How to Sell Life Insurance in Mature Markets? July 2013 BLOG POST
Life insurance is a mature market offering challenges to businesses Insurance penetration increases with economic development, which gives rise to purchasing power parity and industrial development. Life insurance has become a mature market in most of the developed economies where penetration is very high; however a demographic shift can certainly give a new lease of life to the industry in terms of demand of new products for new or changed generation pool. On the contrary, emerging markets offer ample opportunities for the life insurance industry given the demand for basic products as well as new and innovative offerings. Historically, life insurance markets have taken time to develop, often developing later than banking and non-life insurance markets. Pattern of Economic Development and Evolution of Life Insurance Markets
Source: OECD
Growth of national life insurance markets tends to have the S-shaped pattern. As GDP per head within an economy remains low, spending on life insurance remains low, often growing less than the GDP. But as the GDP per head increases beyond a certain threshold, spending of life insurance begins to accelerate. At a very high level of GDP per head, the rate of acceleration tends to slow down, partly due to the fact that wealthier economies tend to have older populations who begin to draw down their savings during retirement. Some companies operate across multiple geographies, while the majority of them operate locally. Nevertheless, all insurers globally are asking just one question: What markets companies like to explore, domestic or international, and develop products as per the requirement?
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Economic Development and Growth of Life Insurance Products
Source: OECD
It is difficult to generalize how life insurance products change and widen in scope as a life insurance market matures. There is interplay of economic, political and cultural and commercial factors at work, which vary from country to country, nevertheless, there are two aspects of product development, which have been evident in many countries. First, life insurance products tend to move from having a primary emphasis on insurance protection towards a greater savings role, especially saving for retirement purposes. Second, there is a move away from simple products sold either on an individual and group basis to more complex products sold mainly on an individual basis. In the developed markets, a high degree of competition and low market growth make it more important to focus on new product development, leveraging the historically-underleveraged sales channel and trying to develop new sales channels coupled with technology. In the emerging markets, the opportunity lies in growing income of the middle class group, while in the developed markets, developing a new product and selling it through new business channels is the key to withstand competition and sustain growth. Companies operating in multiple geographies, emerging as well as developed, keep developing relevant products and sell them through expanded distribution channels, which yield new accounts and customers. For example, insurers are now partnering with banks and affinity groups to help drive policy sales. While these trends began in the more mature insurance markets, developing markets have been following suit. AFLAC, which has exposure to the developed markets like the US and Japan, offers its products to corporate rather than to individuals through sales agents as most life insurers do. It markets its products to companies as a way to improve their benefit lineups at no additional cost. Premiums are deducted from employees' paychecks and AFLAC pays cash benefits in the event that a policyholder gets a
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specified disease. AFLAC's unique distribution model yields low costs that allow it to price below competitors’. AFLAC Japan’s ability to supplement its traditional product portfolio beyond traditional health-related products with other products such as WAYS, a hybrid whole-life insurance product, has helped it generate record sales in 2011 and 2012i. i
AFLAC's Management Presentation at Citi 2013 (Transcript)
How to sell life insurance in mature markets?
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