The Evolution of The Insurance Business

Do you remember the movie Groundhog Day with Bill Murray? If you have seen the

Do you remember the movie Groundhog Day with Bill Murray? If you have seen the movie, then you likely remember “Needle-Nose Ned.” Ned was the high school friend who sells life insurance. Ned was the stereotypical insurance agent touting, “Do you have life insurance? Cause even if you do, you can always use more!” Ned was so funny and became a memorable piece of that classic movie because he so accurately depicted the stereotypical life insurance salesman of the times. While we all love Ned, the good news is times have changed, and while there are still some “Neds” running around, the business and people have evolved. Why the change? Our belief, like most things, is consumer-driven. People demand a better experience centered around transparency, simplicity, and most importantly, service. Let’s discuss some of these ideas.

Service Beyond the Sale

Let’s face it; the service model for life insurance salespeople hasn’t been perfect. Many salespeople are very attentive in pursuit of the sale; however, post-sale, they provide little to no follow up. My company and I have firsthand experience with this as we spend a great deal of time providing policy reviews for financial advisors and their clients. In our experience, most clients have little understanding of what they own and at times, why they own it. Even with term insurance, there isn’t always an understanding of how they arrived at the amount they own or the duration of the term. When we ask if they have spoken to the person who sold it recently, the answer is usually no. Why is this the case? We believe the current compensation model does not promote servicing a contract. In essence, getting paid a large commission upfront does not provide an incentive to help after the sale.

Will this ever change?  The short answer is yes, and it is already changing. The client’s demand for better service with all areas of their financial life is the driver. Compensation drives behavior, so we have started to see some life products change the compensation model. More and more insurance companies are beginning to offer fee-only products and private placements. Some of these products have no penalties for withdrawing funds (aka “surrender schedules.) This evolution is in the early stages, but the positive is product development seems focused on a servicing model that will ultimately benefit the consumer and long-term servicing of these contracts.

Simplify the Process

When is the last time you applied for life insurance? For many, the underwriting process may have felt cumbersome, invasive, and lengthy. We completely understand. Underwriting can include an extensive application, exams, and seeking medical records. We often hear from financial advisors that if the process weren’t so complicated, they would be more likely to recommend insurance to clients and clients more open to the recommendation.

The good news is the insurance business has already made considerable improvements in this area. Many insurance companies have evolved their electronic paperwork platforms. Some request only a minimal amount of information from the agent, and the insurance company will fill in the paperwork during a client interview. The most significant improvement has come to the world of term insurance. Many streamlined platforms allow a consumer to get a term policy in 10-12 minutes. They take a short application. If you meet their issue age and health requirements, you enter your credit card information, and you will have term insurance in place within minutes. 

Aligning with The Comprehensive Advisor Mindset

If you have read any of my prior articles, you have heard me talk about our philosophy at my company. We believe the financial advice landscape has changed. We believe a person no longer wants to go to multiple financial professionals to get financial advice. We believe they want to go one professional and get a comprehensive total financial life experience. We believe the financial advisor is uniquely positioned to be that person. The evolution of the insurance business is right in line with this mindset. As the insurance business evolves to more simplified processes and transparent products, it invites financial advisors who might have steered clear in the past. All of this evolution plays very well for financial advisors who aim to create a high level of service and advice for their clients and prospective clients.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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