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Redefiningthefutureoflifeinsuranceandannuitiesdistribution

Fundamentalshiftsintheinsuranceindustryareacceleratingchangesinthedistributionlandscape.Howcaninsurerspositionthemselvesforthenext

waveofgrowth?

ThisarticleisacollaborativeeffortbyRamnathBalasubramanian,CristianBoldan,MattLeo,DavidSchiff,andYvesVontobel,representingviewsfromMcKinsey’sInsurancePractice.

January2024

Sincetheglobalfinancialcrisisof2008,North

Americanlifeandannuitiesinsurershavefaced

numerousdisruptionsasanindustry,including

profitabilitychallengesdrivenbylowinterestrates,aglobalpandemic,highinflationfollowedbyarapidriseininterestrates,volatilityinequitymarkets,andgeopoliticaluncertainty.

Whileinsurersfocusedonmanagingthese

disruptions,severalstructuralchangesconverged,creatinganeedforinsurerstoreconsidertheir

distributionstrategies.Althoughrisinginterestrateshaveprovidedsomesalestailwindsinrecentyears(particularlyforfixedandfixed-indexedannuities),

insurerswillneedtoactboldlytoremainaheadofthecurve.

Inthisarticle,wediscussseveralofthesechanges,suchasthedecreasedrelevanceoflifeinsurance,theshiftinvaluecreationtowarddistributors,andthecontinuedconvergencetowardcomprehensiveadviceontopicsincludinghealth,wealth,and

protection.Wethenofferfouractionablepriorities

thatNorthAmericanlifeinsurerscouldfocusonoverthecomingyears:redefiningtheroleofstrategic

distributionpartners,developingnext-generationadvisorcapabilities,buildingafit-for-purposesales

operatingmodeltoalignwithstrategicgoals,andemployingdigitalandAIasameanstodifferentiatethemselvesinthemarketplace.

TrendsshapingUSlifeinsurancedistribution

Lifeinsurance,thetraditionalwaythatindividualshaveprotectedtheirlivelihoods,hasbecomelessrelevanttothefinancialfuturesofUSfamilies.Life

insurershavecontinuedtolosegroundtobanks,

assetmanagers,andbrokeragefirms,drivenby

increasedcompetitionfromeasilyaccessible

investmentalternativesandthedecisionmany

lifeinsurersaremakingtoexpandbeyondtheir

traditionalcore.In2022,thetop20lifeinsurancecompaniesmadeup13percentofthetotalmarketvalueofthetop20financial-servicescompanies

acrosssegments,adecreasefrom40percentin

1985and17percentin2005(Exhibit1).Inaddition,lifeinsuranceownershipamongadultsinthe

UnitedStatesdeclinedfrom63percentin2011to52percentin2023.1WhiletheCOVID-19pandemic

initiallyunderscoredtheneedformortality

protection,risingeconomicuncertaintyandinflationhaveslowedthedemandforlifeinsuranceproducts.

12023InsuranceBarometerStudy,LIMRA.

Althoughrisinginterestrateshave

providedsomesalestailwindsinrecentyears,insurerswillneedtoactboldly

toremainaheadofthecurveinthefaceofdisruptions.

Redefiningthefutureoflifeinsuranceandannuitiesdistribution2

Exhibit1

TheUSlifeinsuranceindustryhasbeendeclininginbothrelevanceandpenetration.

Marketcapitalizationofthetop20companies,1%Lifeinsuranceownership,%ofUSadults2

70

Life

insurers

100%in

Banks

Assetmanagementandbrokers

65

63

billions

62

60

59

$84

57

●

●

59

●

57

1985

60

401644

59

55

57

52

5254

50

$1,611

2005

171667

50

45

40

$2,365

2022

133255

2021

2019

2017

2015

2013

2011

2023

1Top20USpubliclytradedlifeinsurers,banks,andassetmanagersandsecuritiesbrokers,basedongivenyear’smarketcapitalization.2LIMRAonlinesurveyof8,000USadultsinJanuary2023.

