In The Aftermath Of War, Expect Growth In Insurance

Down and up swings seem to be part and parcel of how the insurance industry responds to periods of war.

People who are now in the industry need to be aware of this pattern, as they chart a course for themselves and their clients during todays war on terrorism (and recession as well).

In short, if sales of certain products seem to have slumped, and if certain markets seem to have dried up, this is not the end of the story. Better times are ahead.

Let me explain first by recalling my own experience with war and insurance. Then, well look at what history has to teach us about this subject.

By early 1943, I had passed three “actuarial exams” (out of eight) and was looking forward to a long career in the insurance industry.

But World War II was on, and I soon found myself, as a private, in a Canadian Army Infantry Training Camp. The war did not seem to be going well, and all of us in the camp felt the war would go on permanently and that our careers were forever stopped.

I heard that things in the insurance industry were not going all that well, either. The business seemed to have fallen into a do-nothing mode, just taking care of business and not producing much by way of improvement or innovation.

Well, the war did end, as you know, and the victory was a source of great pride. I soon learned that my career had not stopped and that the insurance industry was getting out of its do-nothing mode. Things definitely looked up after the war was over.

I submit to you that a similar down-and-up pattern will occur with this present war.

It is true that, in some sectors of the insurance industry today, careers seem to have stopped short, just as mine seemed to have done so in World War II. Also, the industry seems to be in a do-nothing mode in certain sectors (its working hard to preserve what it has now, for instance, rather than putting an all-out effort into designing entirely new products and services.)

But Ive been studying the impact of war on the insurance industry for quite some time, and Ive concluded that there is reason to expect brighter days ahead.

During wars, people crave security, so sales of insurance products that offer guarantees do well. Generally, this success is unobtrusive. People dont suddenly start walking around saying they want to buy insurance to make themselves feel secure. They just do it, and sales of guarantee-rich policies quietly start mounting up at the insurance companies, which then hunker down to sell those products rather than develop new frontier products.

Seemingly, that is what is going on now.

The really dramatic thing about any war is its impact on insurance after the war has ended. Chart I summarizes the main trends.

As you can see, the outcomes have certainly been astonishing. Following the end of the Spanish-American War, the industry saw the introduction of ordinary agencies. After World War I? The introduction of sophisticated programming. After World War II? The widespread growth in employer-based coverages, including life, health and annuities. And so it goes.

Chart I also shows the tremendous growth of life insurance in force over the last 100 years–far more than could be explained by population growth or inflation.

Consider the growth in employer-based life insurance that followed World War II. By 1981, group life represented 46% of all life in-force, up from only 15% in 1945.

(Incidentally, when writing this article, I was surprised to discover that group life in-force had shrunk to 37% in 1996! It seems as if individual ordinary is winning out all over again!)

During a war, it seems impossible to forecast its aftermath or the outcome on the insurance industry. But I have tried anyway.

In Chart I, I have shown the aftermath of the War on Terrorism, at least as it has evidenced itself so far. (I am not suggesting this war is over.) At this time, the aftermath seems to be a widespread “craving for guarantees and security.” Also at this time, the outcome for the insurance industry seems to be great growth in guaranteed issue and simplified issue business (GI/SI).

This particular issue of National Underwriter examines impaired risk product trends. I would suggest that those in the impaired risk life insurance market should track the growth of GI/SI products, because that growth may ultimately impact demand for individual impaired risk life products.

Chart II shows the types of guaranteed issue and simplified issue life insurance products presently being vetted.

In times of war, the public craves guarantees and security. The industrys old approach (pure old-fashioned group life) does not seem to be meeting that need this time around. The industry is searching for new tools to do the job. This suggests more growth is yet to come.

John M. Bragg, FSA, ACAS, MAAA, is an actuarial consultant at John M. Bragg and Associates, Atlanta; past president of Society of Actuaries; and past CEO of Life Insurance Company of Georgia. You can e-mail him at jmb@braggassociates.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.