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Life Insurance 2.0: Bought and Not Sold

Life insurance is sold and not bought.

This quote has been the mantra of the insurance industry for generations. Life insurance is perhaps the most difficult and complicated financial product to sell and by far the most painful to buy. It’s also the reason commissions are extremely rich, while those who don’t specialize in it, such as independent broker/dealers and registered investment advisors, often don’t touch it.

But the financial services business is undergoing transformational change driven by new regulations, digitization of everything and huge demographic shifts. And the life insurance industry is not exempt from these forces of change. Here are some influences shaping the life insurance business going into the future — sort of a “Life Insurance 2.0.”

The Purchasing Process Must Change

The life insurance purchasing journey is in the Dark Ages. The buying experience today for most every product is moving to digital on every device from the desktop down to the mobile phone.

Contrast that to the way life insurance is sold — think Groundhog Day. First, you have to find someone who needs coverage. Anyone want to talk about dying? It’s not an easy discussion to initiate. Then if you do find someone who will listen, the primary method for helping a prospect find the right coverage is by thumping multiple 20-page illustrations on their desk or kitchen table complete with numbers they won’t understand and legalese they can’t comprehend.

Then perhaps after several meetings held weeks apart, if the prospect trusts your recommendation, you have to fill out a very detailed multipage application digging into some very personal and private information. Then comes the drawing-blood-and-peeing-in-a-cup part scheduled whenever the paramedic can get to the client.

Finally, after requesting all the medical information, which can take months to secure, the underwriter mulls over all the information, and if the history matches the underwriting guidelines, a policy is approved. Then it takes up to another month before the actual policy is issued and ready for delivery.

All told, the buyer will have endured a 2-3-month process with very little communication along the way. Could we make this any more difficult? It’s the very opposite of how today’s buyer wants to make transactions. It’s antisocial, the opposite of real time and totally paper driven.

Investment in Insurtech Is Hot

There has been huge growth and investment in insurtech. While investment in fintech is beginning to show signs of maturity, with a reduction in investment by 47 percent in the second quarter of 2017, the fintech subcategory of insurtech is just getting started.

A highly respected consulting firm in this area estimates that investment in property/casualty insurance technology lags banking (fintech) by up to five years and lags the life and annuity segment by another couple of years. But with the increased investment and new technology players entering the space, that lag time is closing.

Tell someone you’re in the insurance business, and nobody wants to talk to you. Tell them you’re in the insurtech business, and everyone wants to talk with you. Technology makes the insurance industry a bit more exciting. The insurance industry is beginning to attract tech talent like never before, and this will move the industry into the digital age.

Mortality and Underwriting Meet Biotechnology and Digital Data

Dr. Craig Venter runs the human genome project in La Jolla, Calif. He has been instrumental in sequencing human DNA, and, like in all things technology, the advances over the past couple of years have been astounding. Sequencing a human genome now costs $1,345, compared with the $95 million it cost in 2001, according to the U.S. National Human Genome Research Institute. In a few years, you could possibly get your complete DNA for a fraction of today’s cost.

Having your DNA tested presents valuable information to an insurer. What if you knew that you had a high likelihood of getting Alzheimer’s disease in 20 years? There are measures you can take today to prevent that from happening if you know it. The same is true about various cancers and other life-threatening diseases. And with information readily available over the internet, several carriers are experimenting with being able to gather data from third-party sources to issue up to $2.5 million in face amount almost immediately upon receiving an electronic application.

Armed with all this digital information, an insurance company no longer needs prospects to bleed and pee. They may no longer need to access volumes of medical information from the prospect’s doctor. And having this information in advance helps the insurer get to “yes” faster instead of “no” later. Underwriting for life insurance is about to be changed forever — and for the better.

The Digitization of Everything

Blockbuster has given way to Netflix, K-Mart and Sears have yielded to Amazon, and Tower Records was beaten down by iTunes. Everything is moving to digital, and so is the insurance industry.

