|MacDonald, Robert W|
To grow, the life industry must avoid a commodity- based race to the pricing bottom.
After decades of decline and disinterest triggered by changing demographics and the allure of easy annuity sales, the life insurance industry is once again putting a premium on the sale of life insurance. This is a good thing; not only for the industry, but because a properly structured life insurance policy can play a valuable role in any overall financial plan.
However, in the industry's newfound lust for life sales, care must be given that the products offered, along with how they are marketed, don't become counterproductive to industry stability, growth and profit.
Life insurance has always done best – for companies and the consumer – when presented on the basis of genuine value, not price. In the current effort to revitalize life sales, there is a disconcerting tendency on the part of the industry to take the least line of resistance by emphasizing the price, not the value of the product.
This can't be a good thing, because a product sold on the basis of price soon becomes nothing more than a common commodity.
The administrative cost structure, product pricing and the distribution system of the life insurance industry has been predicated on the margins offered by a value-added sale. Any effort to overlay a commodity mentality would simply put the industry on a disastrous race to the bottom. Once in a commodity environment, the cheapest price always prevails. The "most competitive" price today won't be tomorrow and the provider is constantly pressured and squeezed to wring-out lower prices. The airline industry is but one example of the turmoil that can result when companies move from a value-added to price-based business model.
The agent distribution system cannot support either itself or the industry by selling products in a commodity environment. And frankly, if a life insurance product can sell well on the Internet, it is not a product companies should want to sell. There is no rational justification to adopting the motto of used car dealers: "We sell each car at a loss, but make up for it with volume."
To stimulate growth, increase profitability and regain a dominant role in financial services, it is appropriate – dare I say essential – for the life insurance industry to refocus on life sales. That effort will be futile unless it is based upon creating new products that offer the best value for living well, rather than the cheapest price for dying.
The life insurance industry is alone in its ability to develop financial products that can protect and enhance the full life cycle of financial challenges that confront every individual. In simple terms, based upon today's consumer needs and interests, if the industry wants to sell more life insurance on a profitable basis, it must put more "life" and less "death" in life insurance.
The history of the life insurance industry is a clear demonstration that "value sells ."Yes, value is a long-term proposition, but isn't that the essence of life insurance itself? If the life insurance industry can remain true to the value-oriented, long-term essence of its products, it will once again lead the parade to the top, rather than be mired for life in a race to the bottom.
If the industry wants to sell more life insurance on a profitable basis, it must put more 'life' and less 'death' in life insurance.
Listen to an interview with
Robert W MacDonald, a Best's Review columnist, is a principal of
|Copyright:||(c) 2011 A.M. Best Company|