Over the past decades, the U.S. life insurance industry has been known for its slow growth compared to other financial sectors such as banking and investments. But now, the signs are finally pointing up. According to LIMRA:
Life insurance sales increased by about 3% in 2020, a higher rate than any annual growth rate over the last 10 years.
U.S. life insurance new annualized premiums grew 18% in the third quarter of 2021. That was the third straight quarter of double-digit growth and the highest growth rate since the third quarter of 2007.
What’s more, 36% of consumers said they planned to purchase life insurance in 2021. And the number of policies sold through the third quarter of 2021 was 5% higher than in the first three quarters of 2020, noted LIMRA.
How did this happen, when many in the industry were expecting life insurance sales to slump after the pandemic began in early 2020?
Expectations Were Off
The pandemic past is prologue. Shutdowns and slowdowns of business activity were initially forecast to crater the life insurance industry. Salespeople couldn’t get out to sell. The health professionals of service providers (who are important participants in the application process) weren’t as readily available to perform life insurance screenings.
My own initial expectation, like those of others, was that people who feared losing their jobs would turn their attention toward short-term concerns. As a result, they’d turn away from the long-term financial horizon where most people see life insurance protection.
What actually happened?
Consumers gained an increased awareness of death during the pandemic. An industry term is “mortality awareness.” The 2020 mortality statistics released by the Centers for Disease Control are a sober illustration:
Life expectancy for the U.S. population dropped in 2020 by 1.8 years from 2019 to 77.0 years.
The overall death rate increased by 16.8% from 2019 to 2020.
COVID-19, newly added as a cause of death in 2020, became the third-leading cause of death following heart disease and cancer.
COVID-19 was the cause of 350,831 deaths in the U.S. in 2020, which amounted to 4% of the total number of deaths in the U.S. that year.
Seeing and hearing about so many people dying before their time created a sense of urgency among consumers to purchase life insurance as financial protection for their loved ones.
In short, the pandemic may have made some people realize they are underinsured. Going into the pandemic, consumers didn’t realize the significance of their need for insurance. The pandemic was an eye-opener in that respect.
At the same time, consumers ― especially those digital generations who grew up with cell phones and Amazon and are now graduating from college and starting families ― did not like the practice of having strangers visit their homes during the pandemic to perform medical exams. Instead, they demanded a better and more streamlined life insurance sales process.
Consumers did the life insurance industry a service.
Responding To Consumer Demand
Life insurers were forced to pivot. They had to make it easier, safer and less intrusive for consumers to buy life insurance in 2020 and 2021.
Carriers changed the ways they underwrite, proceeding with whatever resources were available. Likewise, reinsurers changed and, in fact, led shifts toward altered life insurance business processes.
Life insurers and reinsurers relied less on physician statements and turned instead to digital health records and other underwriting information more readily available.
Every life insurance underwriter I know wants as much data as possible to make a determination. But what helped life insurers boost sales during the pandemic was their reliance on more diverse data. The modus operandi became, “When you can’t get the data you typically use, figure out how to make the decision with what you can get.”
Predictive modeling ― the statistical process of using historical data and machine-learning techniques to analyze patterns and predict possible future outcomes or probabilities ― is especially useful in life insurance and reinsurance. In this instance, taking chunks of data obtained after the underwriting decision was first made can confirm the soundness of the underwriting decision.
Using predictive modeling, actuaries can pose and answer new questions:
Which life underwriting decisions made with partial digital data were confirmed with additional traditional and digital data once available?
Given these decisions, can reinsurers and insurers streamline underwriting by relying more on digital data and less on traditional data?
As a prominent example, if the traditional data comes from a health exam performed by a medical professional at the applicant’s house, can the underwriter instead use the available digital data only, standing with the confidence of a predictive modeling result?
Closing The Coverage Gap
Even with the boost in life insurance sales in 2020 and 2021, many Americans still are not properly insured from the risk of premature death. Life insurers have a long way to go to close the life insurance coverage gap ― the chasm between insurance needs and insurance sales ― that has existed for generations. LIMRA estimates this gap at $12 trillion. That’s how underinsured this country has been historically.
There are at least two drivers of the coverage gap. The first is that consumers grossly overestimate the cost of coverage. Another driver is producer disinterest. Some perceive it takes too much of their time to sell a 10-year term life policy with a $250,000–$500,000 face amount, with a perceived low commission level.
Digitization has helped bridge these gaps: People can see that affordable coverage is available, and they can shop for products themselves. And with greater digitization of the underwriting process, consumers appear willing to accept a little give-and-take.
Surely, consumers’ greater awareness of the need for life insurance for their families and businesses, as triggered by the pandemic, has led to sales that have closed that gap slightly. Life insurers and reinsurers are helping those consumers by making the best of a difficult underwriting and medical situation in the economy.
Consumers often abandon their life insurance applications when they find exams intrusive and the underwriting process laborious. The new underwriting ― with faster, more digital, less intrusive underwriting and faster policy issue ― can lead to more business.
Filling the gap is good for the life insurance industry. And it’s good for the consumer when a vital product is easier to buy and more accessible.
These two recent changes ― consumers’ realization that they need life insurance and responsive underwriting by insurers and reinsurers ― are both strong enough to remain long-term trends.
Mary Beth Ramsay, FSA, MAAA, is senior vice president-actuary and head of client solutions for SCOR Global Life Americas. She may be contacted at [email protected].