How can life insurers break through demand barriers?

by Leo Almazora08 Sep 2020

In order to address a concerning gap in life-insurance coverage, insurers have to address the factors affecting demand for the product – and that means re-examining traditional assumptions.

In a commissioned survey of 7,000 customers across seven mature insurance markets around the world, the Geneva Association, an international think tank representing the insurance industry, found that the percentage of those who currently own a life insurance product – including whole life, term life, critical illness, and annuities, among others – fell between just 6% and 16%.

One reason behind that, according to the association’s study published earlier this year, was a “striking lack of insurance awareness.” It found that between one third (34%) and six tenths (60%) of responding customers were not aware of different life-insurance related products including whole life, term life, critical illness, annuity/retirement, and endowment/unit-linked products.

Aside from lack of knowledge, it suggested that behavioural biases and economic constraints or considerations are holding consumers back.

The paper identified eight behavioural factors that skewed people’s behaviour, including hyperbolic discounting (an exaggerated bias toward having a certain amount of money now over having a larger amount in the future); anchoring (assigning undue importance to irrelevant information); and loss aversion (feeling excessive pain from having to pay premiums).

Economic barriers, meanwhile, included an oft-cited reason that life insurance is too expensive. The study cited the annual LIMRA Insurance Barometer Study, where 63% of respondents in the U.S. said they did not buy life insurance because of its prohibitive costs.

“To some extent this claim seems to be based on misperceptions,” the Geneva Association study said, noting a vast majority of respondents from the LIMRA survey gave estimates of life insurance premiums that were three times more than actual costs.

To promote better adoption of life insurance, the association urged insurers to accelerate their efforts to rethink existing products and make them more customer-friendly. One suggestion involved designing savings products that were less tethered to interest rates, as exemplified by European life insurers’ moves to launch hybrids of unit-linked and traditional products as well as investment-linked products. On the behavioural side, there are opportunities to reframe products such as annuities to make the value proposition more palatable to consumers.

On the sales and distribution side, the association suggested that insurers can reduce price sensitivity by bringing down the frictional costs of getting life insurance through measures such as analytics-powered accelerated underwriting. At a structural level, the study argued that life insurance still has room to more fully address operating costs, which would help address customer concerns about price and affordability.

“Fourth, life insurers should address low levels of insurance awareness and education,” they study said, suggesting that insurers and industry associations partner with public authorities, agencies, and consumer groups. “Insurers could also advocate [for] the integration of basic insurance and protection knowledge in schools.”