Life Insurance Sales Are Up, But for How Long?
Life insurers posted their biggest sales gain since 1983 during the first half of 2021, as they hoped to leave behind a year marked by uncertainty caused by the pandemic. But is it a one-off gain or the beginning of a sustained trend for an industry that was fighting the “low-for-long” interest rate environment even before a novel disease upended life as we know it?
- Terrence Dopp
- November 2021
- Sales: Life insurers were buoyed when sales in the first half of 2021 posted their highest growth since 1983 across all lines of business, according to LIMRA data.
- Base: Broadening out the market seemed to be a facet of the numbers as face values per policy and the age of consumers came down, injecting the prospect that the industry is starting to eat into the "protection gap" and find a previously untapped supply of customers.
- Reality Check: Even as the data is a hopeful sign, other underlying conditions such as interest rates and mortality remain unchanged, and consumer demand can revert to historic levels as the pandemic wanes.
A “clearing in the trees” was how MetLife Inc. President and Chief Executive Officer Michel Khalaf summed up the company's uptick in group life sales results in the second quarter of 2021. While the world often focuses on backward-looking economic indicators or current conditions, he said the figures pointed to a rosy future.
Group sales were 39% higher than they were in the first half of 2020. Similar sales increases across lines were seen in Latin America, Asia and Europe, the Middle East and Africa, he told a group of analysts during a second quarter earnings conference call in August. “And if current trends hold, 2021 will be a record sales year,” Khalaf said.
The COVID-19 pandemic boosted demand for protection policies as people grew more focused on their own mortality, analysts say. But with case rates dropping in recent months and the market's priorities changing, industry leaders are now wrestling with this question: Can the growth sustain itself?
Bruno Caron, associate director with AM Best, said the recent sales figures should be viewed with a degree of realism, as higher sales don't negate other challenges such as the “low-for-long” interest rate environment.
Life insurance pricing, regardless of the chassis involved, centers around two assumptions: mortality and interest rates. Five to 20 years down the road, Caron said, profitability will be determined by those two numbers.
Caron noted the recent reduction in U.S. life expectancy due to COVID-19, saying: “Is that going to be a general wake-up call? I doubt it. We have to be prudent in forecasting sales.
“At the end of the day, the fundamentals driving demand for life insurance—demographics—have not changed fundamentally,” he said.
Caron didn't cite specific estimates of future sales. Rather, he said, the demand for investment-focused products and protection policies saw a pandemic bump but could modulate closer to historic levels in the future.
We've seen some elevated interest from millennials, elevated interest from women and elevated interest from Black Americans. Those are three demographics—age, gender and race—where we've seen some spiked levels of demand and interest.
Continued Rise in Business
It wasn't just MetLife and it wasn't only group life where insurers have been crowing lately. The rise also goes beyond one quarter.
Insurers issued $1.43 trillion in group life-issued business in 2020, according to the most recent Best's Rankings report for the segment. MetLife jumped from No. 3 to No. 2 based on 2020 sales, with $150.9 billion for the year, up 19.1%. Leading the category for another year was Hartford Life &Accident Insurance Co. with $322.7 billion in group life sales, up by 68%.
Total life insurance issued by the industry during the period rose 5.5% to $3.32 trillion based on 2020 sales, according to the AM Best data. There was some movement among the top 10 companies in the rankings: Hartford took the top spot with a 68% rise in total life issued valuation to $322.73 billion and the biggest drop in the top 10 was Prudential of America Group, which fell from No. 4 to No. 7 in the rankings with an 18.3% drop in total life issued to $137.9 billion.
According to LIMRA data from the first six months of 2021, life insurance sales are mostly up for a variety of different products individually as well as the industry total.
The total number of life insurance policies sold rose 8% in the first six months of the year and marked the highest such growth since 1983, LIMRA said. And there were other indicators in that same data that pointed to positive signs: Total U.S. life insurance premium increased 21% in the second quarter 2021, the largest year-over-year increase since third quarter 1987; in addition, it was up 18% for the first half of 2021 compared to the prior year.
Much of the current growth comes from eating into the so-called protection gap, the 102 million Americans that LIMRA estimates currently don't have any life insurance. That group, often younger and less wealthy than the traditional market for products with an investment component, has long been eyed as a new frontier.
“Given the COVID pandemic—that has certainly raised a lot of people's attention to ensuring that their loved ones would be properly protected,” David Levenson, president and CEO, LIMRA, LOMA and LL Global, said during a recent AM Best TV interview.
