The role of digital in the underserved life insurance market

COVID-19 led to a boost in purchasing of life insurance products in 2021, according to an article from Deloitte. Many Americans experienced financial hardship as a result of the pandemic, and, coupled with the fear of the outbreak and potential fatality, activity in the life insurance market increased significantly. 

Despite this rise in the adoption of insurance products, there is still a large coverage gap in the U.S. of uninsured or underinsured individuals – a group referred to as the underserved market. The same Deloitte article explains that “there is an estimated life insurance coverage gap of $12 trillion industrywide, and the average shortfall between what people have and what they need is approximately $200,000.” 

Nichole Myers, chief underwriter at life insurance provider Ethos, writes in an email interview with Digital Insurance, “The unfortunate truth is that 70% of families in America could go bankrupt in as little as three months if they lost their primary breadwinner – but due to regulatory roadblocks, sales-incentivized agents and tedious, invasive application processes, 41% of Americans have no life insurance coverage at all. The most disadvantaged (lower-income, minorities, and women) are least likely to be insured.”

Though the coverage gap is wide, it presents insurers with a significant opportunity for growth – especially as innovations in the industry continue to evolve. The pandemic drove the acceleration of a more digital world in many ways; as people stayed home in the early months of the pandemic, companies were forced to discover other ways to interact with customers.

“Formerly, it was more of a face-to-face discussion in sales, but during COVID, when people were quarantined or not [going] out, life insurance companies had to make sure there was a seamless digital experience so that it made it easier – both for the people buying insurance and the processes behind that to get the policies in place,” says Alison Salka, senior vice president and director of research for LIMRA and LOMA. 

According to LIMRA’S 2022 Life Insurance Barometer Study, nearly 31% of respondents are more likely to purchase life insurance products because of the COVID pandemic. The study also found that consumers “indicate a large shift favoring online life insurance shopping and purchasing. This is due to advances in technology, as well as the pandemic.”

Even as pandemic restrictions begin to ease, consumers are likely to respond positively to a more digital experience when buying life insurance. Insurers can use these technologies to continuously narrow the coverage gap and better reach the underserved life insurance market. 

LIMRA reports that there are a few common misconceptions that consumers share surrounding life insurance products, which contribute to the large market gap.

Research from the 2022 Life Insurance Barometer Study shows that “more than half of Americans overestimate the cost of life insurance by as much as threefold.” The study also demonstrates that 26% of respondents believe that the life insurance coverage they receive through the workplace is enough, despite that the median coverage offered through a workplace is either one year of your salary or a total of $20,000. The study notes that “54% of U.S. households rely on dual incomes and, for many, losing one income could be devastating to the household’s finances.” Other misconceptions include that 54% of Americans believe it is too difficult to purchase life insurance and that younger consumers do not believe they need life insurance until they are older. 

Salka notes that one solution to dispelling these misconceptions is implementing technology.

“Technology can play a huge role… When it comes to learning about life insurance or getting information or getting educated, people rely on digital resources. People rely on social media. It can be a huge source of information. And the industry was leveraging technology to engage with consumers even during the pandemic,” Salka states. “Technology really improved there. More sophisticated video conferencing, social media, and improved processes like automated and accelerated underwriting made it easier and faster for people to buy the life insurance they need.”

LIMRA’s annual Insurance Barometer studies also report on the significant gaps that exist in the Black American and Hispanic American communities. The 2021 Insurance Barometer Study shows that “56% of Black Americans own life insurance, which is higher than the national average (52%). Yet 46% of Black Americans — representing 20 million adults — say they need (or need more) life insurance coverage, which indicates a substantial coverage gap in the Black American community.” 

Even though Black Americans are more likely to purchase life insurance than other Americans, 55% of Black American families “say they would face financial hardship within six months following the death of a wage earner — nearly a third (31%) would struggle financially within a month.” 

The LIMRA study also emphasizes that 51% of the Hispanic American community want or need life insurance, but six in 10 Hispanic Americans do not have life insurance at all. Of the 51% who are interested, 40% are not covered and 11% have purchased life insurance products but say they need more coverage. 

Financial concern is the top reason for both Black Americans and Hispanic Americans lack of life insurance coverage – however 75% of Black consumers and 75% Hispanic consumers overestimate the cost of life insurance three times over, according to the LIMRA study.

In addition to using technology as an educational tool, implementing digital practices may reduce costs in underwriting and remove financial barriers for underserved populations.

“A report by Deloitte Center for Financial Services found that during the pandemic, Black and Hispanic customers had the highest interest of any U.S. groups in buying life insurance. Despite this interest, there are still barriers of entry and a lack of focus on these historically ‘underserved’ life insurance markets. At Ethos, by creating a platform that expedites the life insurance process, with many families receiving same-day coverage, we are eliminating some of the traditional barriers that have contributed to the gap between life insurance and the underserved markets,” writes Myers. “Ethos is working to protect Americans of all ages, backgrounds and occupations by making life insurance in general more accessible. We do that by using technology and data science with a 100% online process that eliminates the traditional barriers to life insurance like medical exams, blood tests, and lengthy approval times.”

Other companies like Haven Technologies, an insurance SaaS provider and wholly owned, independent subsidiary of MassMutual, aim to reach the underserved market by offering a streamlined digital platform that increases accessibility and improves affordability. 

“For Haven Technologies, what we are really trying to focus on is bringing this platform to as many carriers as we can and trying to partner with them to be able to launch more cost efficient, low cost products” says Karen Fontaine, advisor new business lead at Haven Technologies. 

The platform “is meant to really improve upon any advisor and customer experiences, and create digital experiences that are more streamlined. We introduce a lot of efficiency and optimization into the processes by having this end-to-end platform… reducing that [cost], making it easier to launch new products, and launch any new services. And that, we think, is really how we can help benefit the market – by being a platform that’s flexible, that is cost-efficient and really can meet a lot of different needs that carriers have.”

Digitizing underwriting or other insurance back-end processes and utilizing social media can be valuable.

Myers adds, “Technology and the transition to a full digital process is democratizing access to insurance. Traditionally, insurance was bought through advisors who were the de facto gatekeeper to having insurance. That’s paramount, because there is tremendously low POC representation among financial advisors and insurance agents. Technology and a digital buying experience are working to remove the need for an advisor and enabling broader accessibility.”