There’s an untouched gold mine of U.S. consumers that’s just waiting to be tapped by the life insurance industry. This prolific group holds billions, possibly trillions, of dollars in their grip. Unfortunately, whether by choice or futility, the life insurance industry has failed to answer this market’s call.

What is this mysterious collection of consumers? You guessed it: the middle market. This elusive, potentially lucrative market has kept the life insurance industry bewildered for years. The industry struggles to define the middle market, let alone penetrate it.

Although the fruitful middle market is ripe for the picking, it remains largely untapped. “There’s a huge underserved population that no one out there is reaching,” says David C. Gilmore, Business Intelligence Leader for Insurance with Genworth. “If someone could find a way to do it, there’s trillions of dollars in possible premiums out there.”

Overlooked and underserved
The middle market dangles like a tantalizing carrot before the hungry life insurance industry’s nose, yet the industry simply cannot or will not take a gratifying bite. Why? Some experts say life insurance professionals are holding out for a juicy steak—in other words, they’re engrossed with more affluent markets.

“A lot of these companies are targeting the affluent market because that’s where the money. People are not paying as much attention to this middle market,” says Gilmore. “Independent agents are usually small business owners, and they get paid on commissions on premium. The higher premium cases you write, the more commission you get. So, there’s all this incentive to go out and try and find the people who are going to have the largest life insurance policy that they can.”

“The life insurance market really kind of fractured,” says Marian Sole, Senior Vice President of Life Sales with AXA Partners. “There’s a significant number of companies that are very adept at working in the high, affluent, older age marketplace.”

John Hancock is one such company. “When you talk about higher markets, you’re talking about a lot of premium dollars,” says Naveed Irshad, Vice President of Product Management, John Hancock. “We’re really focused on leveraging our competitive advantage in that space.”

However, research shows that there are untold amounts of money to be had in the middle market. LIMRA International released a report in 2005 entitled “Trillion Dollar Baby: I don’t think you can look at the market one way—you can’t just look at incomeThe Sales Potential of the Underinsured Life Market.” This report reveals that there are 48 million uninsured or underinsured U.S. households who say they want more life insurance. “Coverage would increase by $9.5 trillion and add an estimated $17 billion of premium to industry coffers if the 48 million households bought the amount that they believe they need,” according to the report.

“We know from our research that 44 percent of middle market households themselves identified that they don’t believe they have enough life insurance,” says Cheryl Retzloff, Senior Research Director at LIMRA (Life Insurance Market Research Association). “That’s like 30 million households. In the $25,000 to $50,000 income range, 1 in 4 of them have no life insurance at all. In the $50,000 to $100,000, 1 in 10 don’t have it.”

With millions of middle market households in need of life insurance, why does the industry struggle to penetrate this mammoth market? “I think the life insurance industry isn’t working hard enough,” says Sole. “In the life insurance industry, there’s been very little concentration on what this middle market needs.”

Retzloff explains that because these middle market households can be difficult to capture, the industry as a whole was focusing on more upscale clients for a long time. “I think the industry is now realizing that the middle market represents an awful lot of the marketplace. The $25,000 to $100,000 income range represents 56 percent of all households in the U.S.—that’s 65 million households. That’s over half the households in the United States. So a lot of companies are turning back to that market.”

Stuck in the middle
Although life insurance companies are beginning to realize that middle market households present an incredible opportunity, BGAs are also learning that this is a tough market to capture.

Perhaps one reason the industry can’t seem to breach the middle market is because there is no industry-wide income average for the segment. Depending on who you ask, the annual household income for this market can range anywhere from a scant $25,000 to a whopping $250,000—quite a significant span.

“There are various definitions for the middle market, but you’re usually looking at people with an income of maybe $50,000 to $90,000, in that range,” says Gilmore with Genworth.

While middle market households want to make sound financial decisions, they aren’t always sure where to start. However, AXA Partners assigns a higher income range to the middle market. “For us it would be household incomes over $100,000, net worth up to $2 million,” says Sole.

Conning Research and Consulting, Inc., a Hartford, Connecticut based research group that provides insurance industry analysis, places the middle market in a considerably lower income range—between $35,000 and $88,000 in annual household income. So, which income range is correct?

“There’s no standard industry definition,” says Gilmore. “It varies company to company.”

Retzloff says it actually makes sense that each BGA assigns a different income range to the middle market. “To me, the middle market today is maybe an average of $35,000 to $100,000,” she says. “But there are always categories in there. The middle market in Mississippi is very different from the middle market in New York or Connecticut for buying power. It makes sense because the way companies operate may be different. I can see why every company would go for a different piece of the market.”

The common threads
While the life insurance industry may not agree an average income range for the middle market, most BGAs agree that consumers in this market follow a common set of lifestyle choices and buying trends.

“I don’t think you can look at the market one way—you can’t just look at income,” says Rich Brugger, Vice President of Individual Life Insurance, Distribution Marketing and Sales Support at Prudential. “I think the best way for the life insurance industry to penetrate the middle market is to not look at it through a single lens.”

Based on research from focus groups and surveys, industry experts believe that the middle market consists of consumers who are trying to save money and are concerned about the price of products. Experts also believe that middle income consumers are fixated on developing a suitable nest egg.