Levenson said the growth is reflective of what happened following the Spanish flu pandemic of 1918, which, according to the Centers for Disease Control and Prevention, infected upward of a third of the world's population and resulted in 675,000 deaths in the U.S. alone. Back then, sales saw “meaningful” growth in the double digits for three to five years.
As the world shuttered in 2020, life insurers sought change to keep doing business that included shifting more of the process online, issuing policies without invasive paramedical exams and changing their marketing approach. The shift also forced the industry to learn to move at a swifter pace to stay alive.
“The growth in the industry is reflective of a pretty horrific event—this horrible pandemic we're all wrestling with,” said Levenson, referring to the entire industry. “What I don't know is how people think about this three years or five years or even 10 years from now when there are different priorities in consumers' lives.”
In the term life category, which had about 22% market share, new premium increased 8% in the second quarter of 2021 and new policy count was up 2% over the same quarter a year earlier. In all, eight in 10 carriers reported positive premium growth across life segments, LIMRA said.
“According to the 2021 Insurance Barometer study, 36% of Americans said they planned to purchase life insurance this year. For the second consecutive quarter, we see this purchase intent translate into strong sales results,” Levenson said in a LIMRA press release. “Following the record life insurance sales in the first quarter, most companies are reporting significant growth in premium and policy sales in the second quarter. Eight in 10 carriers reported positive premium growth, including each of the top 10 carriers.”
Whole life new premium jumped 25% in the second quarter and policy count increased 5% from the prior year, LIMRA said. Whole life product sales experienced the largest growth in terms of absolute dollars and policies sold, and three-fourths of whole life carriers reported positive growth.
After 18 months in which direct-to-consumer sales of term policies marked the reality of doing business in a pandemic, whole life sales growth in the second quarter was driven by independent and affiliated agent sales as the vaccines became available and businesses resumed normal operations, LIMRA found.
“We've seen some elevated interest from millennials, elevated interest from women and elevated interest from Black Americans,” Levenson said. “Those are three demographics—age, gender and race—where we've seen some spiked levels of demand and interest.”
What's happened over the last 18 months has put a sustainable edge to the sales which we have not seen in 30 years.
Neil Sprackling, head of U.S. life and health at Swiss Re, said the signs are definitely pointing in the right direction for life insurers beyond the strict metric of sales numbers.
He points to changes in Section 7702 of the IRS tax code that made insurance more favorable.
Specifically, the federal government reduced the ratio of face value to premiums, allowing people to place more money in tax-advantaged life insurance accounts. Sprackling said the move came at short notice but was a positive step in that it injects a more sustainable interest rate assumption into the insurance world.
He said companies with career agencies remain in a strong position in terms of distribution, and the agent force has quickly and successfully pivoted to the current sales environment that allows more of the process to be done digitally than in the past. Sprackling said in-person sales will recover and that process has already begun as some social distancing restrictions have been lifted.
Sprackling and Swiss Re have been working with Plum to develop a recently launched platform to assist intermediaries in the digital term life market. The idea is to create a system that streamlines the process for intermediaries and helps them navigate the process more efficiently with the goal of increasing sales of protection-focused products.
As a result, Sprackling said he's cautiously optimistic during a recent discussion over the prospects of the future life insurance climate.
“If we had done this a year ago I probably would not have been able to say that,” he said. “We've not had the kind of year we've been having this year for a long, long time in terms of a meaningful uptick in sales.”
Products that are very exposed to interest rate changes remain challenging and companies are making changes in their lineups in response. Still, Sprackling said the scope of the sales figures can't be overlooked.
As a reinsurer, Sprackling said Swiss Re is now seeing business increases as a knock-on impact.
Sprackling said much of the growth has centered on term, whole life and final expense policies, which have struggled to post growth in previous years but are now seeing respectable levels of growth.
Declines in the average age of policyholders and face values are proof the new growth is coming from eating into that pool of uninsured people and growing the market. Tapping new markets is key to making a sales bump become a trend and a larger market, he said.
“What's happened over the last 18 months has put a sustainable edge to the sales which we have not seen in 30 years,” he said.
“What we all want to see is that this can become something that is long-term sustainable. I'm not suggesting that everything is suddenly going to be double digits.”
Levenson, of LIMRA, called the recent jump in sales a pleasant sign; whether it turns into a long-running trend is largely in the hands of the life insurance industry itself, he said.
“Our industry continues to evolve and get smarter in how we reach customers,” he said. “All of those things will make it easier to do life insurance for years to come. And I think that will contribute to the sustainability of the effort and the success in reaching those 102 million people.”