The variable life insurance market experienced remarkable growth in the 1990s, with premiums climbing from $1.03 billion in 1990 to a peak of $6.95 billion in 2000. That equals a 21% compound annual growth rate, according to Tillinghasts VALUE Survey.
Further, VL market share as a percentage of total life insurance sales increased fivefold from 7% in 1990 to 37% in 2000. All this occurred against the backdrop of a relatively stagnant life insurance market.
What is ahead for the industry in the next several years? The business is at a crossroads now, but it could see more growth if conditions are favorable. Before exploring possibilities, lets review the industrys past growth record and its current situation.
Sales in the 1990s were fueled by the significant growth in the equity markets, especially in the latter half of the decade. Both the number of companies selling VL and the number of products offered grew dramatically. In 1990, 36 life insurers offered 38 products. In 2002, 54 insurers offered 166 products, an average of three products per company.
Product manufacturers have expanded their accumulation-oriented VL portfolios to include survivorship VL, protection-oriented VL and single-premium VL.
As more companies have entered the marketplace, market share among the top players has become less concentrated. Market share for the top 10 VL players, as measured by new sales, shrank from 90% in 1990 to 59% in 2002 as competition intensified.
Changes have also occurred on the distribution side. Although still a dominant presence, career agents have lost share to nontraditional independent distributors. In 1995, career agents sold over 70% of new VL premium, while in 2001, sales through career agents accounted for just over 50% of total VL sales.
More recently, VL sales have experienced significant setbacks. Sales in 2001 fell 15% from their peak in 2000 to $5.9 billion. In 2002, sales continued to drop with equity market declines, finishing the year down 32% at $4 billion.
Today, the VL market is facing challenges. Equity market volatility and the sustained market downturn continue to exert downward pressure on sales and erode in-force account values.
Consumers have awakened to the risk inherent in variable products and may be hesitant to embrace equity-based products in the near term, notwithstanding a “buy low” investment strategy.
Despite low interest rates, many career agents have turned their attention to selling fixed products, such as universal life and participating whole life. Additionally, the number of career agents is declining while distribution costs associated with tied channels continue to climb.
Although investment-oriented independent distribution channels have grown rapidly, the insurance industrys ability to penetrate these remains low and the required investment to tap these channels may be high.