The middle-income market has long been overlooked by life insurers deterred by its low revenue and profit prospects. However, advances in digital technology and shifts in demographics have improved the potential of this sector substantially.

Many life insurance companies are overlooking a big business opportunity – the middle-income market.

Life insurers have tended to shy away from this sector because it has long offered modest profits and lackluster growth.  However, shifts in digital technology and social demographics have dramatically changed its potential. The middle-income market, households with combined income of between €30 000 and €110 000 (US$35 000 and $125 000), now offers life insurers substantial returns.

As many as 70 million people in the US, most of them middle and low income earners, acknowledge they need more life insurance, according to researcher LIMRA. That’s nearly a third of the US adult population. Investment manager Conning & Company estimates that the shortfall in life protection for US middle-income consumers is as much as $12 trillion. Companies that successfully serve this market could gain collective revenues of up to $12 billion a year and annual profits of $500 million. In Europe, the life protection gap is estimated to be as high as €10 trillion ($11 trillion). A survey of 14 European countries by Swiss Re in 2012 found that only 8 percent of respondents believe they have sufficient life insurance.

To achieve the lucrative returns offered by the middle-income market, insurers need to adopt a direct-to-consumer (D2C) approach. They should use digital technology, such as online services, mobile applications and connected devices, to forge close relations with these new customers. This will reduce distribution costs, enhance the customer experience, and create opportunities for the sale of further products.

The demographics of the middle-income market have changed significantly. Young people, members of the Millennial and Generation X age-groups, already comprise a big portion of middle-income earners. And their representation is increasing fast. These consumers are hungry for digital products and services. Furthermore, many of them are looking to buy life insurance. Around 84 percent of the young middle-income earners rate life insurance as extremely or very important and are willing to spend more on such cover, according to the US Society of Actuaries.

Life insurers often hold back from pursuing the middle-income market because they’re anxious to avoid cannibalizing their agents’ business.  They’ve tended to assign this sector to agents and they don’t want to lose some of their best revenue producers by stepping on their toes. However, such concerns are unfounded. Traditional agency channels in most countries have achieved little success in winning customers in the middle-income market. They’ve usually focused more on high-income consumers. Furthermore, many young middle-income earners prefer using digital services instead of dealing with agents.

By adopting a D2C approach life insurers can at last properly serve the middle-income market and open a significant new revenue stream.

In my next blog post, I’ll discuss the advantages of using a D2C strategy to access the middle-income market. Until then, have a look at this link. I think you’ll find it useful.

Tapping the $12 billion life insurance middle market opportunity

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