January 2024Financial Services PracticeRedefining the future of life insurance and annuities distribution Fundamental shifts in the insurance industry are accelerating changes in the distribution landscape. How can insurers position themselves for the next wave of growth? This article is a collaborative effort by Ramnath Balasubramanian, Cristian Boldan, Matt Leo, David Schiff, and Yves Vontobel, representing views from McKinsey’s Insurance Practice.Since the global financial crisis of 2008, North American life and annuities insurers have faced numerous disruptions as an industry, including profitability challenges driven by low interest rates, a global pandemic, high inflation followed by a rapid rise in interest rates, volatility in equity markets, and geopolitical uncertainty.While insurers focused on managing these disruptions, several structural changes converged, creating a need for insurers to reconsider their distribution strategies. Although rising interest rates have provided some sales tailwinds in recent years (particularly for fixed and fixed-indexed annuities), insurers will need to act boldly to remain ahead of the curve. In this article, we discuss several of these changes, such as the decreased relevance of life insurance, the shift in value creation toward distributors, and the continued convergence toward comprehensive advice on topics including health, wealth, and protection. We then offer four actionable priorities that North American life insurers could focus on over the coming years: redefining the role of strategic distribution partners, developing next-generation advisor capabilities, building a fit-for-purpose sales operating model to align with strategic goals, and employing digital and AI as a means to differentiate themselves in the marketplace. Trends shaping US life insurance distributionLife insurance, the traditional way that individuals have protected their livelihoods, has become less relevant to the financial futures of US families. Life insurers have continued to lose ground to banks, asset managers, and brokerage firms, driven by increased competition from easily accessible investment alternatives and the decision many life insurers are making to expand beyond their traditional core. In 2022, the top 20 life insurance companies made up 13 percent of the total market value of the top 20 financial-services companies across segments, a decrease from 40 percent in 1985 and 17 percent in 2005 (Exhibit 1). In addition, life insurance ownership among adults in the United States declined from 63 percent in 2011 to 52 percent in 2023.1 While the COVID-19 pandemic initially underscored the need for mortality protection, rising economic uncertainty and inflation have slowed the demand for life insurance products. 1 2023 Insurance Barometer Study, LIMRA.Although rising interest rates have provided some sales tailwinds in recent years, i...
