LifeHealthPro Senior Editor Warren S. Hersch recently interviewed Doug French, a New York-based managing principal of the Insurance and Actuarial Advisory Services of Ernst & Young LLP. The interview explored initiatives identified in EY's "2015 U.S. Life Insurance Outlook" report the professional services firm believes should be top priorities for life insurers in 2015. The following are excerpts.
Hersch: The EY report explores 7 topics that life insurers needs to focus on in 2015. Can you summarize these for me?
French: In order of importance, the topics include (1) repositioning distribution strategies to expand market opportunities; (2) embracing digital as the new storefront; (3) developing simplified products to expand customer markets; (4) transforming the back-office; (5) enhancing data security; (6) adjusting to new competition from alternative capital sources; and (7) proactively addressing the still uncertain U.S. regulatory environment.
Hersch: Respecting distribution strategies what does the report call for?
French: The traditional advice model — the meeting with the customer face-to-face at the kitchen table — is extremely expensive and inefficient. Sooner or later the industry will need to change, like others, and make the distribution of financial products and services more efficient and economical.
It's all about better serving your customer base. That could mean devoting greater resources to direct sales channels, boosting advertising or better leveraging the Internet and digital customer-facing technologies like Skype and telephone hotlines.
The Internet has done a reasonably good job educating consumers about life insurance, annuities and other financial solutions. The industry is now migrating to the next distribution phase wherein consumers can not only do product research but also transact business through the Internet. This transition calls for new technologies that automate underwriting, policy issuance, as well as pre- and post-sales support.
Hersch: A common industry refrain is that life insurance is sold, not bought, and therefore requires face-to-face interaction with an advisor. If that's the case, do online distribution and sales initiatives necessarily face limitations?
French: For low-cost products like term insurance, I don't think this is a concern. A consumer who sees a TV ad marketing term insurance for $19 per month will say "I can afford that" and go online.
It's a share of wallet issue. People will buy insurance products on their own if the purchase doesn't entail a huge outlay of money.
As to high net worth individuals who need more expensive solutions, some of our research shows that even the affluent are underserved because there are not enough advisors in the field. Online distribution strategies can be helpful in serving this market as well.
Hersch: Why, as the EY Outlook report indicates, are more simplified products needed to expand customer markets?
French: The industry has many complicated products — solutions that people with basic needs don't necessarily need. They need tax-deferral for their annuities and life insurance protection. So how complicated do the products really need to be?
If you're going to advise and transact business efficiently over the Internet, then you need to simplify products. The Internet is the great equalizer, availing consumers of information they previously depended on advisors to provide.
