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Need to understand the overall economics and the unit economics of the life insurance industry in the United States
While there is no pre-existing information to fully answer your question, we've used the available data to pull together key findings. Life insurance customers are among least satisfied consumers in the US. The average customer retention in the US insurance sector is around 84%, while the cost to acquire a new customer is as much as nine times higher than the cost to retain an existing customer. Below you'll find an outline of our research methodology to better understand why information you've requested is largely unavailable, as well as a deep dive into our findings.
METHODOLOGY
I've searched insurance industry sources, such as the American Council for Life Insurance (ACLI), the Insurance Information Institute (III), the National Association of Insurance and Financial Advisors (NAIFA), and the American Insurance Association (AIA). I also searched government and regulatory entities, such as the Treasury Department's Federal Insurance Office (FIO) and the National Association of Insurance Commissioners (NAIC). In addition, I consulted insurance industry publications, such as the Insurance Journal, as well as marketing-focused sources, such as the Life Insurance Marketing and Research Association (LIMRA). LIMRA looks like a great resource, but most of the information there requires a membership to access.
Finding few solid metrics at these sources, I then turned to the annual reports of the largest US life insurance companies, such as MetLife and Prudential. Unfortunately, these sources offered no specifics regarding their unit economics. So, then I looked for information on investing in the life insurance market to see if I could find data on why analysts might recommend investing in a particular company to see if I could identify any useful trends.
HELPFUL FINDINGS
While I found a lot of articles discussing the importance of customer acquisition and retention in the life insurance industry, I found very little in the way of hard numbers. Many sources indicate that customer satisfaction is quite low among life insurance customers. Though the full report is paywalled, the summary of the 2017 U.S. Life Insurance Study by J.D. Power states that life insurance consumers are "among the least satisfied consumers across all of the financial services and insurance products," noting that this trend has stayed consistent for three years.
Customer retention is considered more important in the life insurance industry than acquiring new customers since the customer acquisition costs (CAC) in the insurance industry are quite high. According to an undated article at the Independent Insurance Agents of Dallas (IIAD) website, the cost to acquire a new customer is "seven to nine times" higher than the cost of retaining one. It notes that customer retention in the insurance sector is at around 84%, compared with 93-94% in most industries. Data provided by Aureus Analytics states that insurers, globally, lose around 18-20% of customers every year.
The IIAD article further states that a 5% improvement in customer retention can double a company's profits over five years. A Lexus Nexus report notes an example of a large insurer that saw a $1 million boost in premiums due to a "one percent increase in customer retention."
While a bit dated, a 2015 article at Insurance Journal notes a churn rate of around 13% in the insurance industry, though it is not specific to life insurance. A Bain & Company analysis of the insurance industry suggests that churn drops when insurers sell customers multiple products. A McKinsey report found that "existing customers are 2.5 times more likely to buy additional products within 12 months of their initial purchase and twice as likely to return to the same carrier."
OTHER METRICS
Investopedia's Insurance Industry Handbook presents a number of key ratios for insurance companies with some specifics for life insurance. While these ratios are more general than unit-level economics, they offer the few solid metrics I could identify:
An article at Guiding Metrics offers a list of the critical metrics in the insurance industry. While the focus is not specific to life insurance, some average metrics are offered that apply to all insurance segments.
• The average industry-wide expense ratio (expenses to premiums) is 36.5%.
• $1 spent on customer retention improves profits more than $5 spent on acquisition of new customers.
CONCLUSION
In conclusion, US life insurance customers are largely unsatisfied. Customer retention in the US insurance sector hovers around 84%. Since the cost to acquire a new customer is much higher than the cost to retain an existing customer, many life insurers focus heavily on retaining their existing customer base.