How Life Insurance Gets Reinvented

The consumer experience in the digital world is becoming increasingly disintermediated. For consumers, that is largely a win — pricing becomes more transparent, comparisons are easier to make and there are an abundance of choices when it comes to getting access to a wide variety of good and services.

In short, disintermediation means consumers get more choices and understand those choices better.

For the brands and merchants that sell to those consumers, disintermediation is more a good news/bad news kind of situation. The good news, according to Fabric Co-Founder and CEO Adam Erlebacher, is that the direct access brands get through digital channels means they can create, guide and control the experience far better and more efficiently than they’ve ever been able to in the past. They don’t have to be reliant on the good work or good ideas of middlemen between themselves and their consumers.

“If you think about CPGs (consumer package goods), for example — forever that has gone through the grocery channel and other mediated channels — the move to Amazon is a natural shift to the digitization of these channels. Brands need to go where the customers are — and the behavior of customers around coming into stores to buy is changing,” he noted in a recent Topic TBD podcast with Karen Webster.

And it’s not just about Amazon power, Erlebacher noted — there are a variety of emerging players who are working to provide brands with that direct-to digital channel as “brands are just figuring out ways to meet customers where they are.”

Where customers are is increasingly online, on mobile, and they’re rather impatient with processes that are not efficient, transparent or simple. The need to improve delivery to customers and to make those direct-to-consumer experiences viable is observable to a greater and lesser extent across vertical. CPGs have a long history of advertising direct-to-consumer over television, for example, and so the shift isn’t epochal.

For other industries, like the insurance industry that Fabric is hoping to disrupt, it is a seismic shift that isn’t just about moving channels — it’s about moving priorities.

“So much of it does come down to designing products that are for the digital channels. It is not necessarily taking offline products and then reproducing them online; you need to really think about what it is that you’ve created for the customer and making sure it fits in with a digital experience.”

So how to do that in retail in general — and in insurance specifically? According to Erlebacher, there are two good guiding principles that should start every discussion.

Clarity and Simplicity

Consumers — particularly consumer who are being moved to make a change to a different behavior set — aren’t going to do it if the change is harder than what they are already doing. The trick, Erlebacher noted, isn’t just to design a new process, but to design one that has fewer friction spots.

“When you’re talking about products that have a history of being complex, especially if you are going to be selling in an additional channel not mediated by a human, your messaging needs to be straightforward and simple. The service it offers has to be straightforward and simple.”

The evolution of the market, Erlebacher said, is toward simplicity — whether one is selling insurance, shoes or salsa — and pretty clearly centers around two points: affordability and convenience.

While prices can be cut, at some point you’re not in business if you’re giving your products away (the ultimate in affordability), which means convenience becomes the determining factor — taking a process that consumers are already familiar with, and then reducing the number of steps it takes to get it done.

“That is what Amazon has done in every category that they went after,” Erlebacher said.

And what Fabric is doing in its chosen category, life insurance.

Improving a Market with Disintermediation

Like most innovators, Erlebacher got his innovative start trying to solve his own problem. After putting off the experience, he tried to buy a term life insurance policy online. He even thought he’d done so.

Then he got a phone call from the insurance agent telling him he had to come in to actually finish the process and sign up.

“So now I’m in his office filling out a 15-page questionnaire, and I have said from the beginning that I am looking for basic coverage. But he really was pushing whole life insurance.”

Whole life insurance is a more expensive and more complex product — as a point of comparison, the $1 million term policy Erlebacher was looking into cost about the same as a $50,000 life insurance policy. Whole life insurance policies are much more lucrative for insurance agents to sell, which has pushed the pendulum in the life insurance market all the way toward expensive, complex policies.

Which isn’t leading to people overpaying — Erlebacher notes — instead, they’re not buying at all. A few decades ago, over 70 percent of Americans had life insurance. Today that number hovers around 40 percent.

“The problem,” Erlebacher said, “is that unlike banking, which you deal with on a day-to-day basis, insurance is something people don’t much think about unless they have a pressing reason to — they had child.”

Consequently, most people go into insurance purchasing totally in the dark about what is coming next, which doesn’t always work out so well.

“The system of selling insurance is one that takes advantage of the lack of understanding. When you have a mediated process, an agent can come in and say, ‘I’m the expert’; you are going to believe them. But they are commission-based. You need to be clear on what you are hearing; you need to take it with a grain of salt and do your own research.”

Erlebacher’s research told him that whole life insurance was too complex to easily sell on digital channels — it is a “push” product” more than a “pull” product. It’s a complex sale that does work best with an agent.

But because agents are the only real channel for insurance policies, whole life insurance becomes the standard, and it tends to appeal mostly to affluent buyers. But there is a whole mass market that would be best serviced by term policies — and those policies could be easily moved to a digital channel.

They just had to build it and the products to sell.

Building a Digital Channel

The Fabric team found a big opportunity to create a very straightforward process where a customer can come in can “make a good decision by default.”

They just needed a product to sell — which that turned out to be something of a challenge, as they learned when they went to partner with an insurance carrier.

“When we looked across the landscape, we found the policies we wanted to sell didn’t exist. We designed it from the ground up.”

Fabric had three requirements in order to work with their insurance carrier: modern, cloud-based full stack technology; a small direct sales force, so there was no risk of cannibalization; and a firm with the same vision of addressing the mass market.

That was harder to find than they thought — particularly on the technology side.

“We found out that most insurance companies are still using mainframes. They have not migrated to the cloud.”

So with a reinsurance partner (RPB) for assistance on some actuarial issues, they’ve been working on the products that they wanted to see.

“The products need to be built, and they need to be designed around those they are produced for. And we didn’t have a lot of luck finding anything off the shelf we could just plug into.”

And then they had the hard work of re-educating consumers — who mostly associated term life insurance with crippling expense, believing it was three to four times more expensive than it is. But that education is working so far in Fabric’s early days.

“It is a fundamentally important product for new parents, because there is someone who depends on their income. We can really expand the pie. The people who are buying coverage from us are people who were absent in the market, because they thought it cost too much or it didn’t apply to them. Now they can be covered in two minutes.”

Simplicity and clarity indeed.

It’s not easy to build and takes a lot to maintain. But, Erlebacher told Webster, it’s ultimately what consumers expect and will demand going forward.

The brands that succeed — the Amazons (and hopefully Fabrics) of the world — are the ones who figure out how best to provide products and conveniences before consumers even know they need them.