Writing More Business Means Solving for Financial Inertia

Today’s consumers are very cautious about their spending- including spending on life insurance. Here are tips for breaking the stalemate and moving consumers to action.

The business of selling life insurance has never been easy. But today’s environment may be the most challenging era ever for producers. In the second quarter of 2011, individual insurance premium and policy count rose just 1 percent over the same period in 2010. Meanwhile, new annualized premium for term life insurance dropped 5 percent (LIMRA, U.S. Individual Life Insurance Sales Summary Report, Second Quarter 2011).

American consumers are cautious and in some cases reluctant to spend and invest. They have been struck by what we might call ‘financial inertia,’ a startling inability to make decisions about their financial futures. And who can blame them? According to the September 2011 U.S. Census Bureau, real household income levels have dropped to their lowest point since 1996, making consumers reluctant to commit to new or increased coverage.

Unfortunately, many of them apparently fail to understand that insurance benefits may be usually the primary source of income for family members after a loved one passes away.  According to a recent study, after a family member dies, many beneficiaries admit that they wish they had purchased additional coverage so that their family could sustain its standard of living, according to a recent study (2011 Genworth LifeJacketSM Study, 7 Key Insights to Help Close the Coverage Gap).

Of course, these unmet needs present producers a tremendous opportunity to help Americans secure what they value most in life. But how can producers help potential clients overcome their financial inertia? It’s clear that agents need new approaches to talking to potential clients about life insurance.

Take, for example, this true anecdote. When Louis Kolchek* and his wife, Jessica*, a couple with two young children in suburban Connecticut, decided to purchase additional life insurance a few months ago, they say they were disappointed by the experience. Kolchek, 39, knew he and Jessica needed more coverage to protect their children if something were to happen to them.

They contacted an independent agent who, rather than learning about their goals and educating them about the different options and benefits available from various carriers, immediately tried to sell them a return of premium product. “There was no discussion of what we needed and what we could afford, I immediately felt like I was being sold on something,” Kolchek says. “In fact, this particular agent spent much more time asking us if our parents would be interested in a long-term care product than guiding us through the process.” Although the couple did buy two individual term policies, they admit that they will not work with this agent in the future as their needs evolve.

While the Kolcheks’ experience may not be representative of how many agents sell life insurance, it’s an example of the importance of returning to the basics, doing a proper needs analysis and not purely selling the merits of a particular product.

A new approach to needs analysis

Helping potential clients identify their needs is job one for today’s producer. Unlike in past generations, today’s consumer is concerned about recovering losses tied to declines in their household incomes, real estate values, 401(k) plans and investment accounts.

Fortunately, carriers are developing consumer friendly online insurance calculators.  Our LifeJacket research shows that 88% of the people interviewed feel that an online calculator would be beneficial to them in the purchasing process.  Carriers are also rolling out other tools that teach consumers how to have difficult conversations with family members. Some carriers have done a tremendous amount of research on how families can communicate about such topics as death, widowhood and caring for children left behind. Producers can and should take advantage of this research to help empower consumers to do their own needs-analysis homework.

The next step: fostering the relationship

Some carriers are also taking a deep dive into what is driving potential clients to purchase, or not purchase, life insurance from an independent agent. Honing in on this consumer behavior and responding to it is critical for producers. Here are four simple steps that producers can begin taking today to jump-start more productive relationships:

1. Talking the talk

One-third of today’s policyholders purchased life insurance more than 10 years ago, according to a recent survey (2011 Genworth LifeJacket Study, 7 Key Insights to Help Close the Coverage Gap). Presumably, many of their insurance needs have changed significantly since then. The good news for agents is that consumers appear to welcome regular meetings about their needs. Nearly half (46%) of survey respondents show an openness to doing so on a yearly, semi-yearly or quarterly basis. Unfortunately, producers are not stepping up. More than one-quarter (26%) of consumers say they can’t remember having evaluated coverage needs with their advisor. Producers can create significant business opportunities by simply sitting down with clients on a regular basis to talk about current policies and to make certain that coverage is sufficient for the present and future.

2. Know the audience

Agents need to know their target audiences and how they communicate. Our LifeJacket research shows that nearly two-thirds (66%) of those under age 36 show a penchant for web-based insurance calculators, but less than half desire detailed product comparisons. On the other hand, nearly two-thirds (66%) of consumers over 54 prefer detailed product comparisons, while only 51 percent want an online calculator.

Independent agents can improve business opportunities by focusing on the needs of particular subgroups. The chart below from the LifeJacket study shows the important variances in how consumers want to receive information. For example, only 17 percent of older Americans want to view insurance brochures, but 39 percent of younger consumers do. When dealing with diverse audiences, keep in mind that older consumers may react favorably to an advice-giving approach around benefits. Meanwhile, younger clients seem to want information delivered in a shorter, more straightforward manner that deals with costs.

3. More than one shining moment

Most agents realize that consumers are more apt to buy insurance in conjunction with an important life event. A recent LIMRA study (Trillion Dollar Baby Growing Up, 2011) shows that nearly half of consumers are more disposed to purchase coverage after an experience such as marriage, a child’s birth, or a family death. But producers have to avoid thinking that these events represent one-off opportunities.

The study also shows a large gap between these ‘trigger’ occurrences and when consumers actually buy. The chart below reveals that consumers will delay 15 months after purchasing a home to buy life insurance. They will wait half a year after switching jobs or starting a new one. These intervals suggest that agents should take this time to have serious, strategic talks with clients. Instead of hurrying to sell them more coverage, savvy producers are using these milestones as touch points, and then working during the time gap to have discussions with clients about long-term needs and offer them high-value products.

4. A voyage, not a port

According to a recent study, Americans are waiting to acquire life insurance because they have other financial urgencies and they think they cannot afford it. The concept of financial inertia rears its ugly head: half of consumers who are likely to purchase coverage this year are waiting because they do not know what to buy, how much to buy or fear making the wrong choice (LIMRA, Trillion Dollar Baby Growing Up, 2011).

Agents should reassure consumers that acquiring enough coverage to secure all of their loved ones’ financial needs may not be possible today. Instead, producers can tell clients that financial security is a journey, not a destination; some coverage is better than none. Agents should collaborate with clients to establish interim goals of purchasing enough coverage today to help guarantee that the family can take care of current financial needs. Then agents and clients can work to add coverage step by step as the family’s requirements change.

Final thoughts

Many Main Street Americans (defined as adults with household incomes between $50,000-$250,000) face financial challenges today, right along with the life insurance industry. In the first half or 2011, total individual new annualized premium rose just 4 percent, and term life premium dropped 8 percent (LIMRA, U.S. Individual Life Insurance Sales). But there is a light on the horizon. At exactly the time when consumers are most confused about their financial futures, producers have the chance to help them secure what they value most. Half of U.S. households readily admit they don’t have adequate life insurance coverage. (LIMRA, 2010 U.S. Ownership Study). It should be our mission to help concerned consumers create smart plans for their futures. After all, as challenging as today’s times may be, don’t we all want life to be better for the next generation?

by Anthony Vossenberg Mr Vossberg is Senior Vice President, Life and Annuities, Genworth Financial.

*names have been changed to protect their privacy.

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