The confluence of extraordinary events that unfolded over the past 18 months (figure 1) could help life insurers more effectively penetrate the massive amount of underinsured people in the United States—approximately 40% of US adults.2 With flat to declining sales over the past decade, insurers have not been able to accomplish this goal yet on a meaningful and sustainable scale.3
In March 2021, the Deloitte Center for Financial Services published Driving purpose and profit through financial inclusion: Stronger together, which called on financial institutions to advance financial inclusion: providing access to useful and affordable financial products and services to meet the needs of the underserved market. As part of that effort, Deloitte surveyed 2,800 US consumers in October 2020 across various demographic groups, who said they had life insurance but believed they did not have enough (underinsured), as well as those who had no mortality coverage at all (uninsured) to discover why the gaps exist and how to eliminate them effectively.
This is the second in a two-part series exploring how insurers can advance financial inclusion by improving awareness of and access to life insurance products. The first article, published in April 2021, revealed two of the most visible impacts the pandemic has had on the US life insurance sector:
Longer term, our survey findings uncovered other influences that may impact the future of life insurance growth (figure 1):
The pandemic set the stage for life insurance growth. Still, insurers will likely need to distill the underpenetrated market into segments and customise propositions to the unique needs of these various demographic groups to sustain it.
Making the most informed decisions on the various segments will likely first require insurers’ understanding which demographics most need coverage, their propensity to purchase, the top obstacles, and the amounts of coverage they seek. Insurers will should also examine how each group prefers to interact across the life insurance life cycle, as well as their preferences for product features and holistic financial portfolios.
The life insurance coverage gap spans all races/ethnicities, age groups, and income levels, but some are less penetrated than others.
According to LIMRA’s 2021 Insurance Barometer Study, the largest percentage of coverage gaps appear in the youngest age group and lowest-income segment and decreases as age and income increase (figure 2).8 The study also reveals Latino/Hispanic and Black/African American consumers tend to be more uninsured or underinsured compared to white and Asian/Pacific Islander segments.9
Our survey revealed that across all ages, income levels, and races/ethnicities, the top deterrents for respondents to buying additional or new life insurance were perceived cost of coverage and other financial priorities. But, despite the rise in unemployment during the period, the pandemic-driven surge in savings among the US population10 could make consumers more open to buying coverage now than they were prior to the pandemic—at least in the short term.
Still, some consumer segments are less financially literate than others. They may first need to be educated on the value of life insurance coverage before considering a purchase.
For example, nearly twice as many respondents in the youngest age segment (21- to 30-year-olds) revealed they were unfamiliar with the value of mortality products compared to older respondents. Not surprisingly, the lowest-income groups knew less about these products than higher earners did.
Similarly, 18% of Blacks/African Americans surveyed said they were not familiar with the purpose of life insurance compared to approximately 12% of whites, Latinos/Hispanics, and Asian/Pacific Islanders. Moreover, a higher proportion of surveyed Black/African American and Latino/Hispanic insurance owners (36%) revealed they are unfamiliar with different life insurance options, compared to 27% of whites and Asian/Pacific Islander respondents.
Our survey shows interest in purchasing life insurance over the next 12 months was highest for Black/African American and Latino/Hispanic respondents. This could be because both were hit hardest in terms of death rates11 and unemployment12 (resulting in loss of employer-sponsored coverage) during the pandemic.
Interest in purchasing coverage also appears to be highest among younger consumers (under age 50): More than half of respondents between 31 and 40 years old said they plan to buy a life insurance product in the next year. Indeed, the surge in application activity throughout the pandemic was highest among respondents younger than 44 (7.9%) and decreased as age increased.13
Given the financial literacy disparities among segments, insurers have an opportunity to build on the increase in awareness of the need for coverage.14 They can explore new ways to educate underserved populations by focusing on demographics that are least likely to understand the value of mortality coverage.
Our survey revealed the relationship between some segments’ willingness to buy and the coverage amounts they wanted were not necessarily correlated (figure 3).
For example, although Black/African American respondents showed the most interest in purchasing a life insurance product in the next 12 months, the coverage amounts they wished to buy were lowest compared to all other races/ethnicities. Studies show that despite being more likely to have life insurance, Black/African American people are far more underinsured than whites.15 Conversely, fewer Asian/Pacific Islander respondents said they wanted to purchase a life insurance product in the next year, and that they would like to attain higher levels of coverage than other ethnic groups indicated.
For consumer segments that wanted more life insurance but may understand it less, targeted initiatives exposing disparities between coverage levels and financial need could help fix this disconnect.
As with all industries, the insurance sector is now operating in an environment that is increasingly socially aware. Insurers can focus more on achieving diversity, equity and inclusion goals and financial inclusion by intensifying outreach to segments perhaps not traditionally on their radar. In addition to cultivating awareness, education and trust in such underserved markets, they should take a more targeted approach, based on how each segment prefers to receive advice about financial products (figure 4).
For example, three times as many respondents in the youngest age group rely on advice from family/friends compared to the oldest segments. But this group also showed interest in using online sources to get financial advice.
Conversely, 38% of those surveyed over age 61 rely on their financial advisor, while only 13% of the 21- to 30-year-old group prefers this channel. Financial advisors appear to become more valuable to consumers as they get older.
Looking at race/ethnic segments, our survey found that advice from family and friends resonated more with Latino/Hispanic and Asian/Pacific Islander respondents compared to whites and Black/African Americans. And, more white respondents will consider using a financial advisor compared to other races/ethnicities.
