How Life Insurance Sales Defied Expectations

Over the past few decades, the US life insurance industry has been known for its slow growth compared to other financial sectors such as banking and investments. But now the signs are finally pointing up. According to LIMRA:

  • Life insurance sales grew about 3% in 2020, a rate higher than any annual growth rate in the past 10 years.
  • US life insurance annualized new premiums rose 18% in the third quarter of 2021. This is the third consecutive quarter of double-digit growth and the highest growth rate since the third quarter of 2007 .

Additionally, 36% of consumers said they plan to buy life insurance in 2021. And the number of policies sold in the third quarter of 2021 was 5% higher than in the first three quarters of 2020, a noted LIMRA.

How did this happen when many in the industry expected life insurance sales to plummet after the pandemic hit in early 2020?

Expectations were extinguished

The pandemic past is a prologue. The shutdowns and slowdowns in business activity were initially expected to crater the life insurance industry. Vendors could not go out to sell. Service provider health professionals (who are important participants in the application process) were not as readily available to perform life insurance screenings.

My own initial expectation, like those of others, was that people who feared losing their jobs would turn their attention to short-term concerns. As a result, they would turn away from the long-term financial horizon where most people see life insurance protection.

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What really happened?

Consumers have gained heightened awareness of death during the pandemic. An industry term is “mortality awareness”. The 2020 mortality statistics published by the Centers for Disease Control are a sober illustration of this:

  • The life expectancy of the American population fell in 2020 by 1.8 years compared to 2019 to 77.0 years.
  • The overall mortality rate increased by 16.8% from 2019 to 2020.
  • COVID-19, newly added as a cause of death in 2020, has become the third leading cause of death after heart disease and cancer.
  • COVID-19 was the cause of 350,831 deaths in the United States in 2020, which accounted for 4% of the total number of deaths in the United States that year.

Seeing and hearing of so many people who died before their time created a sense of urgency among consumers to purchase life insurance to financially protect their loved ones.

In short, the pandemic may have made some people realize that they are underinsured. At the start of the pandemic, consumers did not realize the importance of their need for insurance. The pandemic has been a revelation in this regard.

At the same time, consumers – especially the digital generations who grew up on cellphones and Amazon and are now college graduates and starting families – didn’t like the practice of bringing strangers into their homes. during the pandemic to perform medical examinations. Instead, they demanded a better, more streamlined life insurance sales process.

Consumers have done the life insurance industry a service.

Meet consumer demand

Life insurers have been forced to pivot. They were to make it easier, safer and less intrusive for consumers to buy life insurance in 2020 and 2021.

Insurers have changed the way they underwrite, proceeding with all available resources. Likewise, reinsurers have changed and, in fact, driven changes to modified life insurance business processes.

Life insurers and reinsurers have relied less on physician claims and have instead turned to digital health records and other more easily accessible underwriting information.

Every life insurance underwriter I know wants as much data as possible to make a decision. But what has helped life insurers increase sales during the pandemic is their reliance on more diverse data. The modus operandi became: “When you can’t get the data you usually use, figure out how to make the decision with what you can get.”

Predictive modeling ― the statistical process of using historical data and machine learning techniques to analyze patterns and predict possible future outcomes or probabilities ― is particularly useful in life insurance and reinsurance. . In this case, taking blocks of data obtained after the underwriting decision was made for the first time can confirm the validity of the underwriting decision.

Using predictive modeling, actuaries can ask and answer new questions:

  • What life underwriting decisions made with partial digital data were confirmed with traditional and additional digital data once available?
  • Given these decisions, can reinsurers and insurers streamline underwriting by relying more on digital data and less on traditional data?

As a stark example, if the traditional data comes from a health exam performed by a medical professional at the claimant’s home, can the subscriber instead use only the digital data available, with the confidence of a result? predictive modeling?

Closing the coverage gap

Even with the increase in life insurance sales in 2020 and 2021, many Americans are still not properly insured against the risk of premature death. Life insurers still have a long way to go to close the life insurance coverage gap ― the chasm between insurance needs and insurance sales ― that has existed for generations. LIMRA estimates this discrepancy at $12 trillion. That’s how underinsured this country has always been.

There are at least two drivers of the coverage gap. The first is that consumers grossly overestimate the cost of hedging. Another driver is the disinterest of producers. Some feel that it takes them too long to sell a 10-year term life insurance policy with a face amount of $250,000 to $500,000, with a perceived low level of commission.

Digitization has helped close these gaps: people can see that affordable coverage is available and they can purchase products themselves. And with greater digitization of the underwriting process, consumers seem willing to accept a few concessions.

Certainly, greater consumer awareness of the need for life insurance for their families and businesses, triggered by the pandemic, has led to sales that have narrowed this gap slightly. Life insurers and reinsurers are helping these consumers by making the most of a difficult underwriting and medical situation in the economy.

Consumers often abandon their life insurance applications when they find the reviews intrusive and the underwriting process cumbersome. New underwriting ― with faster, more digital, less intrusive underwriting and faster policy issuance ― can lead to more business.

Filling the void is good for the life insurance industry. And it’s good for the consumer when a vital product is easier to buy and more accessible.

These two recent developments ― consumer awareness that they need life insurance and responsive underwriting by insurers and reinsurers ― are both strong enough to remain long-term trends.

Mary Beth Ramsay, FSA, MAAA, is senior vice president-actuary and head of client solutions for SCOR Global Life Americas. She can be contacted at [email protected].

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