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May 22, 2012updated 13 Apr 2017 8:44am

Golden’ $10.2trn opportunity in US

A new study by Conning Research & Consulting indicates that the protection gap for the USs 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 & Consulting. 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.

By Charles Davis

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 & Consulting.

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.

Online value

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 planningavailability.

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

 

 

 

 

 

 

Terence Martin, director at Conning Research & Consulting

 

 

 

 

 

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 advice.

“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.

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 middle-market buyers.

Demographic makeup

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 market.

Traditional focus

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 market segment.

This shift in thinking must happen now, or insurers risk losing a historic opportunity.

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