By focusing on the baby boomer generation, the insurance industry is neglecting a large part of the market. In fact, there are five million Canadian households that require more life insurance.These are the conclusions reached by Brent Lemanski, assistant vice president of member relationships for LIMRA and LOMA in Canada. Mr. Lemanski took part in The 2012 Insurance and Investment Convention’s session on business development for Canadian financial advisors, where he also presented LIMRA’s most recent data on Canadians’ life insurance needs.
He revealed that 50% of Canadians have no individual life insurance. In addition, 40% of Canadians do not have group insurance and 20% do not have life insurance in any form. Mr. Lemanski notes that this deficiency is nothing new, since these figures are the same as those recorded a decade ago.
As a result, he says there is a large hidden market for the life insurance industry. “In addition, these people know they are underinsured or not insured at all. We’re talking about five million Canadian households that need more life insurance. Our studies estimate that 2.9 million Canadian households are prepared to take out insurance. This represents $1 billion in premiums, for $371 billion of coverage,” he comments. If all of the 5 million households were to buy, Mr. Lemanski says the premiums would come to $2 billion, and that total coverage would amount to $985 billion. He points out that these are conservative estimates.
Advantage of personal contact
In fact, this situation contains some good news for financial advisors. No matter what the age group, Canadians prefer to buy their life insurance coverage in person.
“We must, however, take into account that the Internet is changing the way young people seek information and act. More and more people do research online. Twenty-three per cent of them did so in 2003, and 61% in 2012. I am convinced that this proportion will increase further in 2013,” says Mr. Lemanski.
Social media is also expected to change the status quo. It has already changed the way in which we interact, says Mr. Lemanski. Speaking at the conference, he gave the example of his step-daughter; she is a student at McGill University, and she is spending three months in France to improve her French. She speaks with her mother by video twice a week, and each time her mother prints off a new photo to stick on the fridge.
It will be the same in insurance. Connectivity allows for more than one way to keep in touch with customers. “Several companies are going to launch applications for their advisors,” he comments. “We should expect an explosion.”
Obstacle: finding a trusted advisor
The basics of insurance sales have not changed. Seventy-three per cent of the respondents who admitted they needed life insurance bought after meeting with an advisor. “This is a huge market. Their biggest obstacle before buying is finding an advisor that they trust. They have difficulty in doing so and, what’s more, they procrastinate before taking the step,” says Mr. Lemanski.
Insurers and intermediaries in the market should also take three emerging trends into account. The first is the diversity found in the market, both in terms of demographics and ethnic background. “The face of Canada is changing. One must consider the impact,” he comments.
In addition, insurers and advisers should equip themselves with a wider variety of products and services, although Mr. Lemanski believes this will be difficult to do in a low interest rate environment. “We must expect a new wave of change in product design, which will result in an additional layer of complexity for the consumer,” he says. The final trend relates to the variety of communication channels, which will change the way the client takes out his insurance.
Who will be successful and who will not?
LIMRA conducted a survey of 1,300 American financial advisors, segmented according to the size of their businesses, to see who was successful and who was not. Two things emerged from the survey, explains Mr. Lemanski. The first is that those who work collaboratively are twice as likely to be successful as those who work alone.
The solitary advisor was the first model used in the industry. Later, top performers hired assistants to help. “Those who didn’t do so hit a wall,” he notes. Then, some advisors started to share resources and expenses between them. However, the size of insurers reduced their effectiveness, which led to the emergence of a fourth model, namely the combination of a junior and a senior advisor.
The LIMRA study found that the advisors who work in this way were the most successful. The senior advisor retains the most affluent clients, while the junior advisor works with those of more modest means.
“There will be a lot of wealth transferred in the future. We also see that wealth follows the relationship, not the institution. Follow the heir, not the person who leaves the inheritance. One day or another, the money will move from the advisor to the heirs. Not vice versa. If you are sitting on a large block of older customers, think about bringing a young person into your practice,” he concludes.