“They are still in the accumulation phase of their life,” Sole explains. “They’re still trying to build up retirement plans and savings plans. They’re expecting not to just to have a normal retirement but actually an active and enjoyable one.”

While middle market households want to make sound financial decisions, they aren’t always sure where to start. “Some of the trends of this market are that they’re looking for financial advice, and they don’t typically know where to get it,” Gilmore says. “They don’t feel like their needs are being met. Most of them don’t have a life insurance agent. So they’re searching for advice, and they don’t know where to go.”

Gilmore points out that the cost of products, particularly life insurance, can be a source of stress for middle market consumers. “They’re concerned about price. One of the big reasons they say they don’t buy life insurance is because they think that it costs too much.”

Breaking through the middle
Among everything the industry has learned about the middle market, one detail seems to speak the loudest: these households are extremely difficult to penetrate. “There are a lot of middle market households that don’t have coverage at all, and these are definitely tough households. They’re the ones that have procrastinated for some reason,” Retzloff says.

So, how can the industry break into these daunting households? Many BGAs and industry researchers believe that it all comes down to education, trust and choices.

“We have done some research, and we asked people the question, ‘How much life insurance is enough?’ We got a whole range of answers,” says Brugger. “But the biggest answer so far of the group, a whole third of them said that they just didn’t know. They weren’t sure of how much life insurance was enough.”

“The middle market consumers are really are not comfortable with insurance,” Retzloff says. “They don’t understand it. They think it’s complex, so they need education.”

“People react to the topic of life insurance with a bunch of negative emotions,” Brugger explains. “They say it’s boring, it’s hard to understand, it’s difficult to do the math.” This is precisely why BGAs believe middle market households need to be educated about life insurance.

Retzloff also explains that middle market households are more likely to buy if they trust the sales rep—which means that agents need to build relationships with these consumers in face-to-face meetings.

“They want the sales rep to spend some time with them,” she says. “They want them to get to know them and their family and what their financial situation is. So sales reps can’t just go in and try to sell. They’ve got to build these relationships, and I think that’s probably not happening today.”

LIMRA research also reveals that referrals are critical when it comes to tapping this market. “They’re much more likely to buy if the sales rep was recommended to them,” says Retzloff. “Once again, it’s a trust thing.”

Perhaps the reason middle market consumers feel this overwhelming need to trust their life insurance agent is because this is an emotional purchase for these consumers. “We’ve found out that a life insurance sale is an emotional sale, not a rational sale. They’re buying for the love of their family,” says Retzloff. “So, sales reps need to talk about what their goals and dreams are for their family because that’s why they’re going to buy it. But definitely no scare tactics—they do not like scare tactics. You’ve got to spin it around to the positive—here are all the good things that will help you meet your goals.”

One way agent can earn the trust of these consumers is by simply offering them choices. “They think if you offer one product or one level of coverage that you’re just pushing product at them and not thinking of what their needs are,” Retzloff says. “Choices are important because it’s like you’re tailoring it to their financial needs.”

Building better products
Some BGAs are looking into designing life insurance products that will more effectively serve the middle market consumer’s needs. “There’s no question that there’s an opportunity for the company that really starts to crack it and design products that really have this kind of lifestyle and flexibility choices built into them,” says Sole. “I think there will be a resurgence of the variable life product with maybe more bells and whistles and more riders that make sense to this lifestyle.”

“Term insurance is pretty popular with this group,” Retzloff says. “They like level term because they like the idea of level premium for long periods of time. They can fit it into their budget, and it’s a simple product that they can understand.”

Gilmore agrees, pointing out that middle market consumers have simpler financial needs than more affluent households. “They’re not doing things like the affluent market might be doing like a lot of the estate planning, wealth transfer and things like that. They’re looking for ways to protect their income in case they pass away to pay off their mortgage, to take care of their kids. It’s simpler needs that could be met by a term insurance product.”

A worthwhile challenge
There’s no doubt that the life insurance industry has its work cut out when it comes to capturing the middle market. Not only are middle market households difficult to pin down, but these consumers are complex creatures with very specific needs. However, one thing is certain: if the industry can figure out a way to effectively tap the middle market, the pay-off will be huge. With nearly $9 trillion worth of life insurance sales lying in wait, there’s plenty of incentive for the life insurance industry to crack this market.

Stats for sidebars:
For the overall U.S. population, there is a protection gap for replacement of pre-retirement income of $11.3 trillion. Yet, the 40 percent of the population defined as middle market has a protection gap of $6.5 trillion—only 58 percent of the total. (Source: Conning Research & Consulting, Inc., 2006)

An estimated 48 million households in the US are underinsured, representing over $9 trillion in sales and $17 billion in premium. 27 percent of those households say they are likely to buy life insurance in the next 12 months. Just capturing this 27 percent would increase industry revenues by $9 billion. (Trillion Dollar Baby: The Sales Potential of the Underinsured Life Market, LIMRA International, 2005).

More than 2 in 10 U.S. households have no life insurance at all. Among households who do have life insurance, 40 percent believe they need more. (Trillion Dollar Baby: The Sales Potential of the Underinsured Life Market, LIMRA International, 2005).

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