Addressing the Largest Issues in the Insurance Industry Today
The insurance industry, which operates on a fundamental principle of risk pooling and spreading, faces several pressing issues that have come to the forefront in recent years. Two of the most significant challenges are the decline in the number of healthy applicants in health insurance markets and the decline in the number of life insurance agents.
Lack of Healthy Applicants in Health Insurance
The health insurance market has seen a significant shift in its dynamics due to the Affordable Care Act (ACA) and subsequent legislative changes. The ACA was intended to create a system where healthy individuals would pool together with those who are less healthy, thereby reducing costs for the less healthy.
However, several legislative actions over the years have undermined this original principle. For instance, the removal of children under 26 from the insurance pool and the restructuring of Medicaid to include many of the previously healthy individuals have altered the risk profile of the pool. Additionally, the non-enforceability of the penalty for not being insured led to many healthy individuals opting to either buy coverage only when they become unwell or pay out-of-pocket. This has significantly increased the overall cost of health insurance, making it uneconomical for many to stay insured.
The result has been a rise in insurance premiums and a decrease in the number of insured individuals. According to statistics, approximately 3.6 million people chose not to renew their health insurance for 2017, leading to a significant rise in the uninsured rate to 14%, which is comparable to the rate before the ACA and the 2008 recession.
The Decline of Life Insurance Agents
The life insurance sector has also been grappling with a decline in the number of agents, which is a critical issue given the importance of face-to-face interaction in the industry. The National Association of Insurance Financial Advisors (NAIFA), which was founded in 1890, had 142,000 individual members when the author joined in 1969. Today, this number has dramatically dropped to 20,000 members.
Metropolitan Life Insurance Co., a once prominent player, no longer sells life insurance in the U.S. and recently fired 5,600 of its agents, moving its sales to Japan. This significant shift is reflected in the MetLife's agent base of only 10,000 members within the U.S. today, compared to 26,000 overseas. Furthermore, the retention rate for new life insurance agents has dropped drastically; in the past, the four-year retention rate was 15%, but it is now 8%. This means that an overwhelming 80% of newly hired agents are leaving the industry within the first four years.
The training and certification environment in the life insurance industry has also been on the decline. "LUTC," or the Life Underwriter Training Council, which provided extensive training to aspiring agents, is now rarely seen. Moreover, the average age of Chartered Life Underwriters (CLU) is also on the rise, with many in their mid-sixties, including the author, who is 78. The number of life insurance companies selling and servicing life insurance has also plummeted from 104 in New York State to a shockingly low number.
Addressing the Challenges
Despite these challenges, there are strategies and initiatives aimed at addressing the decline. The author and other industry professionals are advocating for training recent college graduates to form two-person teams, each serving 2000 American households in a "Service Before the Sale" approach. The mission is to help households 'Get Out of Debt and Save Money,' which is crucial for protecting and securing one's financial future, especially in the context of life insurance.
The author's mission is ambitious: to train 60,000 two-person teams by 2020 and serve 120 million American households. This approach not only targets life insurance but also addresses the broader financial wellness of households. By helping people get out of debt and save money, these teams can foster a sense of financial security and resilience, making the sale of life insurance more meaningful and valuable to potential customers.
In conclusion, while the insurance industry faces critical challenges, there are promising approaches to address these issues. By focusing on service and education, the industry can better serve its customers and ensure its continued relevance in a rapidly changing market.