Carriers could consider targeting the younger group through conversations with their customers who have children in this age segment, particularly those of Latino/Hispanic and Asian/Pacific Islander descent. And the lower propensity of minority race/ethnicities to use financial advisors should encourage insurers to promote talent diversification in their client-facing workforce, as the current lack of diversity may potentially discourage some minorities from seeking life insurance for the first time or adding to existing coverage. In fact, Blacks/African Americans and Latinos represent less than 4% of certified financial planners in the United States, despite making up nearly 30% of the US population.16
The other byproduct of the pandemic discussed in part one of this series is that it forced life insurers to increase digital capabilities nearly overnight.17 Insurers rapidly implemented alternative sales and customer service capabilities, including streamlined online application and sales processes, and virtual interaction with intermediaries and customers.
But equally as momentous, lockdowns forced consumers across all demographic segments, even those who never or rarely used digital channels, to escalate their use of online and mobile channels to procure products and services. Longer term, US consumers are expected to increasingly want speed, flexibility and convenience when interacting with providers across industries.
Since January 2020, there has been a 30% to 50% increase in online life insurance sales for companies with digital capabilities and algorithm-driven underwriting.18 While that increase was dominated by those under age 45,19 even 29% of our survey respondents over age 61 were interested in using online channels for purchasing (figure 5).
Across income groups (figure 5), those making over US$200,000 showed the most interest in online purchase options (40%), while the lowest earners (under US$50K) preferred this channel least (34%). Insurers that believe the most cost-effective way to reach the lowest income group is skipping agent intervention altogether may want to reconsider this strategy. As a result, it appears that a significant percentage of higher earners may not need the amount of hand-holding previously perceived, leaving the door open for more profitable growth in this segment through lower human touch.
Meanwhile, interest in agent-driven sales is trending downward. In 2011, 64% of consumers said they preferred to buy in-person; by 2020, just 41% felt this way.20 To an industry whose products have traditionally been sold, not bought, this could seem alarming. But intermediary interaction is still desired by those over age 50, with the highest interest from respondents over 60 (56%). Our survey also found that Black/African American (50%) and white (43%) respondents showed a higher propensity toward agent interaction than Latino/Hispanics and Asian/Pacific Islanders (34%).
Customer expectations for product features are also transforming as the population becomes more digitally savvy and having greater control over their products seems to dominate their asks.
When asked about which product feature would make them more likely to purchase life insurance in the next 12 months, the element that resonated most across nearly all demographics surveyed was the ability to increase or decrease coverage online as needed. For example, someone with one child and another on the way may want to purchase more coverage but would prefer to be able to dial their current policy up instead of jumping through hoops to buy an entirely separate policy. Similarly, a recently divorced consumer may want the ability to dial down coverage online without agent intervention.
A feature that also rated high among respondents for the 31-year-old-plus segment and across all ethnicities was an adjustable premium based on lifestyle and healthy eating, which could be measured by fitness apps or other data sources.
The product features that appeal to a large segment of the underserved market will likely require the use of alternative data sources. Even prior to the pandemic, many insurers were starting to use alternative data to substitute for medical exams. When lockdowns ensued, some insurers even relaxed blood and urine test requirements.21
Insurers will likely have to design an approach that enables the development of innovative products, as well as the infrastructure to support them. Insurers may also need to reskill talent, to capture, synthesise, and analyse this new data and to underwrite policies according to the new data sources.
For many insurers, one of the key lessons the pandemic offered was the value of diversifying their portfolios to include health, wealth and wellness products. Those who provided a wider range of offerings were likely able to offset some of the financial pressure from higher life insurance claims.
Many underserved segments were interested in products with features that reward healthier lifestyles. They found the option to supplement traditional life insurance products with health and wellness options appealing.
At 55%, Black and Hispanic respondents were also much more likely than Asians (38%) and whites (37%) to consider mortality products as part of a broader financial portfolio.
Meanwhile, more than one-half of respondents in the younger age groups (21–50) showed interest in a broader portfolio approach, compared to 39% of those 51 to 60 and only 19% of respondents over 61.
Most likely, the fear the pandemic provoked will only be a short-term catalyst for life insurance sales. But insurers can take advantage of the momentum it spurred in addition to the confluence of extraordinary events that unfolded over the past 18 months to reposition themselves for sustained long-term growth (figure 6).
Insurers are realising that some of the underserved segments may be equally as profitable as their more traditional upmarket customer base. But many will need to make changes across the entire life insurance life cycle to conform to the nuances in attitudes and desires among the varied demographics.
In formulating such strategies insurers can:
The pandemic heightened consumer interest in mortality coverage but relying on global disasters is not considered a sustainable approach to growth. Life insurers can capitalise on the confluence of recent extraordinary events by readjusting strategies to embrace a broader client base. This may be exactly what insurers need to support long-term growth in the post–COVID-19 world—and help achieve financial inclusion goals at the same time. That’s a win-win.
The insurance industry is facing change on an extraordinary scale. Deloitte Insurance Industry Services can help you improve profitability while balancing the demands of regulatory change and shifting customer expectations. Our multidisciplinary approach brings together specialists in actuarial, risk management, strategy, operations, technology, tax and audit. Deloitte can help you to anticipate change and capitalise on emerging opportunities.