What U.S. life insurance agents can learn from China

In Asia, he points out, the sales tactics are exactly opposite. "It's first and foremost about income," he says. Which is not to say that method is better. In fact, Richards says such sales methods could cause problems in the long term. "People who join you for the money will leave you for the money, whereas people who join you for the purpose tend to be more grateful and will stay with you longer." It's that redirection of focus that Zultowski and his colleague, Adam Vanevenhoven, director and actuary at Prudential Insurance Company and the SOA Project Oversight Group chair, see happening already in the Chinese market. Their study revealed three market segments: life protectors, life investors, and uninterested buyers. Those buying insurance for protection are a growing segment, but are still outpaced by those who use life insurance as an investment. Life investors are the largest market segment, followed closely by consumers who are uninterested in life insurance.

Re-evaluating the U.S. market

The experts believe those same segments exist in the U.S.; however, the U.S. market still falls back on the demographic approach, says Zultowski. "There clearly are distinguishable segments of the market that are different. They require different marketing methods, products, and approaches.They're not based on demographics," he says.

Still, Zultowski says the U.S. market has yet to embrace a new methodology. "The industry keeps talking about this segmentation, but we always go back to demographics. The real richness in terms of where you're going to get the people doesn't exist in the demographics. You need more of an attitudinal and behavioral segmentation than just a life stage or demographics approach," he adds.

That change is necessary, he says, because products and regulations have changed dramatically since the industry first started using demographics. Vanevenhoven says that 50 years ago, life insurance sales to the U.S. middle market were savings-based, traditional whole life products. Since that time, regulatory changes and shifting interest rate environments have made these products less attractive. Vanevenhoven says the market was reduced even further when ERISA rules helped pave the way for other investment vehicles, including 401(k) plans. Current interest rates make life insurance products even less desirable. "Today there are a lot more options and a lot more competition for savings dollars," says Vanevenhoven.

The U.S. life insurance market sales, the experts predict, will continue to lag. Richards thinks the lack of sales has plenty to do with the age of U.S. agents. The average age of American agents, he says, is 54 years or higher. Even if agents could access the younger adult segments, Richards says it's unlikely agents would call on them. "That's not where the money is. A 55-year-old agent can't afford to sell a cheap term policy to a 25 year old," he says. That's because the premium on a life policy has decreased significantly, Richards says. In 1965 a $100,000 whole life policy premium came in at $3,800. That same policy today, he says, costs $832 dollars. That decrease has hit the life insurance market hard. "Companies that once had 24,000 agents today have 4,000. They can't make a ROE because they're not getting $3,800 anymore. Most of the $800 is going into cash value." Commission rates too have evaporated. Some term policies, he says, pay no commissions.

The ticket to life sales

According to Vanevenhoven, China can serve as an example of how sales can be attained in a complicated segment. "One thing insurers are still struggling with is marketing to the mass affluent. The middle market is underinsured," he says.

That's where the U.S. market holds most promise, say the experts. Zultowski says a shift in sales tactics is a matter of asking the right questions. Getting those questions in front of consumers isn't tough, he adds. "Somebody logs on to a company site and these questions pop up. You make it feel like a customization thing – we're trying to get the right products for you. That information can be scored quickly, and it offers a greater chance of getting the right message to that particular person."

Still, not everything about the Chinese market is positive. Yuan says that the market premiums in China in recent years have undergone adjustment. In 2011, premiums decreased 9 percent, and 4.2 percent the following year. It corrected in 2013, she says, to 7.9 percent, but Yuan adds that the market is still undergoing an adjustment process.

Lori Widmer is a Philadelphia-based writer and editor specializing in insurance and risk management.