By PW Calfas
Over the past couple of years the Marketing and Distribution Section has supported research and initiated discussion about the underserved middle market. One of the keys to reaching the middle market with a life insurance solution is marketing quality simplified issue (SI) insurance products efficiently and effectively.
Common among successful SI sales and marketing efforts are the following:
- A streamlined sales process
- A well-defined market
- A distribution network suited to the product and market
- A carrier with strengths developed for the SI market.
Providing a positive customer experience is key for any sales process. This is especially so for the SI sale. Of course, the objective is to have a satisfied customer at the end of the sales process, but a necessary requirement is that the customer is happy to go through the process.
One main part of the sale is the application. SI applications should be short on underwriting questions—say three to 12 questions—compared to a full underwriting application with a full page or two of questions. This small number of questions should be designed to avoid insuring those with the most severe health conditions. The goal here is to manage, not eliminate, the risk.
Additionally, follow-up or recursive questions should be limited. Asking five lead-in questions with a large amount of follow-ups doesn’t really fit with customer expectations for a “simplified” process.
Another significant part of most SI sales is database checks. The standard checks match the applicant with records in MVR, MIB and prescription databases. One popular use of these checks is to identify risk characteristics of the applicant. Another is to test the reliability of the applicant’s answers to underwriting questions.
The SI sales process should allow for quick time-to-coverage, say hours or days, as compared to weeks for fully underwritten products. This is an area where utilizing technology properly can make a significant difference. Accessing the databases mentioned above allows for a significant amount of data to be gathered and analyzed in a matter of minutes, or even seconds. Electronic delivery of applications and disclosures combined with voice signatures or electronic signatures allows for the applicant to glide through the process anytime, from any place.
Any marketing plan needs to have a target market that can support the price of the product and the minimum viable sales volume. SI underwriting cannot be expected to provide the same level of detail as full underwriting due to the additional risks involved in this method of underwriting, thus per unit costs will be higher for SI products. So SI marketing should target applicants who value and are willing to pay a sort of convenience charge for immediate coverage.
Just as important, since the decision to purchase life insurance can be an emotional decision and that emotion can fade quickly, marketing focus should be on applicants who are willing and able to pay immediately.
SI marketing also commonly focuses on those who are interested in small-to-moderate-sized face amounts, because at some threshold of coverage, full underwriting becomes more economical for all parties involved. Other marketing approaches target those who exhibit certain healthy behaviors or fall within a narrow range of ages.
There are many distribution methods for life insurance, three of them being face-to-face agents, direct to consumer, and call center agents. Each presents its own opportunities and challenges in the SI market.
Face-to-face marketing is often expected by the consumer, as that has been the traditional method of life insurance distribution. The emotional sale of life insurance tends to be aided by in-person connections. It also allows for strong two-way communication about product features, which is very important for complex products. But this type of distribution is tough to make work in an SI environment because the face amounts tend to be low, resulting in lower commissions than the agent could earn from other sales.
Direct-to-consumer marketing can reach enormous volumes of potential applicants at low costs, and it doesn’t have to overcome the low-commission challenge of face-to-face agents. Direct marketing also allows for a great opportunity to present all the necessary information to the applicant and utilize technology such as e-signatures and electronic delivery of important documents. However, this distribution method lacks the personal connection between the agent and the applicant. This method generally results in a lower proportion of leads completing applications. It also requires significant technology costs to develop and maintain a consumer-driven platform.
Call center distribution can achieve a blend of the two above. It allows for an agent to connect on a fairly personal level with a large number of potential applicants. Reaching a large number of applicants can take care of the low premium and commission challenge noted above. Effective call centers often work better with less-complex products that are easier to describe verbally. Technology that allows for voice and/or e-signature options is very important to call centers.
Another key to SI distribution is having controlled distribution. The relationship between the carrier and distributor needs to be strong to properly align distribution practices with the goals of the carrier.
Regardless of the distribution method, a broad portion of the market will need to be reached. Otherwise anti-selection issues are to be expected.
The SI market has many similarities to other life insurance markets, but there are a few nuances that make the difference between a strong SI program and an unsuccessful one. A carrier in the SI market should have the following capabilities:
- Flexibility with the application process: Carriers should be prepared to make adjustments—to processes, application forms, the product, premiums, etc. It is critical to enhance what works well and fix what doesn’t, considering both the distributors’ and the applicants’ viewpoints.
- Fraud prevention and detection: Carriers can prevent fraud from the sentinel effect of informing the applicant about the database checks and that those checks will identify inconsistencies in the application answers. Also, in a call center environment, carriers can record and store sales calls to protect both the company and the agent from fraud.
- Claims review: This is a subset of fraud prevention. Applicants do lie, especially in SI situations. So a strong review and validation of claims is critical to an SI program.
- Insuring the proper risks: Recall that risk management, not risk elimination, is the goal of SI underwriting.
- Efficiency with database checks: Fast processing and better data reviews lead to greater customer satisfaction and a less risky pool of policyholders.
- Agent selection: A successful SI program requires the carrier to maintain strong relationships with agents who share their core values and who also are a good fit with their products and sales processes.
In conclusion, an SI program can be effective at serving the middle market, among others. For the best results, a strong carrier in the SI market will want to make sure the elements of its program are all in sync.
PW Calfas is product actuary at Fidelity Life Association in Chicago, Illinois. He can be contacted at firstname.lastname@example.org.