The reason for the perpetual decline is straightforward; life and annuity products are complicated. There’s a popular adage that life insurance and annuities are sold not bought – and there are plenty of reasons for it. We’ve listed three of these reasons below, and our thoughts on how VC investors may be able to help sell life insurance.

1. Buying Processes

One of the main issues confronting the life and annuity (L&A) industry is a complicated, and oftentimes confusing, buying process. By contrast, property and casualty (P&C) products tend to have more homogenized terms. Policy provisions are relatively standard regardless of issuer and it’s easy to compare one carrier’s products to another. As such, P&C products are easier to research and buy; it also helps explain why consumers tend to be price sensitive and why agent commissions are lower for P&C products.

L&A products, on the other hand, have more features, riders and policy provisions that are designed to help customize the product, coverage and benefits to the individual’s personal situations. The sheer amount of options available means there are more choices that need to be explained to purchasers and plans that are difficult to compare.

This highlights the need for an advisor in the sale process and justifies higher commissions. To overcome these complications, the L&A industry could benefit greatly from VC investor support by establishing consumer-friendly buying routes and ensuring that important information – such as policy descriptions, pricing and quotes – is more readily available.

2. Customer Loyalty

Insurance is a hyper competitive marketplace. To stand out, insurers need to respond to growing customer expectations of personalized and high quality interactions with their agent, agency or platform. Without improving the experience, customer retention will continue to fall.

There is incredible opportunity for VC investors to help redesign the customer experience – both online and offline – in the L&A industry. Dollar Shave Club, for example, uses technology tools to understand its customers and what drives them to make purchases. Additionally, employees are focused on engaging with customers in any way possible and follow the company’s motto of “We don’t respond to situations; we respond to people”. The company has been VC-backed since 2012 and Unilever invested $1B in 2016.

Another issue impacting customer loyalty is the fact that there are few situations where consumers are required to buy L&A products. These products have become widely regarded as financial planning tools and “character” purchases, which often leads to confuse and ultimately discourage potential buyers. P&C coverages, on the other hand, are often mandated, making it easier to attract and retain customers (for example, homeowners insurance is required by mortgage lenders and car insurance is often required by state law). By focusing more on the consumer and their experience, L&A can increase satisfaction levels and ultimately industry-wide customer loyalty levels.

3. Internal Processes

Today’s L&A data processing and management systems are simply outdated. With strategic VC-backed investments, the entire flow of operations could be streamlined.

Areas needing improvement include the underwriting process, internal processing of applications, internal communications, data security and IT systems. The costs of these insufficient systems are being passed on to policyholders through increased premium rates. If VC investors were to step in, L&A insurance companies would have the opportunity to cut unnecessary costs, provide better customer service, and ultimately increase the bottom line.

So, can VC investors help modernize and sell life insurance? It depends if more firms are now willing to take on the challenges presented by L&A products. There is early evidence that interest is rising – for example, the figure below shows that L&A distribution investment is up from the prior period, compared to consistent investment levels in P&C.

We are beginning to see these types of investments made on a more granular level as well. Ensurem, LLC owns and operates a digital marketing platform allowing customers to research, shop and purchase life insurance policies, supplemental health coverage, living insurances, and other insurance-related products. At the end of 2017, Ensurem closed a $12.25 million investment from A-Cap and a separate $1.7 million angel investment from Angelrush. The proceeds will be used to help expand capabilities in four main areas: digital storefront, digital customer acquisition technology and expertise, proprietary product platform, and third-party administrative services.

VC investors are beginning to put their money in these types of companies, meaning this could be the beginning of increased industry-wide investment activities. Perhaps, as the L&A industry begins attracting an increased number of VC investors, the sector will be given the resources it needs to evolve and turn the 50-year ownership line into a positive trend.

About BP Growth Partners

BP Growth Partners is a Midwest-based private equity fund manager that invests along-side management teams of private, middle companies seeking capital for growth, liquidity, ownership transition and/or acquisitions. Our principals have nearly 20 years of experience advising, investing and partnering with private companies throughout their corporate lifecycles. The approach we take is unique, from how we align interests with companies to our laser-focus on a few hand-picked sectors. Whether its new ideas, technology, strategies or people, our commitment is not just to be different, but to make a difference.