A recent development is a signal NAIC has taken it regulatory reach to a new level.
By Linda Koco
Life insurance companies didn’t exactly find themselves straining to keep up with a huge influx of applications for individual coverage in 2013. In fact, application activity for individually underwritten life insurance in the U.S. fell by 3.4 percent compared with 2012, according to the MIB Life Index 2013 Annual Report.
Declines occurred in all age groups tracked by MIB Group, which has been tallying searches that member company underwriters perform on the MIB Checking Service database since 2001.
Even the industry’s hottest demographic in recent years — buyers in the 60+ age group — had fewer applications checked through the database last year, down 1.2 percent year-over-year. This was the first year that application activity from the 60+ age group dropped into negative territory since 2007.
Many view the MIB Life Index as a leading indicator of life policy sales, so the 2013 declines are making some observers wonder whether life sales will slide too and, if so, how far?
The declines occurred after two years of increases. Those increases were fairly modest — 1.4 percent in 2012 and 0.2 percent in 2011 — but given that they came after nine consecutive years of index value declines, those increases had been greeted as a promising sign of potential future growth. Now, the new MIB numbers will invite a readjustment of expectations.
As MIB’s chief executive officer Lee Oliphant sees it, there was “cautious optimism” In 2012. That was because of that year’s 1.4 percent increase in the Index, he said in an interview.
But in 2013, the index was down in every quarter, with a significant dip (6.4 percent) in fourth quarter. (The only notable gain occurred in March, which was up 4.2 percent on a composite basis.)
The age 60+ category did have slight upticks in second and third quarters, but subsequent declines wiped out any gain for the year for that age group.
The decline of 2013 has continued into January 2014, Oliphant said, noting that application activity for the month dropped 7.9 percent versus January 2013. Once again, apps on older folks (60+) fell too, this time by 2.9 percent compared to January 2013. But the largest decline for the month occurred in the youngest age category (44 and under), down -9.1 percent compared to January 2013.
Despite the 2013 decline and the carry-over into this January, Oliphant said he views the slide as a dip from which the industry will rebound. That is due to steps that life carriers are taking now.
Measures to help
For instance, “the industry is investing in new technologies that will impact work flow, automatic underwriting, and efforts to reach the middle market,” he said.
In addition, carriers have launched messaging and education around complicated products, and are using social media to reach out to younger buyers.
Carriers are also developing more simplified issue policies, Oliphant said, citing conversations that MIB has had with carriers. The simplified approach should make it easier for customers to buy, thus helping to increase application activity — and policies issued, he said.
“Our research shows there is a strong correlation between application activity and the number of policies placed,” he said. Each category has “the same up and down,” although with some variation by type of product (such as simplified issue versus larger face amount policies that take longer to underwrite).
As for sources of future business opportunities, Oliphant pointed to the middle market. The insurance gap in this market is very large, he said, and “the industry says this is where the future growth will come from.” The simplified issue products and use of new technologies should help here, he indicated.
Young families may be another growth category, he said. The sales could be centered around education in this market. “It used to be that the first thing you did when you started a family was buy life insurance,” Oliphant said. Since that thinking is not as prevalent today, carriers are now talking about using educational approaches through social media to reach these buyers.
As for older buyers (60+), Oliphant predicted the industry will explore “different ways to enjoy success” in this market. At least since 2007, many applications in this market has been related to estate-tax based sales of large face amount/high commissioned life policies for high net worth individuals. But last year’s tax reforms — which increased the estate tax exemption to $5 million per person ($10 million for couples), indexed for inflation — may have contributed to last year’s decline in application activity in this age sector, he said. So retooling approaches in this market will occur.
Activity may also pick up as uncertainty about the health care declines, the MIB executive said. The general lack of understanding about reform led to uncertainty about its impact on consumers and the economy. This uncertainty may have distracted some Americans from tending to life insurance matters last year, he suggested. But as people become more comfortable with health reform, renewed focus on life insurance could ensue.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at firstname.lastname@example.org.
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