Source:2023InsuranceBarometerStudy,LIMRA;S&PGlobal

McKinsey&Company

Distributorsareclaiminganincreasingshareofvaluecreation

Since2010,distributorshavegeneratedroughlythree

timesmoreTSRthaninsurers(Exhibit2).Inadditiontolowercapitalrequirementsandanattractive

risk/returnprofile,distributorshavebenefitedfromtheirabilitytogenerateadditionaladvantagesforcustomersthroughvalue-addedservices.

Fromthispositionofstrength,distributorsare

demandingmorefrominsurersintheformof

personalizedbonuses,proprietaryproducts,APIintegrationcapabilities,andmore.Distribution

partnershipsalsoincreasinglyrequireinsurerstomakesignificantinvestmentsinproduct

differentiation,salesincentives,servicing,and

technology.Theseinvestmentscanbequitecostly

toinsurers,andasaresult,corepartnershipsmustbestrategicallyplannedandestablishedforthe

longerterm.

Distributorsareconsolidating

Boththeindependent-advisor(IA)andthebroker–dealer(B/D)channelshaveexperiencedsubstantialconsolidationinrecentyears.From2017to2023,

threelargeprivateequity–backedindependent

marketingorganizationsperformednearly200

acquisitions.Withinthesametimeframe,thetop

tenB/Dscompletedabout50acquisitions,with

eachofthetopfiveB/Dsinvolvedinatleastfour

transactions(Exhibit3).Thisongoingconsolidationissignificantlyalteringthedistributionlandscape,withfewer,largerdistributionpartnersgaining

additionalleverageandinfluence.

Redefiningthefutureoflifeinsuranceandannuitiesdistribution3

Exhibit2

Valuecreationininsurancehasshiftedtowarddistributors.

TSR,index(Dec31,2009=100)

1,100

1,000

900

800

700

600

500

400

300

200

100

0

Lifeandannuitiesindustry1Distributors2

1,067

373

20102011201220132014201520162017201820192020202120222023Q3

2023

1Includesselectedpubliclylistedlifeandannuitiescompanies.

2Includesselectedpubliclylistedinsurancedistributors(eg,brokers).Source:S&PGlobal

McKinsey&Company

Third-partydistributionisgrowing

Third-partydistributionhasbeenontherise.

Between2016and2022,theannualgrowthrate

insalesforthird-partydistributors—whichincludeIAs,B/Ds,andbanks—wasapproximatelysix

percentagepointshigherthanthegrowthincareeragentchannels(Exhibit4).2

Thereareseveralfactorsdrivingthisgrowth.Oneisthatcustomerscontinuetolookforabroader

setofchoicesandmore-sophisticatedproducts,

whichtendtohavehigherpremiums.Thetypical

facevalueperpolicyinthird-partysalesis1.4

timeshighercomparedwithcaptivesales.3Severalinsurancecarrierswithtraditionallycaptive

distributionhaveredefinedtheirpriorities,shiftingawayfromindividuallifeandannuitiestoward

sustainedeffortstoexpandsalesinthird-partydistributionthrougheitheracquisitionorproduct

expansion.Asaresult,insurersthathavehistorically

2LIMRAestimates;LIMRAU.S.IndividualAnnuitySalesSurvey;LIMRAU.S.IndividualLifeInsuranceSalesSurvey.

3Notadjustedfordifferencesinproductmixandvolumes.

Redefiningthefutureoflifeinsuranceandannuitiesdistribution4

Exhibit3

Insurancedistributorsareexperiencingsigni?cantconsolidation.

Acquisitionactivitydrivenby3privateequity–ownedIMOs,1numberoftransactions

2017

2018

2019

2020

2021

2022

Q1–Q32023

2

11

22

35

535519

1Insurancemarketingorganizations.Source:S&PGlobal

McKinsey&Company

Consolidationactivitydrivenbytop10broker–dealersbyrevenue,numberoftransactions

2017

2018

2019

2020

2021

2022

Q1–Q32023

63

88

9

4

13

focusedonthird-partychannelshavegrownandcapturedsignificantmarketshare.

Becauseofthesefactors,third-partydistributionnowrepresents52percentofsalesinlifeand81percentinannuities.Asthecompetitionamong

insurersinthird-partydistributioncontinues

tointensify,strategicdistributionrelationshipsarebecomingcloselyintertwinedwithinsurers’success.

