If you had to summarize the 2015 life insurance market in a few words they would be “more of the same.” As of the fourth quarter of 2014 LIMRA is predicting another flat year for life insurance sales.
As with 2013, this year’s story has been a tale of two products: indexed universal life (IUL) and lifetime guarantee universal life (LTGUL.) Both products saw a continuation of opposing trends seen in 2013, effectively cancelling out each other’s impact and leading to (on the surface) another lackluster year.
Once the dominant product in the UL suite, LTGUL was surpassed by indexed UL in 2013 and that trend continues in 2014. Low interest rates affected LTGUL sales as carriers who had increased rates or, in a few cases, dropped their lifetime guarantee products had reduced sales.
Another factor contributing to the decline in premium for these products was a trend toward lower face amounts for LTG policies. Historically face amounts for guaranteed UL has averaged around $400,000. In 2014 this dropped by a quarter to just over $300,000 as advisors are selling fewer, smaller policies.
By contrast, indexed universal life has been the bright spot in the industry for several years. In 2014 IUL saw double-digit growth, which it has achieved in all but two quarters since the economic downturn in 2008.
This product held the attention of many insurers, with new products and innovations introduced throughout the year. Strong growth was evident for most carriers, including several that entered the IUL space with new products at the end of 2013.
This success has not gone unnoticed as 2014 was also the year of heightened regulatory scrutiny. The National Association of Insurance Commissioners (NAIC) is now evaluating two competing proposals for how to handle this issue.
The state of New York has also begun the process of evaluating the illustration practices for these products. This will bear watching in 2015 as any restrictions on illustrated rates could have a dampening effect on sales.
A focus on accumulation was another 2014 trend. Sales of IUL are one example, but we also saw a continued revival of variable universal life (VUL) sales. While VUL currently represents less than 10 percent of sales, it has seen eight consecutive quarters of growth.
A driving factor behind VUL’s success is the introduction of long term or lifetime death benefit guarantees by some carriers. While guarantees have been present and popular in the variable annuity space for many years, life insurance carriers had limited success adding guarantees to their variable life products. Several companies now appear to have found a solution.
In 2014 whole life (WL) insurance saw a change to its narrative as the success story of the post-recession life insurance market. After 18 consecutive quarters of consistent growth, whole life sales stalled at the beginning of the year and have struggled to rebound.
This product is dominated by the major mutual companies, many of which headed toward their first decline in whole life sales in years. While whole life products aren’t as interest-sensitive as UL, the low interest rate environment is having an impact, as a few carriers have raised rates.
As a result, affiliated agents associated with the large mutual carriers saw declines while growth in WL sales came from the independent side of the distribution market. LIMRA predicts the decline in whole life sales should be short lived as the guarantees and dividends associated with whole life insurance still look good in the current economic environment. The double-digit increases of the past however, are probably behind us.
Term sales also struggled to reach positive territory in 2014. A strong first quarter in 2013 accounted for part of this as carriers that had been selling in the term UL space were dropping their products and returning to traditional term products.
That created a big increase for those companies in the first quarter of 2013 — performance that wasn’t expected to be repeated in the beginning of this year. Term sales did not improve much for the rest of this year, either.
Sales were down for the first half of the year and flat from July to September. Sales may still show gains by the end of 2014 as several carriers announced rate reductions in the middle of the year.
There has also been an increased focus on simplified issue term and streamlined underwriting practices, both of which could positively impact sales, as an easier application process causes fewer consumers to drop out during the sales process.
While not a bad year, 2014 didn’t provide the recovery that many were seeking. So what can we expect in 2015? Get ready for another year of déjà vu.
LIMRA predicts a continuation of the trends from the past few years. Individual life sales aren’t expected to grow until 2016. Low interest rate issues and continued weak LTGUL and WL sales are expected to be too much for IUL to overcome.
Until the economy shows stronger growth, unemployment and underemployment are expected to weigh down term sales. On a positive note, indexed UL and VUL will continue to grow. Could the expectation of flat sales change? Sure — the economy is starting to show some strength. Interest rates could begin to rise more quickly than expected.
Guaranteed VUL products could really take off and, combined with indexed products, counter the negative impacts of other products. We’ll keep our hopes high for the coming year and look toward 2016 with even more optimism.