Since the early 1980s, life insurance policy sales have declined significantly while the American population has been increasing. In 1983, life insurance companies sold 17.7 million new individual life insurance policies. Since then, new policy sales have declined most years, dropping 46% to 9.6 million in 2018.
Life insurance ownership rates have also declined, from 62% of households owning at least one individual policy in 1984, to 44% in 2016. Why haven’t sales and ownership kept pace with the growing population? A review of products, distribution and markets sheds some light.
High interest rates (above 14%) in the late 1970s and early 1980s posed a challenge for the industry. Guaranteed cash values in whole life products assumed a much lower rate of growth. This disparity between guaranteed growth in cash values and current market rates led to the concept of “buying term and investing the difference.”
The industry created universal life — which pays current interest rates on cash values — in response to this threat. UL sales grew rapidly in the early 1980s, replacing many whole life policies along the way. Over the subsequent decades, UL was followed by variable UL, lifetime guarantee UL and indexed UL. One commonality among these product designs, they were most often targeted for more upper-income markets.
Life insurance distribution began shifting in the 1980s from affiliated agents, who typically represent one carrier, to independent agents representing multiple carriers. Independent agents tend to be older and sell fewer larger policies to more affluent consumers. The average policy sold by independent agents is typically more than double the average for affiliated agents.
During the 1980s and 1990s, fewer households reported owning life insurance they purchased face to face. In 1984, 56% of households owned policies that were purchased face to face; by 1990, that dropped to 42%. A decline in contact with insurance agents may contribute to the decline in the number of policies sold. Consumers often need someone to nudge them to purchase life insurance.
Households with children are — and always have been — a key target market for life insurance. In 1970, nearly half of U.S. households were families with children under 18. Today, that has dropped to 29%.
According to the LIMRA/Life Happens 2019 Barometer study, consumers’ financial concerns also contribute to changing markets. Their top concern, consistently, is having enough money for retirement. While consumers are concerned about dying prematurely and leaving dependents in difficult financial situations, that concern ranks sixth after retirement savings, emergency savings, disability, long-term care and medical expenses. Consumers worry more about living too long and paying for health care than about dying too soon.
Reaching More Consumers
The insurance industry is selling fewer policies, and fewer people have coverage. Yet many recognize they need life insurance. What options will the industry focus on to solve the problem of reaching more consumers? Here are a few ideas:
» Workplace. Life insurance works only if it is in force when needed. Nearly half the population leaves their job in a given year and stands to lose group life coverage. Selling voluntary life insurance at the workplace, but billing it to individuals using automatic withdrawal — instead of payroll deduction — might make insurance more portable.
» Technology. Using technology to improve the purchase process for insurance makes it easier to buy. But technology does not help if consumers do not know about, or want, the product. Technology could help identify people who need life insurance.
» Simple products. The majority of uninsured — the middle market — cannot afford (or don’t need) the latest bells and whistles. What they need is simple death protection. And simple is more likely to be term or whole life insurance, which, according to LIMRA data, accounts for 90% of individual life insurance policies sold.
» Living benefits. Insurers need to be creative. Perhaps consumer “steps” can earn coupons to buy sneakers for themselves or their children. Maybe the insurer could provide sports equipment with company logos. Using technology-based tools and frequent contact to encourage healthy behavior could keep the insurer top of mind with the client.
Moving the life insurance purchase needle from decline to increase requires identifying new markets, increasing communication, improving technology, and offering new and different products. The problem of declining life policies will require creative solutions in all these areas.
The industry must increase the number of consumers it reaches, as well as incentivize those consumers to purchase. Creative companies that are reaching out in new ways will succeed in reversing this decline.