TechnologyandAIaretransformingthewaydistributionworks

NewtechnologiessuchasgenerativeAIhave

significantpotentialtoincreaseproductivityacrossthefullinsurancevaluechain.ArecentMcKinsey

reportestimatesthattechnology’simpact

ontheinsurancesectorcouldtotalbetween

$50billionand$70billion—withmarketingandsalesexperiencingsomeofthehighestimpact.4Indeed,thetechnologyhasalreadystartedto

increasetheproductivityofwholesalersand

financialprofessionalswhileimprovingcustomerandadvisorexperiences.

WhilegenerativeAIisalreadyleavingitsmark,thebroaderdistributionmodelsandprocessesintheinsuranceindustrymaystillbeintheearlystagesoftransformation.Insurersnotattheforefrontoftechnologicalchangemayrunaheightenedrisk

ofbeingdisruptedbymore-agilecompetitorsastimepasses.

4“TheeconomicpotentialofgenerativeAI:Thenextproductivityfrontier,”McKinsey,June14,2023.

Redefiningthefutureoflifeinsuranceandannuitiesdistribution5

Exhibit4

Third-partydistributionisbecomingtheprimarybattlegroundforinsurancesales.

Independentagents

Careeragents

Direct

Other

100%in$billion

Individuallifeannualized

premiumsales,1%

SalesCAGR,2016–22,%

2016

2017

2018

2019

2020

2021

2022

444286

46

41

67

40

48

66

493966

493975

503965

523864

12.5

12.7

13.0

13.5

13.1

15.4

15.5

2

–1

-3

7

Independentagents

NationalB/DsBanksCareeragentsDirect

100%in$billion

Independentbroker–dealers(B/Ds)

2016

216.2

20

20

22

8

18

13

198.0

2017

8

18

13

20

23

19

Individualannuitiessales,2%

20

6

23

227.5

13

18

2018

19

6

235.3

25

20

2019

14

18

17

214.1

19

25

18

5

15

2020

17

27

19

250.5

17

5

15

2021

17

306.9

21

24

19

3

18

2022

16

5

5

12

11

2

-8

SalesCAGR,2016–22,%

Note:Figuresmaynotsumto100%,becauseofrounding.

1Newrecurringpremiums+10%ofnewsinglepremiums(forannualizedpremiumequivalentpurposesasde?nedbyLIMRA).2Newpremiums+recurringpremiums+add-onpremiumpayments(asde?nedbyLIMRA).

Source:LIMRAestimates;LIMRAU.S.IndividualAnnuitySalesSurvey;LIMRAU.S.IndividualLifeInsuranceSalesSurvey

McKinsey&Company

Redefiningthefutureoflifeinsuranceandannuitiesdistribution6

Consumertastesarechanging—andexpandinginscope

ThetypicalUSconsumerhasshiftedintermsof

bothdemographicsandinsuranceneeds.Today,

manyindividualsseekcomprehensiveadviceand

solutionsthatspanvariousaspectsoftheirfinancialwell-being,includinghealthandlifeinsurance,

wealth,retirement,andtaxes.Youngerconsumersinparticulartendtoseekoutadvisorswhocan

addresstheirfinancialneedsholistically,includinginvestments,insurance,andtaxconsiderations.A

2023McKinseysurveyof6,994respondentsfoundthat62percentofpeopleunderage55prefersuchanadvisor,comparedwith36percentofthoseaged55to75and23percentofthoseoverage75.5

Intandemwithevolvingconsumerpreferences,thelinesbetweentraditionaldistributorchannelshavebeguntoblur.Whiledistributorshistoricallycompetedfordistinctcustomersegments,the

industryisexperiencingaparadigmshiftas

distributorsmoveupordownthemarketasrequiredtoaddresscustomerneedscomprehensively.

Lifeandannuitycarrierswillthusbecompelledtorethinktheirdistributionapproachesand

identifynewwaystoengagewiththeirdistributionpartners—iftheyhaven’talreadydoneso.

