Management consulting firm McKinsey & Company suggests that life insurers who want to prepare for the future need to think about branching out from the traditional agency model and building a portfolio of distribution options.
In Rethinking U.S. Life Insurance Distribution, McKinsey notes that sales of life insurance and annuity products in the United States are growing by less than 2% annually and that household penetration has declined from 83% in 1990 to 65% today.
Close to retirement
"Traditionally, life insurers have turned to boosting agent-driven sales in low-growth environments, but this approach may no longer deliver the results needed," reads the report. "While agents still sell about 90% of new policies, growth in the agent channel is shrinking, and no clear alternative has emerged." McKinsey also points to research which shows that 20% to 40% of the agents who are working today are within ten years of retiring or selling their practices.
To deal with this low growth, the report proposes a number of ways for insurers to develop stronger ties to their customers. The first is for insurers to use technology to augment their face-to-face distribution channel so that advisors are better able to serve their most profitable customer segments.
"Improvements include innovative planning tools that deliver advice, digital tools (e.g., budget tracking) that improve client engagement, analytics that improve advisor productivity and advisor teams with expertise in protection and investments," says McKinsey. "The tech-enabled model will allow carriers to meet the needs of the vast majority of consumers who still prefer a local agent."
The second suggestion is a robo-advice model, in which insurers still offer personalized service but do so through a variety of remote channels. The report suggests that mass affluent consumers are particularly interested in remote advice and says that more than 30% of consumers in this demographic would be comfortable with an advisor they did not meet face-to-face.
Last of all, insurers can use a direct model to reach the underserved mass market. McKinsey suggests that low-cost, simplified products sold through affinity-style partnerships would play a central role in this approach, since they would allow insurers to find new clients while minimizing underwriting and administrative expenses. "After the sale, advice algorithms could generate additional cross-sell leads for outbound calling and follow-up sales," reads the report.
McKinsey warns that insurers who start to use other distribution methods need to be careful about upsetting the traditional advisory channel.
"To minimize potential disruption, carriers can communicate clearly about how new models can help existing advisors and open the doors to a set of consumers that are currently underserved," concludes the report. In some cases, McKinsey says that insurers may wish to develop separate brands to serve younger, less affluent clients through a direct-to-consumer model.