Innovation
COVID-19 a Year Later: Life Insurers Forced Into Digital, Operations Growth in Survival Bid

• Terrence Dopp
• March 2021
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Key Points

• Problem: The discovery of the novel coronavirus and its growth into a pandemic left life insurers scrambling to figure out how they could continue to keep the doors open at a time when doors were closing across the economic world.
• Solutions: Increased digital operations, streamlined underwriting and workplace flexibility are all part of the solutions finding favor among the industry.
• Changes: A year on, life insurers find the immediate anxiety has fully gone away, but there has been talk of growth and what comes next for the industry.

An interesting thing happened in the past year. Not just the COVID-19 pandemic itself, but the conversation around life insurance changed from the doom and gloom of the early pandemic days into a conversation about growth, investments and the future.

Insurers had to figure out how to survive, prosper and roll out years' worth of carefully laid digital plans in an on-the-spot shift in the way they transact daily business.

“If this had happened 10 years ago, I'm not sure how the industry would have fared,” said Neil Sprackling, head of U.S. life and health at Swiss Re. “With the benefit of technology we've actually done a pretty decent job. I'm not only talking about Swiss Re specifically, I think we've been able to demonstrate quite credibly that we can continue to keep the doors open and new business coming in.”

Sprackling says the ride may have been bumpy in the early days, but the industry never saw the potential drop off that was a distinct fear when the pandemic began.

Traditionally, life insurance is a product sold face-to-face but the novel coronavirus flipped that practice on its head.

During the spring and into the summer, various state orders expressly prohibited direct contact with people outside a given household, and people have remained leery ever since. In 2011, two in three life insurance consumers told industry group Limra they preferred face-to-face sales, while in 2020 the number of people favoring the in-person route dropped to 41%.

The group also found a growing preference for accelerated underwriting and more than half, 55%, cited not seeing a doctor as the reason for that preference. Limra said early in the pandemic its surveys found people concerned about day-to-day problems such as getting toilet paper or protecting loved ones. Its surveys also increasingly demonstrated people's needs for life insurance and their plans to go ahead and buy it.

“An event like a pandemic triggers an awareness of the need for life insurance and the security it provides. It makes people aware of the fragility of life, which is not usually top of mind for most people,” Alison Salka, senior vice president and director, Limra Research, said. “You've got this increased interest but, at the same time, you don't have the ability to meet with an adviser or an agent the way you did before.”

Increased web traffic and bolstered direct-to-consumer marketing were both ways the industry made strides during the pandemic, she said.

New Interest

In early 2021, the talk of girding against pandemic-induced shock has to some extent been replaced with a different conversation: How to position oneself to capture a larger share of the new market?

Couple the changing face of the market with a renewed focus on the importance of purchasing and maintaining life insurance policies and there is a real growth opportunity for the industry, said Chris Blunt, CEO of Fidelity &Guaranty Life. He cited the company's inaugural Risk Tolerance Tracker, which surveyed nearly 1,500 American investors, and found 52% of millennials and 46% of Gen Xers were willing to explore new financial products post-COVID.

“As the interest in purchasing life insurance increased, we saw customers quickly embrace new industry trends and changes that we're starting to see become more mainstream such as exam-free and accelerated underwriting that make it easier to get a policy quickly without the need for medical tests, etc.,” Blunt said in an email. “We've also seen significant growth in our IUL [indexed universal life] business where at F&G we focus on the middle market.”

F&G found in the course of its own research that 60% of Americans are worried about retirement income, yet only 15% own annuities. That, Blunt said, provides an opportunity for growth brought on by the pandemic focusing attention on the need for planning.

The company also upgraded its digital resources for agents, and plans to continue those investments to help them meet business goals, he said. At the same time, he said the company has been redesigning its Des Moines headquarters to accommodate both growth and the new reality of workplace flexibility.

In the new environment, online shopping for life insurance is growing, while the ultimate route to a policy can change. Consumers have shown a willingness to conduct an initial round of research online, then decide whether to purchase it online or in person. When looking at the impact the pandemic had on life insurance from an industrywide perspective, a person can choose many angles from which to come at it.

