Historically, the life insurance industry has relied on the agent-based model and targeted mainly wealthier customers. Pursuing less affluent segments was an economic challenge for carriers. However, as insurers enter the digital realm, they need to reinvent their product offerings for an audience that is different than the traditional customer profile. The newer insurance customer is a young, middle-market consumer, digitally savvy, and more than willing to buy insurance without a middleman. The best way to target this prospect is to interact via digital channels and go with a direct-to-consumer approach. In order to tap the middle market and increase revenue, life insurers need to understand the following trends:
Trend 1: An untapped market. Today, less than half (44 percent) of the U.S. middle market, which includes 52 million households, owns life insurance. The agent-based model has, until now, tended not to focus on this customer segment.
Trend 2: Underserved consumers. Most of the recent population growth in the U.S. has been in the middle and low-income segments, which remain underserved. There is a $12 trillion gap in the protection of U.S. middle-market consumers. Insurers that go after this market stand to gain a collective $12 billion in revenue and a potential profit of $500 million per year.
Trend 3: New digital approaches. With changing consumer behaviors and advances in digitization, it is now possible for life insurers to execute a profitable middle-market customer strategy. Connected wearables such as Fitbit provide insurers with the opportunity to gather customer data at a level that was not previously possible. This allows insurers to offer more tailored policies to better fit the customer’s lifestyle.
Trend 4: A myth debunked. There is a belief among insurers that a direct-to-customer approach will cannibalize their agents’ existing business and result in an exodus of some of the best revenue producers. However, traditional agency channel sales have failed to reach a large portion of the middle market. So, the direct-to-customer model will not eat significantly into established agent streams, it will simply reach out to an overlooked customer segment.
Trend 5: Digital natives. Many middle-market consumers, particularly millennials, prefer digital interaction to dealing with an insurer through an agent. A recent survey found that 82 percent list the ability to provide an online quote as an important factor in their purchasing decision, while a whopping 90 percent demand mobile apps for services.
Trend 6: Overturning old economics. If life carriers can create direct-to-consumer distribution at similar costs to those of telecom or credit card companies, their middle-market sales will be profitable. MetLife and MassMutual have direct-to-customer models that already show promise. In Japan, Lifent achieved significant growth from 2011 to 2015, more than doubling its policies in-force.
The middle market will not remain untapped for long. Life insurers looking to target this new customer segment need to move quickly, as new entrants continue to challenge established firms. Leaving money on the table is never wise, especially when it numbers in the billions.
Learn more: Monetizing the life insurance middle market