The Future of Life Insurance

“The coronavirus pandemic has triggered significant challenges for the life insurance industry,” state LIMRA researchers. “Historically low interest rates and continued market volatility combined with higher unemployment and operational disruptions caused by social distancing measures contributed to the decline in life insurance sales in the first half of 2020.”

“Life insurance premiums may decline 6% globally through the end of 2020 and by 8% in advanced economies, while a recovery of 3% growth is projected overall for 2021,” write Gary Shaw and Neal Baumann in Deloitte’s 2021 insurance outlook. “Emerging markets once again will likely lead the way while advanced markets continue to struggle.”

It’s even anticipated that growth and profitability for life insurance products, as well as annuities “will likely be impacted through 2021 and beyond by persistently low-interest rates.” According to the US Federal Reserve, rates will likely remain near zero through 2023, with the German 10-year yield forecast to remain negative.

For insurers with increased exposure to investment-grade securities of lower ratings and liquidities, this could be challenging. Annuities may also be harder to sell in the coming year due to lower interest rates and reduced benefits because historically, they are influenced by interest rates.

But, is it all doom and gloom for the life insurance industry? Not necessarily. 

COVID-19 has also, however, increased consumer awareness about the need for life insurance. LIMRA research finds 6 in 10 Americans say they have a heightened awareness about the need for life insurance due to the pandemic and 29% say they are more likely to buy life insurance in the next 12 months in response to COVID-19. This represents 75 million Americans.

Life Insurance Will Rebound Following the COVID-19 Pandemic

If there was a positive from COVID-19 it was that it “increased consumer awareness about the need for life insurance,” notes LIMRA. According to their research, “6 in 10 Americans say they have a heightened awareness about the need for life insurance due to the pandemic and 29% say they are more likely to buy life insurance in the next 12 months in response to COVID-19.” Overall, this represents 75 million Americans.

One of the silver linings of the pandemic is that it has prompted Americans to tackle some financial tasks they have been putting off — such as getting life insurance. 

While that’s welcome news for insurance companies, they’re also “had to adapt to meet the growing demand at a time when there was a challenge to doing business as usual,” explains Cameron Huddleston for Forbes. “Companies were forced to rely more on technology rather than face-to-face interactions.” 

Jason Wellmann, senior vice president of life insurance sales at Allianz North America, says that process of getting insurance has become easier and faster for consumers.

The pandemic has posed more obstacles for some consumers to acquire life insurance. Despite the advancements in the industry, getting coverage will continue to be a challenge for consumers in the future. To address these challenges, here’s what to expect when buying life insurance in a post-pandemic world. 

  • Lower rates for those with a lower COVID-19 risk. Life insurance prices did rise, on average, during the summer of 2020, according to the Policygenius Life Insurance Price Index. Due to low-interest rates, which have reduced insurers’ returns on investments, life insurance prices have risen. But some insurers have reduced rates in the fall for COVID-19 applicants who face a lower mortality risk. Young adults who do not smoke and do not suffer from diseases linked to an elevated risk of death from the virus are included among those eligible. 
  • Looser COVID-related restrictions. Also in response to the pandemic, life insurance companies restricted applicant eligibility. Older adults generally cannot apply for insurance with some insurers. Also, insurers postponed applications from individuals with international travel plans (even when countries still had borders open). Even if these restrictions remain in place, restrictions regarding temporary coverage are being loosened. So, this could give you coverage while applying for a permanent policy.  
  • Increase in insurers offering no-exam policies. Life insurance companies had to adapt to the lack of ability to conduct in-person life insurance medical exams during the early years of the epidemic. An increasing number of insurers are using accelerated underwriting instead of medical exams. This trend is expected to continue. 
  • Higher coverage amounts for accelerated underwriting policies. With accelerated underwriting policies, you lose some coverage when you don’t have to take an exam. In most cases, these policies had a $1 million death benefit. As the pandemic began, insurance companies raised the limits on these policies. Customers can get more coverage without going through a medical exam or undergoing a lengthy underwriting process.

