Why life insurance is the Brussel sprouts of financial services – Professional Planner

Around 9 million Australian households dropped $50 billion shopping online in 2020/21, directing the bulk of sales to house 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 sloshing around the economy, but there’s one item that’s not in anyone’s online shopping cart: life insurance. Kind of ironic during a global pandemic.

While technology and shifting consumer attitudes have enabled retailers and other service providers to diversify distribution channels and boost sales, online life insurance sales remain negligible and no amount of investment in technology and advertising is likely to move the dial.

Technology has enabled companies to sell things online that people already want but it hasn’t made it any easier for companies to sell things online that people don’t want, even if they need it.

Life insurance is the Brussel sprouts of the financial services industry, a product with undeniable health benefits that people don’t voluntarily eat.

Basic Instinct

A deeper look at consumer data also reveals that the real and potential benefits of digital marketing have been overstated and not only in relation to financial services.

For sporting goods company Adidas, a failure of their search engine optimisation (SEO) system, which is designed to drive web traffic to the Adidas site where people can transact, did not impact online sales. As a result, Adidas focused greater attention on brand and marketing.

This led to a double digit increase in direct-to-consumer sales across EMEA and the United States in 2021.

Based on behavioural science studies, there are psychological reasons why people don’t act as they should.

In the case of buying life insurance, people are being asked to act against their instincts.

Behavioural science, which studies the effects of psychology on investors and markets to highlight human biases, is attempting to do the same thing.

As a relatively new discipline, behavioural science can learn a lot from life insurance.

Firstly, life insurance is sold rather than bought.

Tellingly, David Battersby, formerly vice chancellor of Federation University Australia, and Peter Hovard, lead behavioural scientist, global data and analytics at RGA in the United Kingdom, suggested that if behavioural science students had to build a product that opposed many human psychological idiosyncrasies, it would look a lot like life insurance.

Those psychological idiosyncrasies include optimism bias (I’m healthy, it won’t happen to me), cognitive dissonance (I don’t want to talk about it) and present-day bias (I’d rather spend money to get a benefit today).

All three discourage people from buying life insurance and guarantee a steep uphill battle for direct insurers. However, when confronted with their mortality, people become motivated to protect themselves and their loved ones, hence the importance and value of professional advice.

Advisers specialise in hard conversations. Part of their job is to educate clients about the risks they’re exposed to and make them understand the consequences of not being adequately insured.

They arrest low-motivation behaviour and turn the ‘nice to have’ into a ‘must have’.

Advisers understand that life insurance sales increase when there is a salient event, like a natural disaster, sudden death in the family or personal health scare. They are experts at increasing the salience of a client’s situation.

Digital distribution channels can’t do that.

The regulators may not like it, and advisers may also be uncomfortable with the suggestion, but advisers are life insurance ‘sales’ people. That’s not an insult.

It is extremely unfortunate that the brunt of recent regulatory changes have fallen primarily on life insurance advisers. The dramatic decline in adviser numbers, many of whom specialised in life insurance, will have far-reaching consequences for individuals, families, life companies and tax payers.

Already the number of Australian lives insured and sums insured have fallen by 23% over the past two years, according to the 2021 KPMG Life Insurance Insights Report.

Turning this around depends on the industry’s ability to replenish adviser numbers. Further investment in technology and direct distribution is likely to be futile.