The Empathic Role of Insurance: Bridging the Coverage Gap
Akouwa’s words, “Thank you so much, for everything. What you just said lifted my spirit. I can do this. I can keep going,” spoken after the loss of her husband, capture the essence of what insurance should offer: a lifeline of support.
In response to a claim on her husband’s life insurance policy, Akouwa’s statement to the claims representative, Dawn, highlights the vital role insurance companies can play. Dawn being called a “superhero” is a testament to the peace of mind and security that insurance should provide. Yet, a significant coverage gap exists in the United States, leaving millions vulnerable.
The Reality of the Coverage Gap
Imagine a world without the ability to transfer personal financial risks – a world where the full weight of every misfortune falls on you and your loved ones. This reality was, and still is, faced by many before the advent of insurance. The absence of insurance leaves individuals exposed to unexpected expenses, be it from job loss, disability, or, perhaps most devastating, the loss of a loved one.
According to LIMRA’s 2024 Insurance Barometer Study, a mere 51% of U.S. adults have some form of life insurance coverage. This represents a decline of 12 percentage points since 2011, and a continuation of a downward trend over the past half-century. Even many who have coverage are underinsured, failing to meet the needs of their households.
This leaves an estimated 102 million adults facing a significant gap between their life insurance needs and their actual coverage. This situation demands careful examination.
Why the Gap Exists
One of the most concerning aspects is that those who need protection the most – young people, those with low incomes, and historically marginalized groups – are most likely to have the largest coverage gaps. Across income levels, Hispanic and Black consumers tend to be uninsured or underinsured compared to other groups. Additionally, women are less likely to be insured than men.
This coverage gap can’t be dismissed as a lack of interest; consumer risk aversion increased during the pandemic, and a significant number of those lacking coverage acknowledges their need for it. Barriers to access, including limitations in financial products, services, and education, continue to exist.
Affordability and Misconceptions
The primary reason cited for not having adequate life insurance or any life insurance at all is the perception that it’s too expensive. People may view it as a luxury, when, in reality, it provides a critical financial safety net.
A contributing factor to this misconception is the industry’s historical focus on high-net-worth customers and high-face-value policies sold through financial advisors. This has resulted in higher premiums and profits for insurance companies. However, more affordable options exist that can fit within an average household budget.
Most Americans significantly overestimate the cost of life insurance, perceiving it as two-and-a-half times more expensive than it actually is. While many insurers still focus on the higher-face policies, smaller face-value policies can cover final expenses and prevent a family from entering a financial abyss. Affordability is key because these policies can provide peace of mind for many middle-market consumers.
Complexity, Trust, and Accessibility
Many consumers find it unclear how much or what type of insurance to buy. Navigating the financial landscape and understanding one’s place within it can be overwhelming. Historically, the process of purchasing life insurance has been complex and time-consuming. There is a clear opportunity for insurers to educate consumers, and streamline processes and user experiences.
The lack of trust in insurance providers presents another major hurdle. Only 29% of consumers express high confidence in insurance companies. This lack of trust is fueled by confusion at various stages of the buying process. The application process triggers concerns. Many don’t feel they have a trustworthy advisor, are overwhelmed by information overload, and harbor doubts even after making a decision.
There are also several exclusionary practices preventing marginalized populations from accessing insurance. Practices like redlining and price discrimination were prevalent in the past. Addressing these issues, with an awareness of how to improve in the future, insurance providers can provide more people with protection.
Being culturally aware and inclusive is not only ethically sound but also essential to remain relevant as demographics evolve and consumer expectations shift. According to McKinsey & Company, companies that reflect ethnic and cultural diversity in their leadership teams outperform others. To address this requires a critical assessment of end-to-end processes including marketing, application requirements, underwriting standards, service, billing, and claims.
Building Trust and Expanding Access
Insurance companies sell an intangible product – a promise to provide financial security in unforeseen circumstances. That promise requires trust between the company and the consumer. The industry must address concerns about confusion and information overload. It must modernize and simplify the experience, especially for younger and non-traditional customers, through a more responsive accessibility.
This includes offering affordable products through multiple channels, utilizing advanced pricing models, using understandable language, and finding ways to lower monthly premiums. Cutting expenses cannot be at the cost of innovation and investment in the communities served. Efforts can be made with legislative advocacy efforts that help expand access to insurance, by giving back to nonprofits that align with the mission and by partnering with financial institutions. Furthermore, the ethical experience partners create from the quoting process to their sales tactics also matters.
A Better World Through Insurance
By addressing the coverage gap, promoting affordability, simplifying the process, and rebuilding trust, the insurance industry can play a pivotal role in creating a more financially secure future. A world with long-term planning and peace of mind translates into greater opportunities for families, communities, and society.
