Why life insurance is the Brussels sprout of financial services
Around 9 million Australian households lost $50 billion in online purchases in 2020/21, directing the bulk of sales to home and garden outlets, variety stores and media services.
Consumer spending is at an all-time high, with an unprecedented amount of fiscal and monetary stimulus in the economy, but there’s one item that isn’t in anyone’s online shopping cart: life insurance. Kind of ironic during a global pandemic.
While technology and changing consumer attitudes have enabled retailers and other service providers to diversify distribution channels and increase sales, online life insurance sales remain negligible and no investment in technology and advertising is only likely to move the dial.
Technology has made it possible for businesses to sell things online that people already want, but it hasn’t made it easier for businesses to sell things online that people don’t want, even if they need them.
Life insurance is the Brussels sprout of the financial services industry, a product with undeniable health benefits that people do not consume voluntarily.
A closer look at consumer data also reveals that the real and potential benefits of digital marketing have been overstated and not just when it comes to financial services.
For sporting goods company Adidas, a failure in its search engine optimization (SEO) system, designed to drive web traffic to the Adidas site where people can transact, had no impact on online sales. As a result, Adidas paid more attention to branding and marketing.
This led to a double-digit increase in direct-to-consumer sales in EMEA and the US in 2021.
According to studies in behavioral science, there are psychological reasons why people do not act as they should.
In the case of buying life insurance, people are being asked to act against their instincts.
Behavioral science, which studies the effects of psychology on investors and markets to highlight human biases, attempts to do the same.
As a relatively new discipline, behavioral science can learn a lot from life insurance.
First, life insurance is sold rather than bought.
Tellingly, David Battersby, former Vice-Chancellor of Federation University Australia, and Peter Hovard, Senior Behavioral Scientist, Global Data and Analytics at RGA in the UK, suggested that if behavioral science students were to create a product which opposed many human psychological idiosyncrasies, it would be very much like life insurance.
These psychological idiosyncrasies include optimism bias (I’m healthy, this won’t happen to me), cognitive dissonance (I don’t want to talk about it), and current bias (I’d rather spend money to get a benefit today).
All three discourage people from buying life insurance and guarantee an uphill battle for direct insurers. However, in the face of their mortality, people become motivated to protect themselves and their loved ones, hence the importance and value of professional advice.
Counselors specialize in difficult conversations. Part of their job is to educate customers about the risks they face and make them understand the consequences of not being sufficiently insured.
They stop low motivation behaviors and turn the “nice to have” into a “must have”.
Advisors understand that life insurance sales increase when there is a significant event, such as a natural disaster, sudden death in the family or a personal health scare. They are experts at increasing the visibility of a client’s situation.
Digital distribution channels cannot do this.
Regulators may not like it, and advisors may also be uncomfortable with the suggestion, but advisors are life insurance “salespeople”. It’s not an insult.
It is extremely regrettable that the weight of recent regulatory changes has primarily affected life insurance advisors. The dramatic decline in the number of advisers, many of whom specialize in life insurance, will have far-reaching consequences for individuals, families, life insurance companies and taxpayers.
Already, the number of Australian lives insured and sums insured have fallen by 23% over the past two years, according to the KPMG 2021 Life Insurance Outlook Report.
Turning the situation around depends on the industry’s ability to replenish the number of advisors. Additional investments in technology and direct distribution may be wasted.