Consumer spending is down significantly and that extends to life insurance.

Life premiums are down 26% in first quarter 2009 and variable life insurance premiums are off 61% (LIMRA International, Windsor, Conn.). Long term care insurance premiums through the first half of 2009 are down 31% from the first half of 2008 (LIMRA).

Most of the decrease has been attributed to consumer demand, but capital requirements also have impacted sales. Some assets on company balance sheets had to be written down, and insurers responded by limiting production in some areas.

However, there still are plenty of life insurance opportunities ahead.

As consumers are watching much more closely where they spend their dollars, for instance, it is a great time to sell lower-cost, protection-oriented life insurance.

This is already happening. Although term life production was down slightly in first quarter 2009, some insurers have increased their term sales. Some life insurers have also added return-of-premium features to their term products, offering cash values for consumers but with premiums that are lower than that for other permanent life insurance plans.

Equity-indexed products have also received a boost in sales. With the decrease in the equity markets, consumers are looking for ways to reduce exposure to market declines. The floor guarantees in equity-indexed life insurance offer some consumers exactly that.

The market downturn has further reduced monies available for wealth transfer. Survivorship life insurance can address that, since it provides an excellent means of guaranteeing how much money a couple will transfer to heirs. In addition, the survivorship product is an excellent tool for estate planning purposes–an especially important consideration, since the estate tax rate is expected to increase in 2011.

Demographics continue to increase the demand for insurance among seniors, who are looking for security and have assets available for repositioning. Single-premium whole life and universal life are excellent products for addressing this need, since they guarantee a specific cash value and death benefit.

Simplified issue programs continue to grow, as tele-underwriting techniques and non-invasive screening tools such as prescription drug databases and telephonically administered cognitive impairment testing are proving to be low-cost and effective. More insurers are offering these products to the large middle market.

Combination plans featuring life and long term care coverage are expanding. This opportunity is growing as stand-alone LTC insurance has become very expensive.

The possibility of federal regulation of insurance has led to the development of the Interstate Compact, an initiative of the National Association of Insurance Commissioners. The compact is expected to streamline the filing and approval process for the industry. In fact, carriers are already finding that the compact allows them to reduce the amount of time it takes to get a product to market.

One of the areas of activity affecting life insurance in the last several years has been the life settlement business. Some view this as a major threat to industry profitability, particularly in event of fraudulent presentations of an insured’s health at time of application. But in today’s challenging economic environment, capital available to support that market has dried up. More importantly, the general outlook on mortality for life settlement business has been modified downward by life settlement underwriters, making these transactions much less attractive to investors.

Another opportunity stems from the fact that the pool of qualified, unemployed personnel has grown as many industries have shed workers in response to the economic downturn. This should provide the industry with a prime opportunity to rebuild distribution systems, as many talented sales representatives are out looking for the next challenging opportunity for a successful career. Insurers need to be proactive in hiring and training the next generation of sales representatives.

Consumer confidence in the financial services sectors has dropped, including for insurance companies. But this is a time to deliver the message that the insurance industry is not just about investment returns; it is also about insurance protection from adverse events.

Carl A. Friedrich, FSA, MAAA, and Keith Dall, FSA, MAAA, are consulting actuaries with Milliman Inc. in the Chicago and Indianapolis offices, respectively. Their e-mail addresses are carl.friedrich@milliman.com and keith.dall@milliman.com