There are encouraging signs that 2010 will see progress for life insurance companies, despite the continuing challenges they face as they recover from recent financial blows.

Part of the reason I am heartened for the industry is that the recession has made Americans fiscally sharper. Yes, they are spending less as their confidence in the economy continues to falter. But they are saving more, too.

Other reasons to take heart:

–More consumers realize they need to assure their financial well-being in a world where economic comfort can be short lived. That will make them more receptive to products such as life insurance, critical illness and long term care insurance, which help assure their welfare.

–The life-annuity insurance industry is developing fundamental plans to improve strategy and execution. Insurers are building more rigorous risk-management abilities and stronger internal controls.

–Insurers have also seen the recent period of lagging sales as an opportunity to tune up company technology and communications, as evidenced by improved Web sites and updated agent management and compensation systems.

–Companies are repricing and reducing risks in variable annuities, a product on which they took a beating when the equity markets tanked.

–They are placing an increased emphasis on cost-effective ways to market to consumers, including e-marketing, direct mail and work site selling.

–They increasingly have shifted away from merely offering products to providing support with tools and ideas to help producers position themselves as problem solvers to wealthier consumers in such areas as estates, trusts and income protection.

Certainly, the industry has been put to the test in the past couple of years. Life premiums were down about 15% in the U.S. in 2009 compared to the year before, a new analysis by Swiss Reinsurance Company finds. That comes after a decline in 2008 of about 4% from 2007 levels.

Still, worldwide, there are signs of strength. New life premiums were up in a number of industrialized countries as well as in many emerging market nations. In fact, globally, 2009 life insurance premium sales were 2% below the year before, following a decline of almost 6% in 2008 from 2007, Swiss Re found.

One of the reasons the markets overseas have been relatively undamaged by the recession is that foreign-based insurers have largely emphasized sales of traditional life policies with guarantees, notes Swiss Re.

That implies a lesson for U.S. life insurers and producers alike: it may be time to get back to basics. In Europe and elsewhere, traditional life products have been seen as better than bank products, in view of low interest rates offered by banks and uncertain financial markets.

Looking ahead, I expect the life industry to continue to improve.

As Swiss Re notes in its study, “a further recovery of the financial markets is likely to stimulate the overall growth of unit-linked [variable] products and allow insurers to continue strengthening their balance sheets.”

Economic stress may benefit life insurance products in another way, although not one that should bring anyone great cheer. This is the possibility that increasing budget deficits may push our state and national governments to cut spending on social security and public pensions.

Personally, I see the growing sentiment to cut deficits as gravely misplaced in view of the widespread suffering caused by continued high unemployment. But if entitlements ultimately are reduced, this could stimulate consumer demand for private solutions such as those offered by life insurance companies.

Swiss Re points to another development that could benefit the life industry: the aging of the world’s population.

It is clearly a time when insurance and related financial products are needed to protect a populace approaching retirement from the consequence as well as disabling illnesses requiring long term care.

There’s no doubt consumers have suffered after the markets tumbled. It’s to be hoped they learn the lesson that life insurance offering cash value is an investment they can depend on.

For their part, insurers and producers should recognize that stable–not variable–cash value is what aging clients need. They must place more emphasis on products with guarantees, with risks appropriately reduced for the retirement market.

That can help lead the way out of the recent sales slump, and assure that future recessions would be far less shattering to the industry.