Filed Under:Life Insurance, Life Products

What U.S. life insurance agents can learn from China

In a country where the mere mention of death is taboo, the life insurance market is booming, especially among millennials. What can the Chinese teach us about selling a very American product?

China can serve as an example for advisors of how sales can be attained in a complicated business segment.
China can serve as an example for advisors of how sales can be attained in a complicated business segment.

According to a recent Society of Actuaries (SOA) study, the Chinese life insurance market is on fire. In 2010, life insurance premiums in China rang in at a cool $142,792 million, representing a 28.1 percent spike in sales since 2006. In a country where talk of death is taboo, life insurance sales are growing at an impressive rate.

Moreover, the market’s youngest segment — people 25 to 34 years of age — are driving that growth. Only 17 percent of those surveyed ages 25 to 29 were not interested in life insurance, with 31 percent of that segment buying life insurance for either short-term needs or long-term coverage. For respondents ages 30-34, the interest level goes up to 64 percent purchasing life coverage.

That’s in sharp contrast to the market in the US. According to a 2013 Ernst & Young life-annuity market outlook, the average amount of money spent on life insurance in US households has dropped by half in the last decade. Most notably, younger people simply aren’t buying life insurance. Moreover, the report states that despite the premium growth keeping pace with inflation over the past 45 years, growth in the number of policies sold in that period is zero.

The reasons could be many. Wenli Yuan, senior analyst with Celent, Hong Kong, says the economy and social environment in China is driving interest in life insurance. According to Yuan, China’s increased urbanization has resulted in the increase of consumer income. Also, Yuan adds, China’s population is aging and “the social security system is not complete, so consumer’s demand for the product that can help them saving for retirement is increasing,” she says. Likewise, China’s current Medicare system, undergoing reform, and higher demand for medical insurance is increasing interest in the life market.

There is a desire among the Chinese population to find savings vehicles. “Some life insurance products are marketed as an investment tool,” says Yuan. Treated as single-premium investment-type products, life insurance appeals to buyers.

Cultural shifts

Still, the current sales environment in China shouldn’t be interpreted to imply that life insurance holds more value in the Asian markets than in the states. Phil Richards, chairman and CEO of North Star Resource Group, Minneapolis, was an adjunct professor at Beijing University and lectured at Shanghai University for Finance and Economics. A frequent visitor to Asia, he doesn’t believe there’s a higher importance placed on life insurance, but rather a rapidly changing culture with enough expendable cash to make the market viable.

Dr. Walter Zultowski agrees. Zultowski, principal at WZ Research + Consulting and lead researcher of the SOA study, says what’s happening with the country and culture, along with some significant economic growth, is driving the life insurance market. As a result, the middle class market is prospering, which he says hasn’t been the case traditionally.

Also, there’s a change in attitude toward the idea of death. No longer an off-limits subject among China’s younger population, death is now part of the sales script. With more Chinese consumers valuing the death benefit -- seventy percent of those surveyed agreed that purchasing death benefit life insurance is more important now than in the past – the Chinese life insurance market becomes that much more lucrative.

That subtle change has allowed for a shift not only in how the product is viewed, but also in how it is marketed. Most life insurance policies sold in the past were smaller, savings-oriented endowment products, Zultowski says, and insurers would market the product from that perspective. Also, life insurance has been typically purchased through banks. Now, with the country’s burgeoning population of life agents (Richards estimates 3 million, including part timers), China’s life industry is more diversified in the way products are distributed.

The methods by which life insurers are appealing to younger buyers have also diversified. Yuan says that insurers are reaching the middle market via three new avenues: direct sales on websites, shopping sites equivalent to Amazon, and through online content created around consumer interests. “  Insurers are responding to wealthier population, retirement planning, health planning, and more demanding customer base,” she says.

Redirected focus benefitted

Still, the shifts in China’s culture and economy aren’t the only factor in selling success. Richards says the true success lies in how the products are being presented. He sees a difference in how even agents are recruited. “We recruit on the three I’s – impact, income, and independence. In the US, it’s impact: do you want to change for the better the lives of your fellow human beings? We’re all about widows, orphans, jobs and companies surviving the death of a key person,” he says.

