Sales of life insurance exploded during – and because of – the pandemic, and the industry is puzzling on whether the world has changed so that the growth could be maintained post-COVID.
Respondents to a poll taken at a webinar this week sponsored by the Society of Insurance Research didn’t think so, estimating that growth rates would plummet to something below 1% to 9%.
And yet, at the same time, according to research unveiled by SIR, COVID may have changed people’s perceptions of life insurance, leading some industry executives to think application and sales levels could continue, if not at exactly pandemic levels, something approaching it.
“Never in my life have I seen sales growth as high as 20%,” said Hiroe Noonan
Manager, Marketing Research and Analytics for SCOR Global Life. “And that includes all kinds of life products: whole life, term life, indexed universal and variable life. All had remarkable growth.”
Unfortunately, that mushrooming was triggered by the shock of a worldwide pandemic, Noonan said, as the numbers correlated with the rising death toll from the COVID-19 virus.
“It’s a correlation you cannot deny and yet it was the exact opposite what life insurance experts predicted at the beginning of the pandemic,” she said. “Due to the economic impacts and people losing jobs and stock market crashes, most experts said life insurance sales would go down accordingly. That didn’t happen.”
'Availability Bias' Cited
Behavioral scientists credit the boom in sales to something called “availability bias,” a basic mental shortcut that foregoes typical supply and demand pressures and causes people to purchase goods based on one particular choice over others that may exist.
“It doesn’t have to be irrational, just that the choice is triggered by reason,” Noonan said. “This also explains why people buy insurance when disasters such as hurricanes, and earthquakes, and a major accident and happens.”
But through it all, there have been changes in people’s attitudes toward insurance, also promulgated by the pandemic.
“People’s attitudes toward risk and the value of insurance have changed,” said Allison Broglie
Head of Americas for ReMark, a global insurance consultancy. “Compared to 2020, about a third of people are saying that their attitude did change, and we see even larger percentage of people who either tested positive or knew someone who did or someone who died who feel like their attitude has changed.
When broken out by age, however, the data show that nearly 51% of those considered GenZ and Millennials have significantly changed their attitude toward insurance. This could be a defining factor as the industry has struggled to interest younger people as both consumers and employees.
“The popular buying trend shows that people want good value for their money and good customer service, those are the most important factor in deciding,” said Broglie. “That’s a little concerning since ‘meeting their needs’ was not a top priority so you wonder if the product their buying is really a good fit for them. Going forward will people have the right coverage.”
That coverage gap between what people have and what they need is huge and didn’t change much during the pandemic, the experts said. There's an estimated life insurance coverage gap of $12 trillion industry wide with an average shortfall between what people have and what they need of about $200,000 per person.
“The this indicates insurers still have a lot of work to do to penetrate the underserved market once this crisis passes,” said Noonan. There’s roughly 100 million Americans living with a life insurance coverage gap. Yes, the gap closed a little during COVID, but not much. We still have the fundamental issues with how to fill this potential gap so that we deliver life insurance coverage to the people who really, really, need it.”
Expense Is A Factor
The number one reason people choose not to buy insurance, according to a Deloitte survey, is cost and the perception that it’s too expensive. The second most often reason was the process from application to execution is too slow. Third, respondents said they don’t believe they need insurance, and the fourth common reason was that it is too cumbersome and complex.
The industry is making progress with digitization and making the process easier, and we hope that we’ll be able to keep going and make it faster, easier, and that more people will be able to access life insurance and insurance information,” Noonan said.
Building insurance literacy is a major issue for the industry if it is to keep sales booming, Noonan said.
“There’s some concern that the older generations have much more literacy when it comes to insurance, yet their confidence in the product is low,” the SIR survey showed she said. “While the younger generations they are extremely confident in the product and, but their actual true knowledge is a lot lower. And so that goes back to again, are they actually purchasing the right insurance for them? And if they're not, then there potentially is still a protection gap that needs to be filled.”
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].