02.10.21
A New Approach to Life Sales
by: Scott Stathis and contribution from Robert Mittel and Janet Cappelletti
For as long as those of us who have spent their careers working in the bank and credit union channel can remember, there is possibly only one thing that has not changed: we are bad at selling life insurance. Put another way, for institutions that are supposed to be helping people manage and grow their assets, we really suck at helping them protect those assets.
According to Janet Cappelletti (who aggregates industry data for the BankChannelResearch.com benchmarking portal), the situation is rather bleak.
“For the past 10 years, life insurance sales in the bank channel have gone absolutely nowhere. Actually, they’ve declined. Initial 2020 numbers show life insurance dropped to less than 2% of total program revenue, down from 2.6% 10 years ago. And it’s not just the revenue mix – actual revenue dollars moved in lockstep. Insurance revenue per branch was down by one-third. We looked at 15 of our larger institutions for both periods. In 2010, this group produced an average of $2.8 million in life revenue and in 2020 this same group tallied $1.9 million,” Cappelletti reports.
Is that the best we can do? Maybe it’s time to change our approach.
For too long, we’ve hoped that advisors would integrate life insurance into their sales practices. We have seen them do this either reluctantly or not at all. Is it time to raise the white flag? Well… kind of…
Before we get into what must change, let’s look at some market stats.
James Scanlon, Assistant Vice President of Insurance Research at LIMRA, said in a recent Stathis-Mittel podcast titled “Fixing Life Insurance Sales” that life insurance ownership levels in the U.S. have dropped from 63% in 2011 to 54% in 2020. Ownership of group life has declined more than ownership of individual life. In addition, many of those that have coverage do not have nearly enough.
According to LIMRA, purchasing preferences have also dramatically changed. In 2011, 64% of the population preferred purchasing life insurance in-person – about two out of every three people. By 2020, only 41% preferred in-person purchasing – two out of five people. What changed? Acceptance of online purchasing.
Scanlon said, “2020 could be a generation-defining year as it relates to life distribution preferences.”
All these insightful stats and more are available in the 2020 Insurance Barometer Study.1
What does this mean for banks and credit unions? It means we must reassess how we offer life insurance. The reassessment must be based on segmenting our client base and mapping appropriate distribution methods to those segments. However, we must also be looking differently at client segmentation.
Our client segmentation models are outdated and must evolve from a one-dimensional model to a two-dimensional model.
The one-dimensional model we’ve been using is essentially horizontal and linear with low net-worth to the left and high net-worth to the right (and all other segments in-between). The new two-dimensional model has a vertical line that intersects the horizontal line in the middle. At the bottom of the vertical line is “Self Service” (a.k.a. digital). At the top is “High-Touch” – a very personalized service. There are many hybrid options in-between and you now have many types of clients and prospects to consider in each quadrant of this new two-dimensional segmentation model. Executives focused on forward-looking strategies will use this new model to start mapping distribution strategies to the various zones of this new segmentation scheme.
There are many implications, but for the purpose of this article we will focus on the following two:
- A digital strategy is no longer optional if you want to be in the game.
- We must stop relying on the advisor as a primary element in life sales.
Let’s explore these two elements.
A Digital Strategy
Weren’t banks and credit unions supposed to be the saving grace for the middle market relative to providing life insurance? Given what we now know about the structure of financial institution investment and insurance programs, was the assumption flawed or the execution flawed? I’d say it’s the latter.
If we cling to our old models, a deconstructed analysis may indicate that it can cost a bank money to serve the middle-market’s life insurance needs.
As Jake Tamarkin, CEO of Everyday Life, said in our podcast, “If not done right it will cost you money to serve the insurance needs of the middle market — and that’s why having a different approach for different segments is so important.”
Everyday Life provides a white-labeled intuitive digital user experience for purchasing a laddered-term solution. This type of digital solution may be the difference in effectively serving the middle-market’s life insurance needs.
When considering the evolving preference for purchasing life insurance online combined with the new model for client segmentation, the implication is that digital life insurance sales may occupy a significant portion of the strategy schematic, resulting from mapping delivery methods to the two-dimensional segmentation map. See the below graphic.
