Despite Challenges, ‘Moderate Growth’ Ahead For Life/Health Industry

Insurers can expect "moderate growth" in the coming years on both the property & casualty and life/health sectors, a leading analyst says, but far greater opportunities exist for certain products.

Specifically, long-term care insurance and longevity annuities, said Chip Roame, managing partner of Tiburon Strategic Advisors.

Both products are desperately needed by baby boomers and near boomers, he said, but might not be evolved enough to be sold as heavily as they should be. LTC coverage is making a comeback, Roame noted, but it remains to be seen how much it sells.

"Some (insurers) are coming back in, many with bundled products, with long-term care linked to a life insurance policy," he said during a recent webinar. "It should be huge growth. As baby boomers are aging, many people need this product, but it might not be available at the right price."

The Tiburon webinar focused on the performance and future of insurance products, which generate about $1.5 trillion of revenues. About $1.2 trillion of that is premium, while the other $300 billion is interest, dividends and other investment income for those firms.

From that, insurers net $88 billion in profits, Roame said. Life and health insurance represents about 60% of the revenues, while P&C products are responsible for about 70% of the profit.

More Predictions

Roame commented on three additional Tiburon predictions for the future of insurance products:

• Potential for federal regulation. With the present Republican administration, federal encroachment into insurance regulation doesn't seem likely any time soon, Roame conceded.

"But periodically we hear that fed regulation is bubbling back up and insurance may be regulated at the federal level," he added. "So we’ll see, but that’s always out there."

• Evolving capital structures.

“You’re now starting to see some rapid insurance company consolidation," Roame said. "Unlike banks, brokerage companies and some others, insurance companies generally buy each other. They buy investment managers and then they buy and often sell broker-dealers."

• Opportunities outside the United States.

“With growing populations and younger populations in Asia and Africa, I think there’s a lot of upside for insurance companies to think outside the U.S. box," Roame said.

Some Good, Some Bad, Mostly Steady

Overall 2018 insurance profits of $88 billion returned the industry to near 2015 profitability levels. After posting a $92.6 billion profit in 2015, insurance profits dropped to about $76 billion in 2016 and 2017.

MetLife remains the king of the insurance world, Roame said, posting $87 billion in 2018 revenues, topping State Farm ($66 billion), Prudential Financial ($48 billion) and Berkshire Hathaway ($44 billion).

As a share of overall revenue, the property & casualty sector revenues have been slowly and steadily increasing. P&C products comprised 37% of revenues in 2014, with life/health at 63%.

In 2018, P&C products made up 41% of revenues, with life/health declining to 59%. P&C products had a big 2018, accounting for 67% of net profits in the insurance product world, up from a 51% share one year earlier.

“We’re expecting moderate growth in this space," Roame said of P&C products. "A couple things that are booming – one is cyberinsurance, that’s a big opportunity. And another is online distribution, or what is known in the venture capital world as insurtech. There's a lot going on in the online delivery of insurance."

A tougher story on the life and health side, where net profits slid to $28 billion, down about 25% from 2017. Health insurance premiums came in at $137 billion, up from $115 billion year over year.

Life insurance revenues were $905 billion, up from $840 billion in 2017. At $2 trillion, annuity sales are not even close to mutual fund revenues ($17 trillion), Roame explained, adding that "$2 trillion is nothing to sneeze at."

The life/health industry continues to face regulatory pressure and change is likely to come, Roame concluded.

“We expect moderate grow for the life and health insurance industry," he said. “I think it’s quite obvious that we‘re going to see some restructuring of health insurance."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.