First there were the operational questions.

Companies had to figure out how they would keep things going when more than nine-tenths of their workers were homebound and time-worn methods of doing business were no longer possible. Zoom calls became the norm, online presence got a huge boost and they made steps toward electronic contracts to match the accelerated underwriting.

Then there were market forces.

Although volatile, equity markets never saw the bottoming out many had feared. But interest rates look to be holding at the historical lows that have crimped balance sheets for the past decade. From the company perspective, this altered which products were profitable and led to shifts such as the movement away from traditional income annuities to variable products.

And third, there was also a shift in consumer demand.

Consumers wanted life and annuity products, so according to Limra research the sales of term life products were up as consumers looked to balance cost, protection and the speed of obtaining new policies. On the annuity side of the coin, during the first nine months of the year, registered index-linked annuities posted standout sales growth compared to more traditional annuity products. (Full year 2020 data isn't available yet.)

It's the Underwriting

Sprackling of Swiss Re points to underwriting changes as the most significant in terms of the way in which the industry conducts business. It's not about cutting corners in the name of survival. Rather, the industry moved toward a way of obtaining the same information in a streamlined way that provides a cost-and-ease benefit to insurers and their customers.

“If you go back to exactly one year ago, you would find most life carriers and reinsurers talking about the need to digitize that business, automate it, and create a new experience for the end consumer,” Sprackling said. “Then COVID came along and you had to hit the fast-forward button because it became almost a necessity to work that way.”

Prior to COVID, eight in 10 life insurers were moving toward those newer underwriting procedures. In many cases, they were either still in the rollout phase or confined to policies with a smaller death benefit.

“When it comes to accelerated underwriting, we're seeing carriers increase how much they are willing to underwrite this way,” Limra's Salka said. “This type of underwriting grew more quickly than it otherwise would have. I don't think this is likely to change after the pandemic.”

Massachusetts Mutual Life Insurance Co., for example, raised the threshold to $1 million for policies written without traditional health exams. Companies had chosen the smaller thresholds with which to begin the new underwriting procedures such as accessing medical records rather than sending paramedical personnel to customers' homes.

“Usually people who are doing well financially or work with a financial planner already are aware of how to obtain life insurance,” Salka said. “But you do have an underserved group in the middle of the market or at lower income levels who often don't work with advisers. The health crisis made them think about it and this may spur them to take action.”

The Regulatory Angle

An increase in business is good, however insurance in the U.S. is governed by a complex web of state-based regulators operating under an old model that in many cases just doesn't move as quickly as businesses do. Also of note are the regulatory changes state insurance commissions made to facilitate this new business.

Delaware and Florida, among others, relaxed their standards on pen-and-paper signatures on insurance contracts and states as a rule moved to make electronic documents at least acceptable during the height of the pandemic. In doing so, an industry that operated decades behind others such as banking and real estate caught up in quick order.

Most states also eased other regulations such as lengthening grace periods, stretching out payment terms and dates, and policy nonrenewal cancellations in a series of emergency orders put in place to cope with COVID-19. “In implementing these temporary accommodations, companies and regulators alike have learned that they protect consumers very well and many should be made permanent to better serve consumers' needs,” said Whit Cornman, an American Council of Life Insurers spokesperson. “Temporary accommodations we think should be permanent include easing 'wet signature' restrictions, permitting electronic delivery of certain documents and utilizing remote on-line notarizations.”

Blunt, of F&G, said he sees the digital transformation as the single biggest change prompted by COVID-19 in the past year. He also sees those tweaks as the most likely to stick around from both the industry's operational standpoint and that of the consumers who experience that in most other areas of their lives.

Companies stepped up their online marketing and beefed up electronic distribution channels to get policies in the hands of consumers.

“While some clients may choose to go back to pre-pandemic ways of doing business, we expect many digital innovations to stick around,” he said. “Exam-free underwriting is just one example of a COVID-driven change to the customer experience that is vastly more convenient with a simplified process that makes it easy for both the consumer and the agent.”