Mid-Life (Insurance Industry) Crisis?

I have a confession to make. I am having a mid-life crisis. While I saw it coming, I am somewhat surprised by my not-so-graceful entrance into middle- age (undoubtedly, made worse by my son’s eighth grade graduation). Call it what you may, but I have this undeniable urge to discover what lies ahead for me -to redefine and reinvent-and essentially, to change myself. This is unnerving for me, as I hate change. All of this got me thinking … is the life insurance industry facing a mid-life crisis of its own?

Consider the fact that life insurance ownership is at a record low-30 percent of U.S. households are uninsured (chart). LIMRA’s research indicates that-despite the efforts of insurers the industry has not been able to penetrate the middle market and, many of the most traditional products and marketing tactics aren’t attracting consumers’ attention.

Thinking about my own situation, I realized that I basically needed to get over myself-accept reality and stop wishing for what was-or what should be. Perhaps this also applies to the life insurance industry. We have been content to maintain the status quo, tweaking existing products and relying solely on a shrinking distribution model that isn’t reaching the majority of middle America.

For the better part of my career, I have studied long-term care insurance (LTCi) trends. I have to admit, it has been disheartening to see a product line that, I believe, is critical to protecting the financial security of an aging population fail to gain traction in the market. Most consumers don’t understand LTCi and how it protects them in the event that they are unable to take care of themselves. Even when they do, many don’t want to pay for a product they desperately hope to never need. In fact, just over seven million Americans have LTCi protection today-while 12 million people, over the age of 65 alone, are estimated to need long-term care by 2020.

LTC insurers have had to rethink their products and how they distribute them. LIMRA’s research found that some consumers were far more interested in purchasing a life insurance or annuity product with LTC protection so if they didn’t need LTC, they or their beneficiaries would still benefit from the insurance. In recent years, insurers have introduced hybrid products that offer LTCi with a life insurance or annuity policy. And, in 2010, hybrid products recorded a 63 percent increase in sales. Admittedly, it is a small market; but it shows that developing products that resonate with consumers will be more successful than developing products that the industry wants to sell.

The LTCi industry has had to be innovative with distribution as well. One of the many admirable and refreshing things about this industry is its view of the market-the entire market LTC insurers seem much less concerned with, and restrained by, the individual and group product/market distinctions. We’re starting to see glimpses of this elsewhere as some major carriers have reorganized to move away from group and individual silos and adopting a more holistic approach. Is this a tactic that the greater life insurance industry should consider?

The reality is insurers need to set aside organizational, product and distribution constraints in order to explore what today’s consumers want to purchase- when, where and how they want to engage.

LIMRA’s research shows that the need has never been greater for life insurance and other risk products. Half of U.S. households say they need more life insurance-and those are just the people who understand the risk they face without it. With financial literacy at an all-time low, I imagine it may be far greater. Sweeping change is a daunting consideration. It’s much easier to carry on with the tried and true; but without innovation, it is unlikely we will see true growth and even more unlikely that we will be able to connect with and satisfy the needs of the middle-market. If the insurance industry is indeed going to enter a change of life,..the ultimate goal must be to change more lives for the better.

By Jennifer L Douglas, M.S. for April 2012 issue of Insurance News Net Magazine.  Jennifer is an associate research director for LIMRA’s LTC & development research, oversees LIMRA’s LTC research program, as well as marketing studies on long term care topics of interest.

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