The Future of Life Insurance? Focusing on the Customer

 

Prior to the pandemic, there were several impediments to growth. “This downward trend is nothing new. In the last 30 years, the number of life policies sold annually has fallen by almost half, from 17 million to fewer than 10 million. Meanwhile, the average face value has steadily increased from $110,000 to over $170,000, indicating that life insurers are failing to reach the middle market,” notes McKinsey. According to their “mass affluent research in 2015, only 65 percent of Americans who are married with dependents have a life or an annuity policy, while 97 percent own an investment account.”

 

In addition to poor positioning in the market, there are four other factors preventing growth: diminished customer engagement, low consumer engagement, and failure to accommodate consumers’ evolving preferences with new technologies.

 

Poor market positioning. 

 

Shifting consumer preferences can partly explain the industry’s low penetration of risk protection products. More Americans are concerned about the quality of their retirement life and the possibility of outliving their assets rather than being concerned about leaving nest eggs for their children.

 

The risk of premature death continues to be high. As an example, one out of five American men age 20 today will die before they reach the age of 65, despite improvements in medical science.

 

Multiple pain points in the customer experience. 

 

Many consumers say they find purchasing, owning, and researching individual life and retirement products to be unpleasant. The four main pain points they cite are as follows:

 

  • The products are complex and difficult to understand. A lot of the products designed by life insurers are geared towards professionals, not consumers. Consumer interest, however, can be lost if companies fail to incorporate customer feedback into product design.
  • Underwriting processes are complex and time-consuming. In some carriers, drop-out rates among applicants are as high as 20% when applying for a fully underwritten term life policy. 
  • The distribution of products is geared toward pushing products instead of offering objective advice on and offline and timely education support.
  • Poor after-sales service. Many policyholders have lost their personal bonds with insurance companies because they quit working for them after a few years, creating “orphan” policyholders largely unwilling to renew their policies.

 

Low customer engagement. 

 

For decades, these pain points have hindered the industry’s growth. Today, however, customers have greater expectations. Digital technology has allowed companies like Amazon and Uber to deliver goods and services quickly and seamlessly at a reasonable cost, easing the burden for companies in virtually every other consumer-facing industry. 

 

The subject of life insurance has always been a challenge to interact with consumers. Many of them find the products to be too complex. And, who really wants to discuss topics like death, illness, or disability? What’s more, insurance carriers and agents rarely engage customers beyond the purchase and policy administration processes. But, spending more time with customers allows for more opportunities to build brand equity. 

 

Slow adaptation to consumer and technology needs. 

 

Life and annuity companies have been slower to adopt technology than other consumer-oriented industries, including banking. 

 

Despite few traditional life agents having the required skills to serve the needs of a changing population, they’ve retained control of customer relationships and respect the privacy of their clients. The result is that fewer life insurance companies understand their customers well enough to adapt to their changing needs. 

 

Consumers make purchasing decisions across a range of new channels today. In fact, some refer to this as hybrid distribution. With this system, it’s possible to engage when, where, and how advisors and consumers need must. Because consumers and advisors interact mainly digitally, the buyer’s journey is more flexible and seamless.

 

In addition, these decisions are being made by new demographic groups. It is becoming more common for women to make decisions in families headed by adults under the age of 40, but few life insurers are taking this into consideration. 

 

As technology opens up new potential for innovation, life carriers are lagging behind. Using lifestyle measurement devices such as biosensors, wristbands, and other devices that are connected to mobile computers, for example, is exposing a vast amount of data about consumers that will revolutionize life underwriting and monitoring. The life industry’s growth challenges, notes McKinsey. 

 

Responding effectively and quickly to these challenges will enable life insurers to grow their businesses in the future.

 

McKinsey recommends that life insurers meet the needs of consumers by providing living benefits, retirement income, and an easier, smoother experience. And, this positioning could include;

 

  • Compare the performance of retirement products across all financial services sectors, not just life insurers. Insurance companies can benefit from the insights of other providers in the retirement market.
  • Legislation and regulation changes can be justified by pointing out that only the life insurance industry can provide lifetime guaranteed income products derived from the pooling of longevity risks – a compelling need among consumers.
  • Educate consumers about the financial risks of retirement. Those offering life insurance could create “retirement readiness indexes” that include scoring for mortality, morbidity, and longevity while also encouraging asset accumulation goals.
  • Be as transparent as wealth managers about their products, their performance, and their advice delivery channels. Rather than focusing on what other life insurers offer, the bar should be set by the best asset and wealth managers.
  • Provide a family retirement plan that encompasses life insurance and annuities. In the event of premature death or disability, life insurance companies have a unique position to protect American families by preserving their retirement income regardless of their longevity, as well as by securing their care and health insurance benefits post-retirement.
  • To provide better advice, education, and ongoing engagement to customers, rethink sales force models that are product-driven

