Life Policy App Decline—A Telltale Sign Or Not?

By Linda Koco InsuranceNewsNet

Applications for individual life insurance have dropped 2.2 percent in the first six months compared to the first half last year, according to the MIB Life Index, which measures applications submitted to insurers on a national basis every month.

In June alone, the decline was 3.7 percent compared to one year ago, setting a new all-time low for the month across the board, says MIB Group, the firm that publishes the index.

Those are “unfavorable trends” for the industry as it heads into what MIB says is “the typically slow summer season.”

It is difficult to tell whether that reflects the impact of carrier activities (product repricing, new product rollouts, sales moratoriums, etc.), field force trends, or economic winds, but the declines are sufficient enough to take note.

It’s a new business measurement

The MIB Life Index tracks the number of searches that MIB life member company underwriters perform on the MIB Checking Service database.

The results are widely viewed as a measure of new business activity. Based on the recent report, new business in individual life insurance is off from a year ago.

The news may take some people by surprise, since just one month ago, another researcher — LIMRA — reported that total estimated individual life new annualized premium grew by 7 percent in first quarter 2013 year over year. This is the most recent sales data LIMRA has available.

Every major product line experienced positive premium growth in first quarter, LIMRA said in announcing its first quarter individual life sales estimates.

But the LIMRA figures track sales, not new applications submitted for life insurance coverage. In fact, another number from LIMRA’s first quarter report align with the MIB findings. This is the total individual policy count related to new sales.

In first quarter 2013, total policy count fell by 5 percent, and all life product lines except term life insurance experienced policy count declines, LIMRA said. This happened even though total policy count had been increasing slightly over the last two years, LIMRA said.

Industry experts tend to view the MIB numbers as a “leading indicator,” pointed out David O. Aronson, director of marketing and communication at MIB. But they are not a sales measure.

A look back

It is not uncommon for the MIB Life Index to report overall declines in application activity every so often. For instance, from July 2012 through December 2012, the index reported declines in three months and increases in three other months.

But in the first half of 2013, the index fell in five of the six months — by 3.7 percent in June, 1.9 percent in May, 4.7 percent in April, 4.5 percent in February, and 2.3 percent in January. Only March saw an increase, of 4.2 percent.

For the first quarter, application activity was off 1 percent from the same period last year, and in the second quarter, it was off 3.3 percent.

Trend watchers may get some insight into this by looking back a few years. At year-end 2012, the index was up 1.4 percent from the previous year.

That was a breath of fresh air for the industry, since applications were up by only 0.2 percent in 2011, and in both 2010 and 2009, they were down by 1.2 percent and 0.2 percent, respectively in 2011.

A five-year MIB analysis shows that US life insurance industry steadily moved upward from a 2008 low-point into positive territory in 2012 — “for the first time in the last seven years,” MIB researchers said.

In its year-end 2012 report, MIB gave the credit for the 2012 improvement to, in part, the country’s improving economic conditions.

Other contributing factors, the researchers said, included “steady, but more modest gains in older age application activity (ages 60+); improving application activity in ages 45-59; and, first-time annual gains in application activity ages 0-44.”

The MIB researchers termed the 2012 improvement in the age 44-and-below category as “nascent activity” which suggests “insurers may be gaining ground in their efforts to market and capture younger age life insurance purchasers.”

Is it the economy, taxes or what?

In view of the uptick last year, what is to explain the monthly index declines this year? The general sense is that the economy has continued its slow improvement, so one might think that life insurance application activity would continue to rise a bit or at least stay flat.

Sometimes the application activity aligns with what the industry is trying to accomplish, Aronson said. In addition, sometimes there is general data from the economy on which to base correlations.

But MIB doesn’t have data on which to base correlations for the six-month results. “It’s only the middle of the year and we don’t know what will happen next month or by year-end,” he said.

To assess the impact of economic developments on application activity, MIB typically waits until year-end, he said.

Did the estate tax legislation at year-end 2012 impact application activity for the first half?

It’s possible, especially for applications submitted in the older age group (60+), Aronson said. Application activity at the older ages is still growing, he stressed, “but the growth is now occurring at a slower pace, so we’re seeing some shrinking there.” However, this is only the first half of the year, he reiterated. “Things could change.”

(Note: The tax legislation removed the uncertainty about what the estate tax exemption amount would be. It set the exemption amount at $5 million, $10 million for couples, indexed for inflation. The insurance industry has been expecting that some people with expected estates well below those levels will decide not to buy life insurance if their only reason for considering it was estate tax related.)

In general, Aronson pointed out, the decision to buy individual life insurance is precipitated by an event the person experiences, not by broader economic developments. Purchase of a house, birth of a child, and expansion of a business are common examples of influential personal events.

When and if the economy is a factor, it’s in the background, he indicated.

Still, Aronson said, the declines bear watching. The June index was off 3.7 percent by comparison to June 2012, but that should be viewed in light of the fact that the June 2012 index was up by 2.1 percent over June 2010.

When viewed by age demographics, the June 2010 results were mixed. Applications on younger people, ages zero to 44, fell by 5.7 percent from June last year, and those submitted on people aged 45 to 59 dropped by 2.8 percent. Applications for the age 60 and up group were up, but by only 1.1 percent.

In the first half, the index shows a similar down, down, up pattern for those same age groups, respectively.

By comparison, for the 12 months ending 2012, application activity was up across all three age groups year-over-year — by 1 percent, 0.5 percent and 4.8 percent, respectively.

A trend appears to be afoot. But where it’s going and what is causing it remain to be seen.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].