By Linda Koco
Lee Oliphant sees what he believes are signs of stabilization in the long-running decline in industrywide life insurance policy applications. That could be a harbinger of more positive app flow to come, particularly if life carriers find the Holy Grail they have been seeking in under-served markets.
The year 2014, as measured by application activity, was not exactly filled with high notes. Compared to the previous year, individual life insurers checked fewer apps, the CEO of MIB Group said in an interview with InsuranceNewsNet.
As measured by the MIB Life Index, the overall app flow was down by -0.6 percent for the year compared to 2013. But that’s a noticeable improvement from index declines registered in 11 of the past 14 years, including the 3.4 percent year-over-year decline at the end of 2013.
The index is a measure of individual life insurance application activity in the U.S. , based on searches that carriers make on the firm’s database. The percentages shown in the chart refer to changes in the index from year to year. Positive numbers signal greater application activity, suggesting more people were interested in buying life insurance that year.
The index does not reflect policies sold, but Oliphant says the movement of the index correlates with individual life sales trends.
An encouraging development
In trolling through the 2014 index data to get some understanding of what happened in 2014, Oliphant said he noticed that although the year started out in minus territory, app activity actually began to improve in the following quarters.
By fourth quarter, the index registered a 2.6 percent increase over fourth quarter 2013. Oliphant termed that “encouraging,” especially since 2013 was such a down year (off 3.4 percent overall).
“Three quarters do not a trend make,” he allowed. However, it is possible that all the changes that the life carriers have been making to increase sales are beginning to produce results, he said.
Many of the changes focus on finding effective ways to reach the underserved middle market, as well as the youth market. They include greater use of simplified underwriting and simplified issue policies, greater use of automation, non-invasive testing, and social media.
“None of this is new, but in 2014, I think it started bearing fruit,” he said.
The carriers have had motivation to do this. Based on industry data, the number of policies issued has been shrinking since 2001 while the face amounts have increased, Oliphant recalled. In effect, the industry has been selling bigger and bigger policies to fewer and fewer people, and it has been doing it with fewer agents whose average age has kept increasing to today’s average of 56.
All of this is reflected in the MIB data, he indicated. For example, the Composite MIB Life Index dropped from the index’s starting point of 100 in 2001 to a breathtaking 79.21 in 2014. The composite index is the basis for measuring the year-over-year changes in life application activity.
“That’s a 20 percent decline in the index between 2001 and 20014,” Oliphant said. “That shows erosion.”
The Holy Grail
In more recent years, carriers began going after smaller face amount business. “They realized there is huge opportunity there if they can sell life insurance efficiently and effectively,” he said. “That’s the Holy Grail for the life insurance business.”
The 2014 data show that, based on app flow, people in the 30s through the 50s are definitely on the insurance company radar. These are the primary ages for buying life insurance buying ages, he said, and the data show that the two age groups in this category do dominate application volume.
For instance, the zero to 44 group represented 53.7 percent of all applications, and the 49-59 age group represented 28.5 percent of the apps. These 2014 levels are close to their levels in the previous three years although a slight bit lower.
One concern is that, of these two age groups, the under-45s dipped the most over the past five years in terms of percentage of total applications. These younger customers dropped to 53.7 percent of the total in 2014 from 55.6 percent in 2010 — a decline of more than 3 percent.
“That could have happened for any number of reasons,” Oliphant said. Examples include: people having kids later in life; the gap between clients’ age and that of the agents; a gap between how life insurance is being sold and how younger adults prefer to buy; and unemployment trends, even among new college graduates.
But this is the group that more carriers say they are trying to reach — part of that Holy Grail — so the trends here may change going forward.
The age 60+ surprise
The age 60+ group proved to be a surprise. At least, it may be a surprise for those who believed that the well-heeled 60+ folks would turn thumbs down on life insurance in the wake of the American Taxpayer Relief Act of 2012. That’s the law that set the estate tax exemption to $5 million per person ($10 million, couples), indexed for inflation, thereby dampening interest buying life insurance to cover estate tax liability among those with potential estates below $5 million.
What MIB found is that apps from the 60+ group actually increased by 2.5 percent in 2014. In addition, that older age group now represents 17.8 percent of all U.S. life applications — up from 17.2 percent in 2013 and 16.9 percent in 2012.
How to explain this unexpected turn of events? Oliphant believes this reflects the aging of the overall population and the resulting desire of some older people to leave an estate behind. In addition, he said, it includes “some tax planning for the very high-end clients.”
Overall, Oliphant concluded, “I am cautiously optimistic about the life insurance future, based on the last three quarters and on certain economic factors. The question remains, however, can we successfully continue to attract and reach the younger age brackets through marketing and technology?”
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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