Embracing Change & Expanding Coverage

Jun 16, 2023

[IMPACT+: This series features IMPACT posts that take a longer look at vital topics that affect American consumers. A version of this article appeared on LIMRA Market Facts.]

Life insurance is a powerful financial tool to substantially strengthen financial well-being and security from one generation to the next, especially for a typical family working to make ends meet and help their children succeed.

In fact, inadequate or no life insurance coverage may be the greatest avoidable threat to financial security. Even so, in 2021, just over half of American adults owned life insurance, down from 63 percent in 2011, according to LIMRA.

It is a trend that has not gone unnoticed. Life insurers have been working to improve their interactions with customers and make it easier and more convenient for modern consumers to get the financial protection they need. This includes greater use of technologies that simplify the underwriting process and a broader-based agent population to help more consumers have access to a financial professional’s help.

Industry improvements in these areas will help close the life insurance coverage gap. The right regulatory environment goes a long way toward making these efforts a success.

Life insurers have always embraced technology. For example, the industry’s adoption over the past decade of simplified underwriting — automated underwriting drawing from available electronic data — is a clear example. Most life insurers offer this option to customers, in addition to traditional methods that typically rely on obtaining individual medical records and the collection of bodily fluids.

The time to approve applications for life insurance can be significantly reduced when using automated underwriting. Access to electronic data, such as prescription drug records and motor vehicle records, is key to the quicker process. To be sure, electronic data must be used with consumers’ knowledge in a way that safeguards them and is in accordance with sound actuarial principles and reasonably anticipated experience.

The National Association of Insurance Commissioners (NAIC) has prioritized the creation of a model bulletin to address insurers’ use of algorithms. Life insurers support the NAIC’s work on a principles-based approach to allow flexibility in how companies determine how best to comply with the statute and regulation based on their unique use of electronic data and technology.  This allows companies to continue to innovate in ways that reach a broader market and provide financial protection to more consumers.

Any regulatory framework designed to eliminate unfair discrimination must live in harmony with technologies that help expand coverage in underserved communities, where the gap is greatest.

Agent Licensing

Like technology, an increased agent pool promises to help close the life insurance coverage gap. LIMRA research in 2021 shows there are an estimated 60 million uninsured and underinsured American households, with an average coverage gap of $200,000.

The American Council of Life Insurers (ACLI), the National Association of Insurance and Financial Advisors (NAIFA) and FINSECA strongly support efforts to boost agent recruitment, retention and diversity. These organizations share the conviction that a diverse producer base is fundamental to providing access to protection and savings products for all individuals.

Greater uniformity and efficiency across the producer licensing process is one step toward achieving this goal, and the industry is exploring improvements in several areas to help make this happen, including:

  • Working on making sure 1033 waiver materials used for background screenings are available on insurance department websites and simplifying the waiver application process.
  • Eliminating mandatory pre-licensing education hours, which many states do not have in place and have been shown to have no correlation to consumer protection.
  • Making the producer examination available online in a proctored environment, which most states implemented during COVID-19.
  • Providing state-by-state transparency and consistency to the examination process, including pass rates and other items that may present unnecessary barriers to entry.
  • Making the producer examination available in more languages than English, which would particularly assist professionals working in underserved communities.
  • Exploring mentorship and apprenticeship programs that likely will increase entry and retention, especially of minority producer candidates.

Removing barriers to the producer licensing process will take time and incremental steps through state legislation or regulatory action across multiple jurisdictions and governmental entities.

Fostering a regulatory environment that helps expand outreach to consumers, both online and in-person, will advance the industry’s mission to help more families build financial security.

Jillian Froment

Jillian Froment is Executive Vice President and General Counsel at the American Council of Life Insurers (ACLI). She is responsible for merging and optimizing general counsel and policy development into ACLI strategy that supports the life insurance industry, our members and the consumers and communities they serve.