The future of life insurance
Demographic and digital disruption demand transformation in retail distribution By Doug French and James O’Neill, Ernst & Young LLP
The life insurance industry is undergoing a period of profound change that is reshaping the retail distribution landscape. Call it creative destruction, a tipping point or a paradigm shift — the means by which carriers engage with prospects and customers, provide advice, sell products and support policyholder relationships will look fundamentally different in 2020 than it does today. Two “megatrends” — large-scale demographic shifts and the digital revolution — are forcing carriers to make a critical strategic choice as they prepare for tomorrow’s markets. insurance buyers — those over age 55 and those under age 35 — they want to pursue. Then they must determine how they will reposition, retool and restructure their distribution models (including traditional agencies) to serve those segments. This is a strategic reckoning that cannot be deferred. For one reason, the process of retooling distribution networks is a long-term process and there is an advantage for as they become mere providers of commoditized products in a market looking for personalization. Certainly, carriers must avoid the strategic miscues of the past — such as missing out on the rising asset accumulation market that arose as baby boomers worked through their most productive years and that were seized by the mutual fund industry.
Facing up to the megatrends
To understand the road ahead, it’s useful to take a closer look at the two megatrends
Massive demographic shifts
is, at its core, a demographically driven business. The proportion of the US population aged 55 and over is set to grow 25-30% by 2020, according to US Census information.
By that same year, the number of citizens between the ages of 35 and 55 will shrink by 3%. Meanwhile, the number of citizens under the age of 35 will increase by nearly 10% by 2020. See Figure 1. The implications are huge for life insurers. It’s clear that the future of the market is at the ends of the age spectrum. It’s equally clear that insurers have lost traction with 55+ buyers, the largest consumers of life insurance and related products. This cohort has turned in large numbers to the advisory model and personalized service approach
Then there are the unique generational preferences – chief among them the propensity of younger people to conduct as much as possible of their lives online
here is not just a lost agent commission, but rather the lost opportunity to strengthen existing relationships or develop new ones with young buyers.
Increased viability of digital self-service channels
The internet has empowered 21st-century consumers to buy almost anything online and there’s little reason to think that life insurance will be an exception. Skeptics should consider themselves forewarned. Just think of the booksellers, travel agents and stock brokers who believed consumers could not conceivably forego their expert advice and buy directly online. Or the established publishers and music labels who never expected competition from new digital formats or new content distribution models (not to mention computer makers or online retailers). Life insurance executives must not allow themselves to lapse into denial or think business as usual can continue. Rather, they must recognize that digital disruption will change their business just as profoundly as these other sectors. life insurance needs (likely through online research), there’s no doubt that self-service will become a more popular channel. The risk
Starting with insight: matching distribution networks to market needs Looking across a 10-15-year horizon, it’s clear that the number of people in different insurers choosing which primary market to serve. The decision should also be informed by a self-assessment of carriers’ current operational strengths, as...