In Asia, he points out, the sales tactics are exactly opposite. ”It’s first and foremost about income,” he says. Which is not to say that method is better. In fact, Richards says such sales methods could cause problems in the long term. “People who join you for the money will leave you for the money, whereas people who join you for the purpose tend to be more grateful and will stay with you longer.”

It’s that redirection of focus that Zultowski and his colleague, Adam Vanevenhoven, director and actuary at Prudential Insurance Company and the SOA Project Oversight Group chair, see happening already in the Chinese market. Their study revealed three market segments: life protectors, life investors, and uninterested buyers. Those buying insurance for protection are a growing segment, but are still outpaced by those who use life insurance as an investment. Life investors are the largest market segment, followed closely by consumers who are uninterested in life insurance.

Re-evaluating the U.S. market

The experts believe those same segments exist in the U.S.; however, the U.S. market still falls back on the demographic approach, says Zultowski. “There clearly are distinguishable segments of the market that are different. They require different marketing methods, products, and approaches.They’re not based on demographics,” he says.

Still, Zultowski says the U.S. market has yet to embrace a new methodology. “The industry keeps talking about this segmentation, but we always go back to demographics. The real richness in terms of where you’re going to get the people doesn’t exist in the demographics. You need more of an attitudinal and behavioral segmentation than just a life stage or demographics approach,” he adds.

That change is necessary, he says, because products and regulations have changed dramatically since the industry first started using demographics. Vanevenhoven says that 50 years ago, life insurance sales to the U.S. middle market were savings-based, traditional whole life products. Since that time, regulatory changes and shifting interest rate environments have made these products less attractive. Vanevenhoven says the market was reduced even further when ERISA rules helped pave the way for other investment vehicles, including 401(k) plans. Current interest rates make life insurance products even less desirable. “Today there are a lot more options and a lot more competition for savings dollars,” says Vanevenhoven.

The U.S. life insurance market sales, the experts predict, will continue to lag. Richards thinks the lack of sales has plenty to do with the age of U.S. agents. The average age of American agents, he says, is 54 years or higher. Even if agents could access the younger adult segments, Richards says it’s unlikely agents would call on them. “That’s not where the money is. A 55-year-old agent can’t afford to sell a cheap term policy to a 25 year old,” he says.

That’s because the premium on a life policy has decreased significantly, Richards says. In 1965 a $100,000 whole life policy premium came in at $3,800. That same policy today, he says, costs $832 dollars. That decrease has hit the life insurance market hard. “Companies that once had 24,000 agents today have 4,000. They can’t make a ROE because they’re not getting $3,800 anymore. Most of the $800 is going into cash value.” Commission rates too have evaporated. Some term policies, he says, pay no commissions.

The ticket to life sales

According to Vanevenhoven, China can serve as an example of how sales can be attained in a complicated segment. “One thing insurers are still struggling with is marketing to the mass affluent. The middle market is underinsured,” he says.

That’s where the U.S. market holds most promise, say the experts. Zultowski says a shift in sales tactics is a matter of asking the right questions. Getting those questions in front of consumers isn’t tough, he adds. “Somebody logs on to a company site and these questions pop up. You make it feel like a customization thing – we’re trying to get the right products for you. That information can be scored quickly, and it offers a greater chance of getting the right message to that particular person.”

Still, not everything about the Chinese market is positive. Yuan says that the market premiums in China in recent years have undergone adjustment. In 2011, premiums decreased 9 percent, and 4.2 percent the following year. It corrected in 2013, she says, to 7.9 percent, but Yuan adds that the market is still undergoing an adjustment process.

Even life protector consumers aren’t guaranteeing the success of the Chinese market, says Vanevenhoven. “It’s possible that given the idea of buying life insurance for protection is a new idea in China, once people buy policies, they may not hold them for long term. Companies need to be wary of the commitment the policyholders have to the product and make sure it’s reflected in their sales and pricing,” he says.

Lori Widmer is a Philadelphia-based writer and editor specializing in insurance and risk management.

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