Navigating the Shifting Life Insurance Landscape
By all accounts, it seems, our world remains unsettled. The disruptions that shake the globe have a lasting impact on all aspects of our personal lives and the business environment.
The life insurance sector is clearly no exception. Factors such as pandemic aftershocks, economic volatility, rapidly emerging technologies, climate events, population change and geopolitical conflict each play a role in the evolution of the industry. This complex combination of forces is at work daily, shaping the life landscape.
Recent life sales trends have not been encouraging. Despite a lift in sales during the COVID-19 pandemic, overall ownership has been declining over the last decade. If current trends continue, less than half of U.S. adults will have coverage by the end of this year.
Sales clearly begin with consumer awareness of their need for protection — as well as the motivation to follow through with the process. However, once awareness is achieved and appropriate products are available, distribution and technology must come into play to enable the sales themselves.
Unfortunately, distribution growth has not kept pace with population growth. The continued success of the industry depends greatly on maximizing the efficiency and reach of its distribution channels. Distribution strategies matter more now than ever — and they are becoming less monolithic. More flexible approaches, such as digital platforms and embedded insurance, represent explorations into ways to expand distribution.
At the same time, private equity firms now view insurance distribution as an attractive investment opportunity, which is driving consolidation and aggregation of market power. This means carriers need to be more effective. To begin, it is beneficial to look at their business from the outside in — like banks and retailers do — rather than from the inside out.
Four broad themes reflect the forces at work in the current life insurance landscape:
1. Demographics are destiny.
Life insurance customers look different than in the past, and families, as well as their insurance needs, are changing. Carriers must ensure products are evolving along with them. They must understand what people want, what they value and what they can spend — to develop offerings that align with these priorities.
Several trends redefine the customer base:
- In the United States and North America generally, population growth is slowing. According to the Congressional Business Office, the U.S. population is expected to grow from 335 million in 2022 to 369 million in 2052 — primarily driven by net immigration.
- The U.S. population is becoming more diverse. After 2045, U.S. Census Bureau data shows non-Hispanic whites likely will represent less than half of all Americans.
- Households are going to look different. There are likely to be fewer marriages and more divorces, which also suggests there may be fewer children. According to Pew Research, 53 percent of Americans expect people to be less likely to get married in the future.
- The U.S. population is aging — with the number of Americans aged 65 and older more than doubling within the next 40 years. Statistics show that by 2050, they are projected to represent 22 percent of the nation’s citizens.
2. Consumer need is growing, but sales (mostly) are not.
People recognize a gap exists between the proportion of those who say they need life insurance and those who have it. However, overall sales trends show flat results for 2022, approximately level with the amount of premium sold in 2021 (Table 1). LIMRA does not predict notable growth in 2023 and estimates modest growth in 2024.
Table 1. U.S. Individual Life Insurance Annualized Premium Growth
|Year||Annualized Premium Growth|
|2023||(Forecast) -3 to +1%|
|2024||(Forecast) +1 to +5%|
Source: LIMRA, 2023.
To make a real effort to understand and address this disconnect, the industry should consider questions such as:
- Are the products that worked for Boomers what the market really wants today?
- Do our products reflect the reality of the market?
- What will future financial professionals expect?
Consumers also have other concerns that take precedence over life insurance. The pandemic may have brought mortality top of mind, but today, Americans are more worried about the economy. Based on a LIMRA U.S. Consumer Sentiment survey, currently, 32 percent are highly stressed about household finances. Among topics consumers have recently discussed with a financial professional, insurance coverage is not a priority, according to LIMRA research.
There is also a knowledge gap because many consumers simply do not understand life insurance. When we asked financial professionals what they feel their clients do not understand about coverage, the primary issue is not knowing how it fits with other financial products, according to a joint study by LIMRA and Ernst & Young (EY). This suggests insurance should be part of a larger, more holistic discussion focused on financial wellness.
3. It is all about the experience.
Today, excellent experiences and less-than-positive ones are equally on public display. Smart carriers will invest in consistent efforts to deliver on customers’ increasingly high expectations.
Building trust with customers is paramount. LIMRA research reveals room for growth when it comes to Americans’ confidence in the industry. Less than one-third have a high level of confidence in financial advisors (32 percent), insurance companies (29 percent) or insurance agents/brokers (24 percent).
It is equally critical to ensure financial professionals have a positive experience. LIMRA-EY research shows financial professionals typically place business with three carriers. The top carrier they work with earns 57 percent of their business. Therefore, it is important to work closely with them and support them — especially during the sales process (Figure 1).
Figure 1. Primary Reasons Financial Professionals Place Business With Their Top Life Carrier
*Including things like integration with financial professional platforms and illustrations
** Including things like faster, easier, consistent application and underwriting process
Source: Reimaging Growth: LIMRA-EY Experienced Financial Professional Study – 2023
4. Easy integration enables future innovation.
While technological integration is easier said than done, it is imperative to move the needle in this area. A carrier’s technology needs to be advanced and flexible enough to make it easy for experimentation to occur across products and distribution.
Financial professionals have made it clear that centralized platforms would improve their experience. Carriers must have the technology in place to foster a seamless process. Currently, financial professionals feel forced to use a fragmented set of tools and platforms from various carriers to support their clients.
In general, carrier technology is not fully optimized today. Recommendations for achieving future success include addressing legacy systems, creating a simple way to connect to insurtechs and cleaning up data to ensure effective results.
Tomorrow’s successful carriers will be unafraid to experiment in efforts to reach new markets. They will strategically and intentionally consider which factors will most impact their specific organization’s ability to keep pace and grow. Competitive advantage may come from offering a new set of solutions or developing new partnerships. Without question, the leaders will be open to change, innovation and connectivity for the greater good of all.