While the insurance industry has been slow to adopt new technology, there are signs that this is beginning to change. By using data integration, cloud technology and new digital formats, technology allows insurers to digitize the purchasing experience without having to change their legacy systems.

Imagine a digital lead-nurturing program that, through analytics, targets customers based on specific demographics and online habits along with life events that trigger the need for life insurance. Perhaps through Facebook or other social media, a client clicks on a message that seems personalized to them and their particular situation, taking them to a landing page educating them on the features and benefits of a particular life insurance product.

Once the prospect has been educated online through various media such as video, storyboards or a Khan Academy, type of explanation, they then fill out some personal information online that begins to prepopulate an illustration and application. If they choose to, they can talk to an agent or advisor unless they prefer to continue on their own.

With the data input about name, age, face amount and premium, multiple illustrations can be run simultaneously and rendered on a simplified policy comparison chart with visual interactive graphs. The information is viewable on any device and is complete with the compliance-approved illustrations attached if the prospect wants to review them. 

Nontraditional Channels Will Be Compelled to Address Life Insurance Needs

The big story in financial media has been the margin compression in the wealth management space. The Department of Labor’s fiduciary rule and the advent of robo advice are moving the dial on that even more quickly. With assets under management (AUM) fees expected to be cut from today’s standard of 1 percent to about 25 basis points, and commissions fading away, RIAs and independent broker/dealers will need to find revenue from somewhere else.

The general belief is that charging fees for comprehensive financial planning (as opposed to commoditized investment management) is one way to go — whether it’s a flat fee, an hourly charge or baked into a higher percentage of AUM.

But one of the primary tenets of financial planning, as taught by the Certified Financial Planning curriculum, is life insurance. How can advisors meet their fiduciary requisite and not address their client’s life insurance needs? I don’t think they can. But why don’t advisors address those life insurance needs today? You guessed it — it’s complicated! And it makes the advisor look stupid if they don’t have it mastered.

But what if the process to address the client’s life insurance needs is digitized and made seamless? That’s where the advisor can step up and make life insurance part of their value proposition and fiduciary duty. At the same time, life carriers are actively looking for alternative lines of distribution, since the traditional agent is a dying breed. Look to see new forms of permanent life insurance priced for the advisory marketplace so the conflict of interest over commissions is taken away. And technology will enable the RIA and independent broker/dealer to address life insurance needs in a far more consumer-friendly way.

Robo Advisor as a Proxy for Robo Insurance

Not surprisingly, the majority of fintech investments early on went toward B2C direct models trying to disrupt the space through what we know as the robo advisor. Now that we’ve seen a couple of them crash and burn, there seems to be a reorientation toward using technology to enable rather than replace the advisor.

In insurtech, we’re likely going to see the same. The majority of insurtech investment is currently going toward B2C models attempting to go around the current distribution channels, following the theme of disruption. But just as we’ve seen the robo advisor shift following the fintech trend, within a couple of years we’ll see the same with insurtech. Technology in insurance will reset from attempting to bypass the traditional channels to enabling them.

There is no other industry as ripe for a technology overhaul as the life insurance industry. Paper-driven legacy systems have been like a ball and chain on technology progress. However, the dynamics impacting the industry are creating opportunities to change that.

The painful process of finding a prospect and the multi-month purchasing timeline are on the cusp of changing through new technology. It will be the carrier or distribution firm that finds a way to change the buyer experience through new technology that will win in the future. However, as life firms have been in cost-containment mode the past several years, the talent to create a digital platform is slim.

Carriers and distributors are more likely to partner with insurtech firms to create the future platform while using their current resources to keep the lights on with legacy systems. Imagine if we could flip the old quote around and say, “Life insurance is a product that is bought and not sold.”


John Lefferts, CFP, CLU, ChFC, is chief revenue officer with Assurance. John may be contacted at [email protected] .

Chris Aitkens is senior vice president of smart office sales at Ebix. Chris may be contacted at [email protected] .

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