Improvinginsurers’strategic

distributionposition:Fourpriorities

Thesechangesinthedistributionmarketplace,

alongwithcontinueduncertaintyinthe

macroeconomicenvironment,willhavesignificantimplicationsoninsurers’operatingmodels.To

driveefficiencyandeffectivenessintheirsalesprocessesandbetteradapttodynamicmarket

conditions,insurersneedtostrengthentheir

capabilitiesacrossfourareas:strategicdistributionpartnerships,next-generationadvisorcapabilities,

afit-for-purposesalesoperatingmodel,anddifferentiateddigitalandAIcapabilities.

StrategicdistributionpartnershipsforthefutureConsolidationislimitingthenumberofpartnersthatinsurerscanworkwithandincreasingdistributors’

leverageoverinsurers.Insurerswillhavetocarefullyassesswhichpartnershipstheywanttoinvestin

overthelongtermandwhichtheyarecomfortabledeprioritizing.Todosomoreeffectively,insurers

mayevaluatetheirpartnerrelationshipsthroughtwolenses:

Strategicdirectionandoutlook.Insurersneedtobuildacomprehensiveunderstandingoftheirdistributionpartners.Insurersshoulddefine

partnersegmentsbyconsideringfactorssuchaspartneroutlook(includingmarketshareandgrowthtrajectory)aswellasfactorsthatrelatetodistributors’approachtopartnership(suchasflexibilityinworkingtowardproductiongoals).

Profitability.Insurersneedtoestimatethevalue

generatedandtheactualcostofoutputfromeachpartner—includingbothcostofproductionand

costofmaintainingthepartnership.Partnershipsthatgeneratelessattractivereturnsshouldbe

renegotiatedunlesstheinsurerstronglybelievestheycanimproveintheneartermorareofbroaderstrategicrelevance.

Insurerscanusetheinsightsgainedfromthese

twolensestohelpthemconsiderfuturelong-termpartnershipsmorebroadly.Ifinsurersidentify

partnersthatarestrategicallyalignedwiththeir

aspirations,theycandeepenthoserelationships

formutualsuccessandconsiderofferingmore

extensivesolutions,includingproprietaryproducts,datafeedintegration,tailoredbonuses,and

higher-tierservicing.Ontheotherhand,ifcertainpartnersdonotalignwithstrategicgoals,insurersmayneedtoscalebackinvestmentandlimit

offeringswiththosepartnersto,atmost,standardservicingorproducts.Aclearapproachtostrategicsegmentationandapartnershipplaybookcan

empowerinsurerstomakeinformeddecisionsabouthowtoinvesttheirresources.

Next-generationadvisorcapabilities

Tosecureadvisorloyaltyandimproveproductivity,insurersneedtoreexaminethecapabilitiesthey

offerandincreasetheleveloftransparencyand

5McKinseyAffluentConsumerInsights360Survey,conductedonlinefromFebruarytoMarch2023.

Redefiningthefutureoflifeinsuranceandannuitiesdistribution7

understandingoftheend-to-endadvisorexperienceforbothindependentandcareeragents:

Offeratailored-supportmodelforadvisors.

Ratherthanprovidingthesamesupportlevelstoalladvisors,insurerscouldtargetspecific

segmentswithaclearvalueproposition.Themostappropriatestrategiesforeachsegmentwillvary,withproductionlevelstypicallybeingthemost

importantfactorfordeterminingwhatsupportwillbemosthelpful.Basedontheselevels,insurers

couldimplementatieredsupportmodelthattailorsavailableresourcesandcapabilitiestoadvisors.

Insurerscanaddvalueanddifferentiatetheir

offeringsforcriticalcapabilitiesandpotentialpainpointssuchasclientonboarding,servicing,and

customerrelationshipmanagement.6

Increasetheleveloftransparencyand

understandingoftheend-to-endadvisor

experience.Havingabetterunderstandingof

advisors’decision-makingprocessateverystep

ofthesalesjourneywillallowinsurerstopinpoint

specificadvisorneeds.Ifthoseneedsareaddressed,insurerscouldhelpadvisorsunlockadditionalsaleswhileincreasingtheirlevelofsatisfaction.Tostart,

insurerswillneedtoestablishaprocessofrigorous,ongoingfeedbackwithadvisors—shiftingfrom

whatistypicallyasinglecheck-inwithadvisorstocontinuouscommunication.Thiswillkeepinsurersinclosetouchwithadvisorneeds,allowingthemtorespondquicklyifproblemsarise.