 

Technology to the Rescue

 

“Given the need to digitize and virtualize their operations overnight, it’s no wonder that even though 52% of respondents trimmed discretionary spending, often in areas such as talent, only 6% canceled or postponed long-term technology projects, while 96% are accelerating digital transformation initiatives,” writes Gary Shaw for Deloitte.

 

Meanwhile, insurers prioritized using new technology to improve efficiency (70%), as well as to improve customer experience (68%), in order to promote financial and operational stability in the coming 6–12 months.

 

“That sentiment appears to be fueling more aggressive technology investment, with 68% of those surveyed planning to increase spending on data analytics (up from 49% in Deloitte’s 2021 outlook survey taken last summer) and 66% allocating more to upgrade customer relationship management software,” he adds. “Fifty-nine percent will increase spending on artificial intelligence (compared to 40% in our last survey), while about half of respondents also plan to boost budgets for robotic process automation (up from 30%).”

 

Some of the most important technological developments impacting the life insurance industry include;

 

  • Insurance lifestyle products that are usage-based, on-demand, and ‘all-in-one’ will become more relevant as the digital economy develops. Personalized insurance will be preferred over products that fit all customers.
  • As new channels of data and data processing capabilities are developed, AI and robotic process automation (RPA) will occupy the center stage in insurance. Lemonade, a leading insurtech company, employs AI and behavioral economics as its core components. In addition to reducing paperwork and brokers, Artificial Intelligence minimizes fraud, leading to savings in lost time, effort, and costs.
  • InsurTech apps and wearables will enable insurers to deliver highly personalized premiums, made possible by new sources of technology-enabled data. 
  • For different insurance functions to process, a large amount of customer data in real-time, data transfer across organizations and stakeholders must be easy and secure. As a result of blockchain technology, data can be managed across multiple interfaces and stakeholders with no loss of integrity. 
  • It reduces operational costs across the board, including identity management, underwriting, fraud management, and reliable data availability. A blockchain-based policy management system can also offer centralized autonomous organizations (DAOs) and smart contracts.

Additional Life Insurance Industry Trends 

 

Outlook for 2020-2021.

 

Swiss Re anticipates falling global insurance premiums by 3 percent due to the COVID-19 pandemic in 2020, then recovering by 3 percent in 2021, yielding no growth during the timeframe. It is estimated that life insurance premiums will decrease 6% in 2020, then grow 3% in 2021 after growing 2.2 percent in 2019. In general, life premiums are expected to fall 2 percent between 2019 and 2021. 

 

In the non-life sector, premiums are forecast to grow by 3 percent in 2021 after growing by 3.5 percent in 2019. Nonlife insurance premiums are predicted to grow by 2 percent between 2019 and 2021.

 

The global life insurance providers market is forecasted to reach $3.6 trillion by 2022.

 

Following North America, Asia Pacific was the largest market growth region in 2018. The market is currently hindered by the lack of awareness of complex insurance products.

 

Insuring the gig economy. 

 

A third of US workers are part of the gig economy. Gig economy participation will increase to more than 50% of the US workforce by 2027 if it continues at its current pace. However, gig economy workers do not benefit from the protections and benefits that come with traditional full-time employment, such as health insurance, unemployment insurance, paid vacation and days off, and minimum wage protection. 

As such, there’s an opportunity for gig workers to obtain a life insurance policy. For instance, they could explore a term life policy. If they prefer, they can look at insurtech alternatives as they are usually easy, digital, and offer on-demand options. And, they’re currently more geared toward this segment of the market. 

 

There’s a huge coverage gap in life insurance for Millennials.

 

Only 10% of Millennials in the US have life insurance. This means insurers must cover a gap of 78%. Even though Millennials have the least coverage, they seem to have a sense of financial security. Again, insurtech could help close this gap. 

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