Just when U.S. life and annuity carriers overcame challenges such as reducing risk exposures, repricing products and rebuilding their capital base to position themselves for success in 2014, another challenge comes along: marketplace bifurcation.
Younger buyers are attracted to – even weaned on – alternative distribution channels. These young buyers require carriers and their distributors to be online, whether through robust websites or social media. Indeed, for large swaths of Gen Y, there is no other way to do business.
Today’s 20-somethings, many of whom know how to communicate only through mobile devices, have never sat down with an insurance agent, let alone had insurance coverage at all. They are a mobile breed to whom carriers must adapt.
Not only do they represent billions of dollars in future income for carriers and advisors, but Gen Yers have more choices than any previous generation. They also are able to take their business elsewhere – and quickly – if they are dissatisfied.
At the other end of the spectrum, older buyers – many of whom have spouses, children and more complex financial needs – prefer and even require the traditional face-to-face contact with retail advisors. Long-term financial planning demands sitting down – if only through FaceTime – with advisors and talking through long-term plans, distant needs and medium-term desires.
Baby boomers and pre-retirees represent a more attractive demographic for financial advisors. The accumulated assets and higher net worth of people in their 50s and 60s are worthwhile for an advisor to protect and manage.
Welcome to the age of the dual-track distribution system, an era when carriers and their distributors have to be in both places at once: in the digital-mobile world and in the real-life, face-to-face “analog” world. These two worlds compete for carriers’ budgetary priorities and management attention.
“Digital technology also challenges traditional distribution channels – the ways customers engage with insurers,” wrote Doug French, an insurance analyst with Ernst & Young (EY) and co-author of a 2014 outlook report covering life and annuity insurers. “Nevertheless, EY insurance consumer surveys show that personal interaction is still highly regarded.”
For the moment, there’s no chance that digital distribution channels will supplant the traditional face-to-face contact, according to French, a principal with EY’s Financial Services and Insurance and Actuarial Advisory Services unit.
The nature of insurance and annuities is too complex, and the need for advice “indicates that personal interaction will remain important to an overall channel strategy,” French noted.
Advisors need to be in the business of planning their clients’ long-term financial strategy. That means treating clients holistically, suggesting core protection and wealth accumulation products that complement a family’s financial situation. Insurers, therefore, need to work with distributors to boost advisors’ financial planning knowledge and advisory skills.
What does an advisor most at ease in a dual-track world look like?
He, or she, is the one in the blue button-down shirt and khakis, effortlessly mapping out a complete financial plan on a tablet computer in front of a client, with both of them sipping the morning brew at the corner coffee shop.
Blending both worlds isn’t as easy as it sounds, not with life carriers’ bias toward conservative, tried-and-true methods of doing business. In truth, however, carriers don’t have a choice. They need to evolve, like everyone else.
Robert A. Kerzner, president and chief executive officer of LIMRA and LOMA, re-emphasized exactly that point. In the face of ferocious competition, those who stand still face extinction.
“There is also growing competition for consumers’ attention and where to spend their money, which is why it is vital that we offer products and services that resonate with consumers, helping them focus on protecting against risk and saving for retirement,” he said in a speech to executives gathered in New York for LIMRA’s annual conference.
Winds of change are blowing at insurers’ backs. With a surge in the number of Americans in preretirement or retirement phases showing interest in income-generating products, the time has come for carriers to go on the offensive, French wrote.
Carriers need customer-centric, not product-centric, business models and they need to forge ahead with relentless efficiencies that technology provides, he noted.
Meanwhile, some confusion and discord exist on the meaning of “digital” in the insurance industry.
The terms “digital” and “digital strategy” are beginning to appear more frequently in print, online and on the airwaves. In some cases, those terms appear even in lengthy life and annuity technology and market outlook reports.
In fact, the terms are flirting dangerously close to overuse, and are sure to send some industry veterans longing for the days of the analog world when agents sat down at a customer’s kitchen table.
That “kitchen table” world has almost disappeared as insurance companies increasingly work with customers virtually. They have had to make dramatic changes and adapt to rapidly changing conditions, most notably the speed and manner in which consumers are accessing information.
The Ernst & Young outlook report mentioned earlier talks about the importance of having a digital strategy, launching digital initiatives, locking down digital capabilities and investing in digital technology.
Yet a survey by the consulting firm Novarica does not clarify what that strategy should look like. Is it a mobile strategy, an Internet strategy, a social media strategy, one of the above, all of the above, none of the above?
And what is a digital strategy in the context of the life and annuities industry? Does a financial advisor with a Twitter feed and a Facebook page qualify as having a digital strategy? Is using a smartphone to look up the term “indexed annuities” or even peeking at your annuity portfolio using Google Chrome’s mobile browser a signal that you’ve “gone digital”?
If an insurance agent with Sin City Financial Advisors in Las Vegas closes a deal on a 30-year term life insurance contract with a policyholder living in Denver, and if that long-term contract is underwritten by an Iowa-headquartered life insurer, and if the deal is made possible with the help of websites hosted by servers whirring away in South Carolina, has the policy been sold using a digital strategy?
If the terms of a long-term care or critical illness insurance policy appear as embedded data on a microchip inserted under the skin, does that make the policyholder digital?
The life insurance industry isn’t clear on what the term digital strategy means – and don’t bother trying to herd carriers into a consensus around its meaning. There is no agreement to speak of.
A majority of insurers, for example, “definitely” consider agent/broker e-business, policyholder e-business, and corporate sites and online marketing as “digital” or part of a “digital strategy,” according to the survey of 95 insurance chief information officers by Novarica.
Fewer than 50 percent of insurers surveyed, however, “definitely” consider “digitizing and optimizing internal business processes,” analytics and enterprise data management part of a digital strategy, the survey also found.
“‘Digital’ and ‘digital strategy’ are confusing buzzwords to many in the insurance industry,” Novarica managing director Matthew Josefowicz said in a report on industry “hot topics.” That is to say that the industry can’t seem to agree on the definition of the term “digital.”
“Other areas that are often considered to be part of ‘digital strategy’ like digitizing and optimizing internal business processes and enterprise data management had even less unanimity,” Josefowicz said.
Does a digital strategy – whatever that is – have any value to insurance carriers? If there’s no consensus on what it means to be or to go digital, how are carriers going to figure out if such a strategy has any value?
A digital strategy, however carriers define it, is one “more discussed than understood,” the report said.
Only 7 percent of insurer CIOs surveyed said they had a well-understood and widely deployed digital strategy, 28 percent said a digital strategy was being deployed in some areas and 22 percent said they were still trying to understand the value of such a strategy.