Developstrategicadvisor-loyaltyprograms.Advisor

loyalty,particularlyintheIAchannel,canbeaclear

sourceofvaluecreation.Throughstrategicadvisor-

loyaltyprograms,insurerscancapturealargerportionoftheirhighest-producingadvisors’totalbusiness,

contributingtoincreasedsalesandrevenue.Such

loyaltyprogramsmightincludefeaturessuchaswhite-glovesalessupport,tieredrecognitionprograms,andadditionalproductionincentives.

Afit-for-purposesalesoperatingmodel

Insurersthatuseafit-for-purposesalesoperatingmodelcanstreamlinetheirsalesprocesses,

enhancetheadvisorandcustomerexperience,

anddistributeinsuranceproductsmoreefficiently.Whendesigningafit-for-purposesalesoperatingmodel,insurerscanconsidertwoactions:

Redefinesalesandsalessupportcoverage

acrossdistributionchannels.ManyinsurershavemadechangestotheirsalesteamsinresponsetoCOVID-19disruptions.Withthepandemiclargely

intherearviewmirror,insurancecarriershavean

opportunitytoundertakeacomprehensivereviewoftheirsalesoperatingmodels.Insurancecarriersshouldreviewthedesignandeffectivenessoftheirsalesandsupportorganizationsinthecontextof

newmarketandcoveragerealities(forexample,

balancedhybridandremotemodels),consideringtrade-offsinthestructureoftheirbrokerage

channelstrategy,relationshipmanagement,and

supportteam.Insurerscanconsiderorganizationalsetup(suchaschannelcoverage);expertise(suchasgeneralistversusspecialistcoverage);sales

presenceandterritorycoverage(consideringthedifferencesamongremote,hybrid,andfieldwork);salessupportratios;andsalescapabilities.

Optimizewholesalerterritorycoverage.Ratherthanservingallregionsequallyoronthebasisofhistoricaldecisions,insurerscanfocusonunderstanding

wherethemostgenerativeopportunitieslie

acrossgeographies.Growthisoftengranular,so

themoreinsurerscanspotdetailedandspecific

opportunities—andthenshapecoveragearoundthem—thegreatertheircompetitiveadvantagewillbe.Forexample,insurerscoulduseAItoidentify

opportunitiesthroughzipcodeormetropolitan

statisticalareadata.Basedontheseopportunities,

theycouldthenredrawwholesalerterritorycoverage.

Ideally,thiscoveragewouldbedynamicsothatitcanbeadjustedregularlyandcapturevalueinmarketshifts.

DifferentiateddigitalandAIcapabilities

DigitalandAItoolscanhelpinsurerstaketheir

operatingmodelstothenextlevelbyimproving

thevaluepropositionofpartnershipsthrough

digitalintegration,enhancingcapabilitiesofferedtoadvisors,andstrengtheningoperating-modeleffectiveness.

6McKinseyInsuranceAdvisorSurvey2020and2022.

Redefiningthefutureoflifeinsuranceandannuitiesdistribution8

Strengthenoperating-modeleffectiveness.

DigitalandAIcanhelplifeinsurersstreamlinetheirdistributionprocessesbyautomatingtasksorby

helpingleadersmakebetterdecisions.Forexample,once-complextaskssuchasreplyingtoinquiries

fromendcustomersoradvisorscanbeautomated

usingAI-supportedvirtualassistants,andAI

modelscanbeusedtoidentifyhigh-producingadvisorsthatinsurersmaywishtoworkwith.

Improvethevaluepropositionofpartnershipsthroughdigitalintegration.Digitalintegration

capabilitiessuchasAPIscandeepenthe

relationshipsbetweeninsurersandtheirthird-partydistributors.Asadvisorsincreasinglypivottowardamorecomprehensiveadvisorapproach,inwhichtheyemployanarrayofdistinctsystemstoprovideholisticguidance,theabilitytoeffortlesslyintegratedata

andtoolswithpartnerstakesonnewsignifican