A new study by Conning Research &
Consulting indicates that the protection gap for the US’s
middle-income market is estimated at $10.2trn, representing a huge
opportunity for life insurers.
“Over the past five years the missed
opportunity in the middle market for life insurers has grown
significantly, and our latest estimate is that it has reached
$10.2trn,” says Terence Martin, director at Conning Research &
Martin says there is a huge demographic bulge
of consumers in the US entering their prime insurance-buying years,
but the recession, combined with soaring healthcare costs, has
caused the protection gap to balloon.
“Add downturns in the equity, credit and
housing markets, and you get a sense of just what insurers are up
against, says Martin.
The Conning Research study, Opportunities
in Reaching the Middle Market with Life Insurance, recommends
insurers drasticallyincrease their use of online channels andsocial
network marketing to overcome challengesrelating to distribution
costs, access toinsurance products and financial
For insurers struggling with the cost of
underwriting, the implementation of predictive modelling and a more
automated underwriting process holds promise, says the study.
Already popular in the property-casualty
market, advanced predictive modelling technologies are beginning to
be applied on the life side as well.
Conning’s study urges insurers to couple
predictive modelling with social network marketing as a means of
tailoring messages to online customers.
Terence Martin, director at Conning Research
Whereas in the past, life insurers have viewed
the channel as a supplemental communication and marketing tool,
arguably, for much of the middle-income market, the internet and
social media are the primary channels for financial planning and
“This change in approach, while subtle and
still not prevalent for life insurers, may be the first tentative
step to making progress in reaching the middle market,” says
Martin’s research found that once the baby boomers begin to
leave their prime insurance buying years, US insurers must begin
replacing those older insurance consumers with much younger
He notes that the demographic makeup of these
coveted younger insurance customers makes the task even more
difficult. More US consumers are delaying marriage, child rearing
and other signal life-event triggers that long served as the key
moments for life insurance marketing.
In addition, more households are headed by
single parents and working women than ever before, which further
confounds traditional marketing strategies.
The richer commission potential at the upper
end of the market has resulted in many insurers placing greater
emphasis on affluent households – a strategy rich in short-term
ngains, but one that drains resources from the larger opportunities
in the middle market.
Martin comments: “If the price is out of reach
for the middle market, or the product is too confusing to be sold
without a significant education and outreach effort, or the sales
process is too cumbersome or invasive for the customers, then the
industry is dividing itself.
“Simplification of the product set and the
sales process is key to reaching back toward the underserved middle
Martin believes that the industry must return
to the traditional focus of life insurance on protecting
individuals from the economic risk of early mortality, rather than
on wealth accumulation.
“In times of economic turmoil, these
traditional roles retain their importance, while other uses for
insurance can become less of a focus,” the study says.
Conning’s research found that expansion into
social media may become the disruptive technology life insurance
needs to capture greater numbers of younger consumers.
Martin says: “It may take several years to get
close to this level of integration, but it could have the potential
to reach younger and middle market customers using a medium they
embrace and present a sales channel that fits their style.
“Companies embracing the coming changes will
be in a better position to reach the increasing number of customers
entering their prime insurance-buying years.”
As insurers seek growth in the recovering
economy, they will be analysing the technology commitment needed to
succeed in the middle market, and weighing that against the
significant opportunity available in this increasingly important
This shift in thinking must happen now, or
insurers risk losing a historic opportunity.