The past calendar year has been one of the most visibly active years in recent memory for the life insurance industry. Companies posted positive organic sales growth, executed on strategies to modernize products, services, operations and distribution and continued to invest in data and technology innovations to fuel future growth. Regulators enacted new rules for indexed universal life and kept Principles-Based Reserving on track for 2017 implementation.
Sales Are Up
In 2015 companies began to see results from their recent focus on growth (following a period of portfolio de-risking and balance sheet bolstering). This focus on growth – along with an improving economy and rising levels of consumer confidence – is producing favorable production figures. Total annualized premium increased more than 7% for the first three quarters in 2015, driven by universal life (nearly half of which was indexed UL) and whole life. Term was up slightly.
|Figure 1 - Market Share by Product|
Annualized premium for perm products accounted for almost 80% of all premium income through the third quarter, but term life dominates face amount issued. (Source: LIMRA International)
Sales growth for most perm products remains quite impressive, indicating a consumer preference for illustrated cash values compared to other non-insurance investment options. While the growth rate for IUL sales was down slightly from previous quarters, it is still impressive at nearly 19% during the third quarter. The enactment of Actuarial Guideline 49 (AG49), which addresses IUL crediting illustrations, seems to have had minimal impact on accumulation products so far.
Term life sales growth was more modest, registering 2% growth over 3Q sales in 2014 and 1.4% year to date. Still, given the large volume of term business written, these are favorable results. The average face amount for term products sold in 2015 is $1.28 million, up 2.6%.
Innovation and Engagement
Over the past year a growing number of carriers have committed resources to challenging the status quo in life insurance product design and delivery.
Perhaps the most notable application of innovation involved a company introducing a telematics-driven life insurance product. Utilizing new fitness technology, the carrier offers premium discounts and immediate rewards to customers who upload data from their insurer-provided telematics device to the company’s website. Rewards are grouped, with insureds able to earn greater benefits based on their activity.
Stories abound about “orphan policyholders.” More carriers recognize the lost potential cross- and up-selling due to a lack of policyowner engagement beyond the point of sale. One company introduced a social media campaign that is driven by the customer’s social media profile. An algorithm tailors a “personalized” message from hundreds of preapproved slogans and images based on the customer’s profile. Even in the telematics case mentioned above, ongoing rewards and website interaction provide opportunities to open dialog with existing customers.
In 2015 we saw one company create an independent division to experiment with distribution concepts outside industry norms. It created a website-only company-owned agency that evaluates applicants and issues small face amount policies at point of sale. By utilizing technology through client-facing portals and underwriting algorithms, the company is reaching a client base previously overlooked and testing the application of the technology for broader expansion within the company.
We are also seeing the introduction of messaging that transforms the life insurance discussion from one focusing on eventual death to how the carrier and customer can work together to provide the customer a longer, more fulfilling life – a much easier sales proposition.
These initiatives remain in testing mode, and some may fail. But companies are investing resources into novel approaches, knowing that innovation is an iterative process with wins and losses along the way.
Regulation by Principles
The NAIC and state regulators demonstrated ambitious progress over the past year as well. Perhaps most promising is VM-20. The keystone to our industry’s progress towards principles-based reserves, the valuation approach is close to the 75%-of-premium threshold but still requires two or three more states to approve to pass the 42-state hurdle for implementation in 2017.
Regulators have responded quickly in other areas too. Actuarial Guideline 48 seeks to ensure, among its many goals, that insurer-owned captives maintain sufficient reserves and capital. AG49 covers sales illustrations for IUL products to protect both consumers and insurers from overly optimistic cash value forecasts. The spirit of these guidelines is to promote prudent use of captives and IUL, respectively. The success of AG48 and AG49, therefore, could be open to regulators’ interpretation.
Sales continue to improve across most product lines, generating positive growth for the industry overall through the first three quarters of 2015. Equally important, life insurers have demonstrated over the past year some truly ingenious ways to strengthen relationships with their customers. 2015 has possibly marked the start of a transformation in the life insurance industry.
As your reinsurer SCOR is optimistic about the coming year, and we look forward to helping clients maximize their opportunities.