Close Close

Life Health > Life Insurance

Life Insurance Headwind?

Your article was successfully shared with the contacts you provided.

Seemingly contradictory reports are coming out on the life business, making it hard to tell if the business is gathering steam or not.

Some reports say consumers are backing away from life insurance–by not buying new coverage at key life insurance buying ages, canceling existing policies and/or not seeking new coverage.

For instance, a study from the National Association of Insurance Commissioners says 2% of consumers have fallen behind on life insurance payments, and 3% have canceled life insurance policies altogether. The MIB Group, Inc., Braintree, Mass., says U.S. life insurers used MIB databases to check 0.2% fewer individually underwritten life applications in July 2008 than in the comparable month a year earlier.

Meanwhile, 2nd quarter reports from various publicly traded life companies put out statements that could be viewed more positively. For instance, some say that persistency is up (could be good or bad, depending on how the products were priced); underwriting costs are down (if from improved efficiencies, good; but if from declining applications, bad); and/or sales in certain markets are falling (ouch).

Because those 2Q reports are from individual companies, varying views are to be expected. Still, some type of industry headwind usually emerges from the mix of company results and industry data. Right now, though, this is a bit hard to discern.

Could the headwind be in the sales of the newest kid on the life insurance block, the indexed universal life policy? A report just out from shows that 2Q 2008 sales of these products rose 6.3% from 1Q 2008 and 12.7% from 2Q 2007. But, at $130 million, the 2Q results are skating below the quarterly record of over $160 million in 4Q 2007. So, it’s too early to call a headwind here.

Do new product rollouts have anything to say? Well, new universal life policies and new term policies or upgrades dominate the new product roster I keep on hand. New variable universal life policies show up, too, but not en masse, while new whole life contracts are few and far between.

Hmm. That’s worth a closer look. Many of the new ULs sport the ultra-modern features like no-lapse protection, lifetime benefits, and even a few long term care provisions. A few VULs do the same. Such features and products are very appealing to people seeking death benefit protection, guarantees of various kinds, flexibility and features they can use in their own old age.

There could be a gentle breeze there, if not a headwind.

That’s not end of story, though. The July 2008 MIB report, noted above, includes another figure worth studying. Though U.S. application volume for life insurance was down 2.1% in July 2008 for U.S. applicants ages 0 to 44 over the same year-earlier period, MIB says, the volume rose 0.6% for applicants ages 45 to 59, and 7.1% for applicants ages 60+.

That 7.1% increase in apps for the 60+ crowd should turn some heads, especially since this upward trend has been going on for over a year–in fact, for the past 15 months, according to MIB.

Here are some monthly year-over-year numbers from MIB to flesh out that trend. Apps for the 60+ group were up: 1.4% in November 2007; 1.8% in December 2008; 6.4% in January 2008; 2.6% in February 2008; 9.8% in March 2008; 4.3% in April 2008; 3% in May 2008; 5.1% in June 2008; and now 7.1% in July 2008.

Those increases are compelling, given that apps for all life policies in the same periods were flat or even sometimes down.

Putting it together, it seems that the life app increases, for the 60+ group, and the guarantee/feature-rich new ULs now coming out, are a definite match. These, along with advances in older age underwriting reported earlier by NU, are the makings for a life insurance headwind.

A chilling report from LOMA, on the possible impact of the subprime mortgage crisis on life insurance sales, actually underscores the direction of that headwind.

One impact could be a drop in demand for life insurance and annuities, says the report (as summarized by NU Senior Editor Jim Connolly in the August 18, 2008 NU.) The reason? Households in financial trouble are less likely to buy life insurance or annuities, the report says. Also, more policyholders will likely borrow against their policies, lapse or settle them.

Viewed in the subprime context, the continuing surge in apps from the age 60+ crowd really makes sense. Many in this demographic still have the wherewithal to afford life insurance, despite the rough economy. And many likely see the need for it, due to longevity and other reasons.

A headwind blows against the current direction of travel. Life insurance for the 60+ market certainly fits that description. It’s not the “traditional” life insurance market, but it’s the one that’s growing.