sales..

On the annuity side, an aging population creates huge opportunities for the industry. People are also living longer than ever. A steady stream of income that can’t be outlived should appeal to a growing number of people.

Yet insurers have struggled to grow the annuity market. Sales have remained flat from 2012 to 2017. Net annuity flows have also weakened, in most cases plunging into negative territory.

The first step to reversing this decline is understanding its causes.

Accenture’s life insurance practice has identified five critical drivers of change for life insurers.

  1. People are living longer. While the latest data from the National Center for Health Statistics shows a decline in average American life expectancy, the drop of 0.1 year comes after a decades of steady growth in life expectancy. As people live longer, saving for retirement becomes more pressing, while life insurance seems less urgent.
  2. The financial crisis continues to cast a long shadow. Many consumers remain focused on dealing with pressing financial needs, leaving future comfort a distant thought.
  3. People are hitting major milestones later in life. Getting married, having kids, buying a home—all of these major life events, which often trigger life insurance purchases, are happening later for the average American.
  4. Workplace insurance is seen as good enough by many. Many consumers feel that the insurance plans provided through their employers meet their needs.
  5. The shrinking traditional distribution network. The number of active insurance agents and brokers has declined to less than a third of what it was 20 years ago.

The picture looks different in the annuity space, where we see four key drivers of change:

  1. An accumulation mindset—on both sides of the table. For a long time, the financial services industry has preached an “accumulation” doctrine that focuses on growing a client’s “bag of cash” and not on turning that cash into reliable income. Consumers have mostly come on board with the industry’s thinking.
  2. Advisors are not positioned for success. Most financial advisors are ill-equipped to talk with their clients about turning accumulated assets into a retirement paycheck.
  3. Consumers are wary. Many annuity products are complex, inflexible, and opaque. Consumers often see them as too expensive.
  4. Misaligned incentives. Typical financial advisor incentives are misaligned for annuities. Compensation is based on assets under management. Moving client money into risk-mitigating products lowers an advisor’s compensation.

Combined, these factors make it clear that the life insurance industry in America stands at a crossroads today. Deciding to stay the course is signing on to continued long-term decline.

Yet the industry did not arrive at this position overnight, and many life insurers have been taking the initiative and addressing these challenges. Come back next week for another post in this series, where we’ll look at three interesting examples of life insurers’ proactive responses to industry conditions.

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