Inside the Growing Convergence Between Life Insurance Carriers and Estate Planners

MetLife’s 2019 acquisition of Willing is perhaps the most notable transaction in the space, but partnerships are becoming more pervasive with each passing year for large carriers with forward-thinking innovation teams.

(Image credit: Scott Graham/Unsplash.)

In recent years, it’s become increasingly common to read about major national insurance carriers forging closer business ties with online estate planning platforms. Whether it’s through partnerships, significant equity investments, or outright M&A, the country’s leading carriers view estate planning as a growth area, a retention driver, and perhaps surprisingly, a way to save back-office teams hours of lost productivity when policyholders pass away.

MetLife’s 2019 acquisition of Willing is perhaps the most notable transaction in the space, but partnerships are becoming more pervasive with each passing year for large carriers with forward-thinking innovation teams. Today, by my count, 40 percent of the top 15 carriers help policyholders create estate plans, and 90 percent provide general information online. Why is this the case, and why should we be seeing more of this?

There are several reasons. Before getting into them, however, it’s important to ask why it’s happening now. The answer lies in major demographic changes that are already underway. Baby Boomers—those born between 1946 and 1964—have long been the most populous and wealthiest American generational cohort. Last year, the oldest Baby Boomers reached the average U.S. life expectancy. Over the next 20 years, all remaining Baby Boomers will be past their expected lifespans. The largest cohort of policyholders will pass away as the much-discussed $84 trillion Great Wealth Transfer unfolds.

Solving for the $84 Trillion ‘Great Wealth Transfer’

That’s the problem carriers must solve for. Estate planning is playing—and will continue to play—an outsized role in the solution. Here’s why:

The first reason life insurance carriers are turning to estate planning as part of the solution is that we live in a world and an economy in which everything revolves around instant gratification. The decision to purchase a life insurance policy, however, is quite possibly the most selfless act the American consumer will ever commit. It requires prospective policyholders to expend time and resources—sometimes a significant amount of each—to obtain something that, aside from peace of mind, won’t benefit them at all within the course of their lifetimes. It’s inherently a sacrifice made to protect others.

Estate planning is a perfect extension of this. Aside from Powers of Attorney documents that govern who makes important decisions when a loved one becomes incapacitated, estate plans require similar selfless investment without delivering any tangible return or benefit before death. They complement life insurance in many ways by creating an overall framework to move all assets seamlessly between generations. Given the similar intent needed to go out and buy a policy or complete an estate plan, bundling the two products together is good for the customer, which is usually good for the betterment of any business.

A second reason is that a prominent concern on the minds of executives at large carriers is reducing policy lapse by making their policies stickier. Given the aforementioned sacrifice needed by the consumer to purchase a policy in the first place, life insurance is a business with a uniquely challenging customer-acquisition landscape where lapses are quite costly. The industry-wide client retention rate of 84 percent means that one in six policyholders lapses each year, which is far too many – especially when you consider the immense upfront costs of acquiring a new policyholder.

Incorporating estate planning tools into the picture helps make a policy feel less commoditized on a handful of fronts. Members can feel more secure with an extension of their life insurance policies that gives them extra bang for the buck. Estate planning tools also provide a touchpoint that increases engagement, which is the problem—aside from competitive pricing—that leads to the most policy lapses each year.

Higher engagement results in a lower churn rate for carriers and, just like credit card providers have done for many years, benefits programs are gaining traction as a means to an end. As noted previously, the user behavior needed to sign up for a policy is the same as what drives people to complete an estate plan. Seventy percent of people lack an estate plan. For carriers, the barriers to entry are low, and the upside is high.

A third reason fueling this trend, from speaking regularly with large, medium, and small carriers, is that the most surprising benefit is how much estate planning helps the back office function. All too often, policyholders with outdated or incomplete beneficiaries listed within their policies leads to administrative nightmare for back office teams. The payout process becomes protracted, and frequently leaves beneficiaries in the lurch, with funds tied up. This takes vast amounts of time for life insurers, and it’s a poor customer experience. Both sides lose.

Major Demographic Changes during the Next Two Decades

I’ve even heard from some insurers that the back office issue is such a problem that they’re beginning to allocate budget to send direct mailings to all of their policyholders with a plea to update their beneficiary designations—which happen to be part of the estate planning process.

So, as the headlines continue to proliferate surrounding the convergence of insurance carriers and estate planning platforms, hopefully it’s now a little clearer why. With America’s demographic picture poised to endure major changes in the next 20 years, the time is now to get ahead of an obvious problem.

We’re going to see much more convergence between these two critical areas of financial planning in the years to come. Carriers and estate planners will each find themselves far better equipped with a streamlined approach.

Sureify Partners with Estate Planning Platform FreeWill

David Tanti // David Tanti leads business development for FreeWill, an online estate planning platform that has helped nearly 1 million Americans more easily access critical financial planning tools while helping commit billions of dollars to charity. Before FreeWill, Tanti worked in the Australian Government in various aide roles and is a lawyer by training.

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