What is ahead for the individual term life insurance market? What varieties will succeed and what will happen to prices?
This article looks at those questions. First, an update.
Term life insurance has been a staple product offering of the life insurance industry for over 20 years. This market definitely has zigged and zagged during this period, reflecting changes in the posture of reinsurers, approaches to underwriting and risk classification generally, and the fine-tuning of premium guarantee periods. Even so, the products have maintained a strong position in meeting the public’s need for basic, low cost life insurance.
Now, in the mid-2000s, term life insurers once again find themselves steered by winds of change in the market.
For example, reinsurers significantly have tightened their pricing of all products, including term. At the same time, reinsurers have strengthened their audits of direct companies’ underwriting and claims practices.
In addition, term products face strong competition from low cost universal life with secondary death benefit guarantees. Concurrently, return of premium riders on level term plans have penetrated the market as a new differentiator between products.
As older term business ages, approaching and crossing through the end of the level-premium period, insurers have begun developing in-force reissue programs for healthy, persisting lives. For business beyond the level-premium period, insurers are seeing their first credible mortality experience resulting from anti-selective lapses driven by high annually renewable term renewal premiums.
So, what’s next? The correct answer to this question is, of course, “it depends.” The main dependencies relate to reinsurer behavior, mortality patterns and the effect of new reserve initiatives.
From the perspective of an interested market observer, here is a brief prediction of future term direction for the next 5 years.
Reinsurer positioning: There will be continued tightening over the next 2-3 years, then some loosening, as some reinsurers shift focus more to top-line growth.
Product popularity: The 20-year level term product will strengthen its hold on the market, while the 30-year term products gain some relative share.