Maria Thomson, FSA, MAAA, has done the industry a service with her new book, "Insurance Coverage for ALL...and How Insurers Can Afford to Provide It." Inside this thin book (88 pages, including notes, so you can finish it at a sitting) is a fatter book longing to be written. But it is a stimulating read, raising a number of different issues, and it should lead to some lively debate, and, I hope, further analysis.
Thomson's basic philosophy is that insurance is a GOOD THING, and therefore we should all have more of it. She does an excellent job of reminding us about the lines of insurance where penetration is low, and where more coverage would be beneficial, e.g., to her target population - roughly, middle class employed people, coverage such as disability income. The "need for insurance coverage" concept is one that could benefit from further analysis: All people are not equal, and the need for type and amount of coverage appropriate for different profiles of the population differ by age, family composition, marital status, stage of life, resources and wealth, access to social and government programs, level of risk tolerance, to name a few. The relative aging of the population, the decrease in the child dependency ratio, the increase in the number of two-earner families over the past 20 years, and the increase in alternative and more attractive investment vehicles makes it hardly surprising that life insurance ownership has fallen.
Thomson's thesis for this decrease in ownership can be summarized as follows:
·Insurance companies have abandoned the middle-class market to focus on the affluent.
·Most people have inadequate insurance for their needs.
·Selling in the traditional model is becoming cost-prohibitive.
·Traditional underwriting is slow and expensive, making buying difficult.
This leads to her recommendations for the industry:
·Develop more simple products.
·Focus on faster and more streamlined issue processes.
·Develop alternative channels such as work-site marketing and bancassurance.
The discussion of the rise and fall of the debit market was, for me, one of the more interesting sections of this book. The puzzling issue, however, is why the debit insurance market died, rather than evolving to a form of distribution like the Avon, Longaberger or Tupperware models. I would have liked to read more about the bancassurance market, which has arguably not taken off in the U.S. Thomson tells us it has been successful in Europe. It has been tried in Canada, and some Canadian experience would be helpful.
The discussion of product development focusing on needs of the target population is a useful one that deserves expansion. One of the interesting consequences of focusing on need as the basis of product design is that you end up with rather messy products that do not fit easily into existing "buckets."
When it comes to finding ways to provide broader coverage for a large number of households, we should not overlook group insurance. According to Thomson, about 52 percent of households own group life insurance, slightly more than own individual life insurance (Table 2.2, p. 14). The percentage of households covered by group life is higher, if you exclude those over 65 (as a proxy for retired workers) and those living in single households (as a proxy for "need"), who together constituted about 34 percent of all households according to the 1990 census. Despite its size and relative importance, the group life insurance (and affinity group) market is the "Cinderella" of the industry, too often ignored by those who come from a more traditional background.
With regard to underwriting and issue, group life already meets some of the important criteria that Thomson recommends for the industry ("a well-screened policy issued instantly", p. 9): group life is widely available; the products are simple; and the underwriting and issue process is simple and fast. Most employees (and dependents, in those plans that cover dependents) are covered immediately for the guaranteed-issue limit, provided the employee meets the actively-at-work test (or the dependent non-confinement rule, in the case of dependents). Rates are reasonably competitive with those of individually underwritten products, for the same reasons that Thomson discusses in her modeling of the cost and benefit of underwriting. Workers who do not have access through an employer-sponsored plan can often find competitive coverage through unions or trade associations.
So why is group insurance the "Cinderella" coverage? Possibly, because it relies on employers for marketing, and employers have more pressing benefits issues on their minds. Or maybe it's because the companies that sell group insurance do not do a good job of promoting the product, either to the employer (first sale) or to the employee (second sale). Or perhaps it's due to the fact that there has been limited product development in group life, although there have been some significant innovations in the last few years:
·Group Universal Life
·Interest continuation accounts (bank accounts for beneficiaries)
·Acceleration of benefits on terminal or critical illness.
·Portability/direct-billing on termiation of employment.
Though there are topics I would like to see addressed in more detail, Thomson has written a useful and thought-provoking book, which I recommend to all traditional and non-traditional actuaries and marketing people.