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Life Insurance
Life Insurers Look for Big Things in Small Packages as They Target Middle Market in Online Sales

Online life insurance distribution picks up steam after more than a year of business disruptions forced the industry to quickly pivot. The companies are finding scale in smaller, direct-to-consumer policies.
  • Terrence Dopp
  • September 2021
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Key Points

  • Shift: After years of focusing on higher face amounts and premiums to cover underwriting costs, insurers are discovering that it’s profitable for them to sell a larger quantity of online policies issued quickly and at less cost.
  • Mix: The shift allows them to find scale in quantities of smaller policies and concentrate human time on larger policies and cases involving issues that require extra attention.
  • Backlash: From the standpoint of the bedrock independent agents, the shift threatens to cut them out of the mix and leaves consumers with less-than-ideal coverage.

The pandemic brought about some positive changes for life insurers, according to Sean Conrad, a vice president, actuary at Hannover Re. Lockdowns pushed the industry to step up its plans for automated efficiencies in underwriting and direct sales, he said. The result was uncovering a path to new customers—those who want term policies and a simple way to buy them.

In the process, the industry discovered that selling a vast number of quickly issued policies completely online could offer scale. And there was money in the play.

“If you thought about the time to underwrite a policy being pretty consistent, whether it was a $10 million policy or $200,000, everyone's time spent—compensation per hour—was spent searching out the larger policies and larger premium cases,” he said. “Now because it's economical to distribute life insurance to everyone, it's made the middle market more attractive, more viable.”

That protection gap? He and others think the move could be a key turning point in whittling it down.

In the past, everyone with comparable ages and histories was assessed on the same basic underwriting grids. Now, insurers can spend human hours on those cases where it makes sense, and use digital underwriting and distribution in those instances for which it doesn't.

The result is the life insurance industry is expanding its marketing to younger people and those in the middle of the income scale, as well as setting up a new paradigm for distribution, Conrad said.

“Those economies are made possible from technology,” he said. “If technology is enabling a digital application and an underwriting decision, it's not as much of an incremental cost in a human's time to be involved. So those economies help with the product pricing, but also for distribution or the producers.”

Sean Conrad Hannover Re

If technology is enabling a digital application and an underwriting decision, it’s not as much of an incremental cost in a human’s time to be involved. So those economies help with the product pricing, but also for distribution or the producers.

Sean Conrad
Hannover Re

Sales Numbers

The shift is on display in data from LIMRA that tracks how much life insurance consumers are buying and the distribution channels companies use.

In the term life category, which had about 22% market share, new premium increased 7% in the first quarter of 2021 and new policy count was up 11% over the same quarter a year earlier. In fact, that last number represented the strongest growth in new policy count recorded since 2000 and about 60% of term writers reported growth in both premium and policy sales, according to LIMRA.

The combination of whole and term life drove growth in the first quarter of the year, together comprising a full 88% of all policies sold during the period. The group cited the policies as “straightforward, easy-to-understand” products that appealed to consumers looking to obtain some coverage or expand on what they already had.

In fact, in the fourth quarter of 2020, LIMRA found total life insurance new premium dropped 8% compared to a record-setting year prior quarter. Yet total policy sales were up 2%, and term, both new premium and policy sales, both grew by 4%.

Six of the top 10 writers reported increases for the year, and it proved to be the highest year for new policy sales since 1999, according to LIMRA.

Fidelity & Guaranty Life Insurance Co., which has expanded its use of digital underwriting in recent years, sold $50 million in new indexed universal life premium in 2020, which represented a 30% increase from the prior year, said Steve Sanders, senior vice president of life distribution. The company has actually moved nearly all policies involving a person under 50 applying for less than $1 million in coverage to “exam free” methods, he said.

In fact, Sanders said the company's sales have surged in the so-called middle market to the point that, in the third quarter of 2020, LIMRA ranked it No. 3 in total year-to-date IUL policy count—the largest IUL sales increase of any carrier from 2019.

“There is a direct cost to the medical exams and APSs [attending physician statements] when applied across tens of thousands of policies issued each year,” Sanders said. “Secondly, this new process of underwriting allows the business to scale more effectively as policy volumes increase.”

Neil Himmelstein Main Street Planning Group

With any distribution model –you can look at health insurance or anything else–one of the things that causes administrative costs are salespeople. So, if you can eliminate agents or general agents like I am and they can sell direct to the consumer, then you effectively are more profitable or can lower your price because effectively there’s no middle man.

Neil Himmelstein
Main Street Planning Group

An Agent's Perspective

But not everyone is happy about this.

Neil Himmelstein, president of full-service brokerage Main Street Planning Group on New York's Long Island, said the movement toward smaller, digitally issued policies inherently cuts out independent agents, who guide would-be consumers through the thicket of decisions and provide insight on the often-confusing process of buying life insurance.

Without a Sherpa to guide them through the application cycle, consumers may end up with term policies that don't serve them well and that could backfire on the entire industry, he said.

“With any distribution model—you can look at health insurance or anything else—one of the things that causes administrative costs are salespeople,” Himmelstein said. “So, if you can eliminate agents or general agents like I am and they can sell direct to the consumer, then you effectively are more profitable or can lower your price because effectively there's no middle man.”

Himmelstein said only a small percentage of term life policies actually wind up paying a death benefit as historically many lapse before the policy is up. He also said that consumers may not get good deals on other policy specifics, such as convertibility, that an experienced independent agent can target and shop for the best match to a customer's needs. The shift in distribution is about trimming costs by treating every life insurance customer identically, and that could lead to more people with ill-fitting policies who, as a result, allow them to lapse, he said.

“If they can cut costs they are going to and we're a cost factor,” he said, referring to insurance companies. “As a general agent, I'm a whole other level cost factor. If they can make me extinct, they will.”

Conrad, of Hannover Re, disagreed.

The shift doesn't immediately cut out all intermediaries, he said. It changes the role they play and the same advantages presented to insurance companies are likely to filter down, he said.

“It's a lower commission, but because they aren't spending as much time on that customer it can be favorable for everyone,” Conrad said. “It makes it more accessible for customers and more economically viable for insurers and distribution. Those things kind of come together.”

Terrence Dopp is a senior associate editor. He can be reached at

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