If you consider which net-worth segments are good target markets, then account for what percentage of the clients and prospects in these segments may be amenable to online life insurance offerings (once prompted appropriately), it could be that this “Digital Life Distribution Block” should cover the largest portion of your distribution map. The segments outside this block should be accommodated by a hybrid solution and what I’ll call the “Augmented Advisor.” More on that in a moment.
Tamarkin provided some additional wisdom during our podcast discussion, “If you want to be relevant to the customers of today, you have to meet them where they are. And today, they are online. And by the way, most of our business happens after hours. If your model is dependent on face-to-face sales, you’re missing a huge chunk of revenue,” he said. “This isn’t about replacing your current program,” he continued, “It’s about expanding your solution set.”
The Augmented Advisor
For the areas in your segmentation map that are not covered by the “Digital Life Distribution Block,” you should enable insurance-augmented advisors. While these augmented advisors are a separate distribution channel from the digital offering, they may reap significant benefits from this self-service channel. The simplified online solution is often a gateway to additional higher-end needs identified by data mining that can be fulfilled by the advisor.
The role of the advisor in the life insurance sale must change. We can no longer expect advisors to be the primary facilitator of life insurance sales. First, they should be replaced in the middle-market segment by digital distribution. Second, for affluent markets, they should be used primarily as catalysts to the life sale and the heavy lifting should be off-loaded.
But before all that can be effective, their attitude about life insurance must change.
If you work in financial services, you are in a race to gather assets. If you’re an advisor and you’re not striving to be a trusted advisor, as defined by managing the majority of your client’s assets, then you’ll soon be out of business. The only way you will be able to do that is by truly understanding your client’s needs and servicing those needs, including the need to protect the assets of your clients. The advisors that do that will have much more loyal and profitable clients.
We are not in this commission-based world for much longer – everything will eventually be fee-based – not AUM fees, but fee-for-service. So looking at insurance from the perspective of how much commission you’re going to make is exactly the wrong perspective. If you’re an advisor, your perspective needs to be: what will helping my clients protect their assets do for my client relationships? How it will affect the trust my clients have in me, and will it increase their willingness to let me manage all their assets?
Assets will naturally migrate over time to those institutions that do the best job serving for the majority of a client’s financial needs, including the protection need. You need to be diligent about serving this need if you want to attract assets and not lose assets.
As John Richter, Chief Distribution Officer at Everyday Life, put it, “Your customers are getting bombarded by so many companies offering them protection products. So if you don’t do a good job covering the protection need, you’re going to have a silent run on assets, especially when a client dies and assets must be drawn from your bank to support the family.”
Once advisors understand this dynamic, provide them with the necessary resources to help them protect their client’s assets and land life insurance cases for affluent clients.
James Campone, SVP Program Development at CUSO Financial said during our podcast, “Advisors must be armed with the right discovery questions and have reliable case design and management resources they can bring to bear.”
Dan Overbey, Divisional President for Independent Financial Partners Institutional Services picked up that theme and continued, “You’ve got to be above $10 million in program revenues to have these solutions in-house. That means most banks and credit unions will have to lean towards a digital solution like Everyday Life and outsource higher-end case management and related infrastructure.”
If you’re a large bank-owned broker-dealer, these resources should be on staff. If you’re a smaller organization, these resources should be business partners. If you have a good third-party broker dealer, they should be providing you with these resources. Alternatively, you may consider working with a brokerage general agency that has expertise in the financial institution channel.
Communicate to your advisors it is their job to refer life insurance opportunities to the insurance specialists or business partners. Hold them accountable. Have them focused particularly on advanced cases. Give the advisors shadow credit to their grid for any insurance sales. Let the financial advisors be the quarterback for the client, but enable the specialists to close the cases.
The only way to win this race to gather assets that we are all in is to service as many clients’ needs as possible — and protection is a significant need. Servicing this need makes for more loyal and profitable clients. 2020 has set us up perfectly for this opportunity.
Let’s up our game!
[1] 2020 Insurance Barometer Study, LIMRA and Life Happens, 2020 - 2020 Insurance Barometer Study (limra.com)