Life insurance is sold, not bought. But for how long?

In addition, education and advice is becoming more automated, as well as readily available through multiple alternative channels (e.g., online, social, mobile, physical). As a result, insurance advisors need to adopt new ways to reach out to consumers (e.g., through social media), understand their needs, and identify personalized solutions (e.g., arranging on a mobile device an interactive session with experts to address client situations). Forrester's December 2010 "The US Life Insurance Buyer's Journey" survey estimates that nearly 39% of life insurance shoppers performed online research in 2009. Insurance advisors will remain an integral part of the sales process, but many consumers will approach them much better informed than they have been in the past. However, consumers who do approach advisors are more likely to purchase policies than those who use only the Internet; LIMRA's November 2011 "US Life Insurance Buyer-Non Buyer Study" estimates that 54% of consumers are likely to make a purchase when they contact an advisor after researching the product online, as opposed to only 36% who do so after using only the Internet.

Advances in healthcare data

Regardless of legislative, legal and political developments, digitization of medical records is inevitable. The Center for Disease Control (CDC) reports that over 48% of physicians reported using complete or partial EMRs in 2009, and those numbers have increased since then. As the adoption of EMRs increase and privacy issues are resolved, we see increases to the currently low adoption rate of personal health records (PHRs).

In addition, advances in medical devices and sensors (including non-invasive devices that measure calorie burn, heart rate, physical activity, etc.) and the growing number of individuals using them are facilitating the capture of huge volumes of real-time data (i.e., "Big Data") that provides the necessary raw material for deep insight into predictive variables that are leading indicators of certain health events (e.g., heart attacks). Unlike medical records, consumers own these "well-being" records and can use them at their own discretion.

While PHR and well-being data may not be directly available to insurers, individual consumers—especially younger ones—might be more willing to share it with life insurers if it helps them get a cheaper, better, and/or faster quote. This will remove one of the biggest barriers to whole life insurance underwriting, namely requiring historical medical records for underwriting. We see this change happening within the next three to five years as digitization of medical records and the use of non-invasive devices becomes more common.

Competitive pressures

Unlike auto insurance, where aggregators were responsible only for 17% of submitted auto quotes in 2009, life insurance aggregators were responsible for over 75% of all submitted quotes in the same year, according to Comscore's February 2010 report "Online Life Insurance Industry." However, while over 73 million auto quotes were initiated in 2009, there were only 13 million initiated life quotes.

This represents a substantial growth opportunity for life insurers, and many of them (and aggregators) are now offering online and/or call center quotes. While most of these tend to be term life products, with coverages of less than $250,000 for age groups between 30-45 a growing number of insurers offer whole life insurance with slightly larger coverages (i.e., $500,000).

We have seen greater pricing transparency, increased product simplicity, availability of information online and on social media, and the ability to purchase insurance through multiple channels (e.g.,online, call center, and agents) transform auto insurance. Term-life is following a similar pattern, and some of major insurers have recently started selling whole-life insurance direct to consumers.

This change is forcing other insurers to follow suit, thereby creating an irreversible trend towards greater transparency and product simplicity. This is creating a positive feedback loop: Greater numbers of young consumers are "buying" insurance, or at least contacting carriers or agents after visiting carrier or aggregator websites. These trends may soon relegate the old saying "Insurance is sold, not bought" to the history books!

Anand S. Rao is Principal, Insurance Advisory Services, at PricewaterhouseCoopers (PwC), London, U.K. PwC. E-mail contact: [email protected]