There are few products as widely disliked as insurance. Few people I know enjoy the idea of prepaying -- whether it be for health insurance, car or home insurance, or life insurance -- for a crisis that might never happen.
Yet insurance of all forms plays a vital role in protecting countless Americans from financial ruin. Many Americans could simply not afford their medical costs later in life, or be able to rebuild their homes should a disaster strike, with out-of-pocket cash. More importantly, life insurance acts as a financial backstop for individuals to protect their families by providing some degree of financial security upon their passing.
Life insurance: an overcrowded but still largely unmet opportunity
Choosing your insurer isn't as cut-and-dried as you might think. According to data aggregator Statista, 850 different life insurance companies operated in the United States as of 2013 -- down from a peak of more than 2,300 in 1988. You can thank industrywide consolidation and a few financial bubbles for the shrinking number of life insurance policy underwriters. However, 850 is still no small number.
Of course, a trusted life insurer with loyal customers can land a windfall of profit. Per the Insurance Information Institute, $126.1 billion was paid in life insurance premiums in 2013, and this doesn't take into account the investment income that life insurers generate each year. LIMRA also showed in 2013 that ample opportunity remains for growth. Just 44% of U.S. individuals had life insurance at that time, half of all households claimed to be underinsured, and a full 30% of domestic households held no life insurance.
Simply examining which life insurer has the most customers isn't exactly the best measure of brand loyalty, as it could simply be a factor of a larger marketing budget than its peers. Instead, we'll turn to research firm Brand Keys and its 19th annual Customer Loyalty Engagement Index to decipher which life insurance company is truly driving customer engagement and trust.
The importance of consumer loyalty
Brand Keys' survey was conducted across nine regions and included more than 36,000 people. The idea behind its rankings is to observe how consumers perceive a brand, how that brand engages with consumers, and ultimately how consumers compare that brand to others within its industry. All told, Brand Keys ranked 10 life insurance companies.
You might believe brand loyalty plays little role when it comes to purchasing life insurance, but this couldn't be further from the truth. LIMRA's study suggests fewer than one in 10 people are "very/extremely likely" to purchase life insurance in the next year, and a full 35% of households that expect to buy life insurance within the next year haven't made the purchase yet because no one has approached them about it.
The implication is simple: friends, family, and even trusted financial advisors can be an extremely strong influence in swaying someone's decision on when and where to purchase life insurance. If a life insurer can engage its consumers and deliver on its product while maintaining a positive public image, the company and its shareholders could be major beneficiaries.
Let's look at which life insurer was the best at driving brand loyalty, as well as a few of the laggards.
Missing the mark
An image of Snoopy might elicit fond memories from your childhood, but life insurer MetLife (MET -0.22%) ranked No. 9 among 10 in Brand Keys' life insurer rankings and will need more than the cast of Peanuts to boost its image.
Perhaps the biggest issue for MetLife, according to the Wharton School of the University of Pennsylvania, is declining employee satisfaction. As the old idiom goes, a happy workforce is a productive workforce, and MetLife's simply isn't happy. In 2012, when MetLife conducted its 10th annual survey of employee benefits, trends, and attitudes, employee loyalty hit a seven-year low. Furthermore, a CareerBuilder.com report in 2011 suggested that three-quarters of all full-time MetLife employees would jump ship if a better opportunity came along. Great businesses start with committed and motivated employees, but this data indicates MetLife has a lot to fix before it can really boost consumer loyalty and its bottom-line results.
Another notable laggard -- though probably less of a surprise than MetLife -- is American International Group (NYSE: AIG), better known as AIG. The company ranked No. 8 among life insurers in Brand Keys' survey and is likely still being hurt by its massive bailout during the Great Recession. In total, AIG required $182 billion in government funds just to stay solvent, and its massive share offerings used to pay back bailouts loans absolutely decimated shareholder value. It seems consumers have had a difficult time accepting that AIG is fully healthy, even now, and it's not apparent when these recession ghosts will finally stop haunting the company.
America's preferred life insurance provider
At the other end of the spectrum, ahead of Nationwide at No. 4, State Farm at No. 3, and New York Life at No. 2, was Allstate (ALL -1.27%), which held true to its word to keep customers "in good hands."
One key to Allstate's success can be traced back to Patty VanLammeren, currently a senior vice president and chief field business conduct officer. VanLammeren, who has worked for Allstate for 37 years, implemented a number of beneficial initiatives in her nearly three-year tenure as chief customer experience officer. These included monthly meetings with executives to engage on how to improve customer satisfaction, making dozens of presentations to thousands of employees, linking 401(k) contributions for employees directly to improvement in Allstate's customer loyalty index, and holding individual business unit owners accountable for their actions in improving customer service. Put simply, Allstate recognized that keeping the customer happy would keep its bottom line healthy, and its No. 1 brand ranking clearly shows this is working.
Second, I'd suggest Allstate's marketing budget has helped it secure and retain consumers. Although he most often advertises the company's auto insurance business, Allstate spokesmen Dennis Haysbert has become a well-recognized commercial figure over the years. In fact, Insure.com found that Allstate's commercials led 17% of Allstate's surveyed customers to select the company as its insurer. To be fair, Allstate actually finished behind Progressive when it came to luring new customers with its advertising, but second place isn't bad as long it's consistent across a number of categories.
Finally, I'd simply opine that Allstate's 80-plus years in business, along with prudent and conservative investment management skills that have kept its nose largely clean of financial crises, have painted a positive image for the company. In 2014, Allstate returned $2.8 billion to its shareholders in the form of stock buybacks and dividends. Only healthy companies with a clear outlook would dare return so much to investors. Furthermore, it announced a pre-tax yield of 4.2% on its investment portfolio. Remember, insurers aren't just sitting on premium money -- they're actively investing it in bonds and other fixed-income assets, for the most part. Allstate's financial position is superior to many of its peers', leaving consumers to perceive they can trust Allstate to take care of them or their family when the time comes to collect on a life insurance policy.
Altogether, these factors make Allstate America's most preferred life insurer. While plenty of other factors go into determining whether a company is a worthwhile investment, I'd certainly suggest that Brand Keys' study serves as the perfect jumping-off point for those curious about investing in insurers to take a good look at Allstate. You might like what you find.