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Is the World Functional Enough to Support Life Insurance?

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Thousands of years ago, annuities looked like a much better than life insurance because… the world was chaotic. Life was short. Counting on customers to die soon was a safe bet.

Political stability, a growing middle class, advances in medical knowledge, and improving public sanitation efforts began making the United States a good market for life insurance starting around the mid-1800s.

By the 1920s, the U.S. life insurance industry was booming. A century ago, life insurers filled the New Year’s Day issue of The Investor, a business publication in Oklahoma City, with ads seeking new agents.

(Related: 5 Questions About Life Insurance for 2019)

Popular magazines, including Science and Invention, a publication edited by Hugo Gernsback — who later became known as one of the creators of modern science fiction — portrayed the future as a place where bug-eyed monsters might invade, but where, on good days, electricity, radio waves and dirgibles would reward people who educated themselves, worked hard and saved money.

Today, consumers are used to cell phone apps keeping them amused at all times.

The government is using low interest rates to get consumers to spend on houses, cell phones and stocks today. The low rates punish any consumers who might want to try saving for retirement.

The same low rates hurt life insurers’ efforts to support products designed to begin paying off in the future, and securities regulators, banking regulators and accounting regulators are imposing new reserving and financial reporting rules that discourage life insurers from offering or promoting long-term income or death benefit guarantees.

Trade wars, floods and fires are disrupting life insurers’ efforts to invest where they want, sell coverage where they want, and participate in the reinsurance and retrocession markets where they want.

All of this raises the question: Will the world of 2020 really be a good place for traditional individual life insurance to exist, or will traditional individual life insurance go the way of bowling leagues, victory gardens, and milk that tastes the way milk ought to taste?

Here are four other questions that could influence our life insurance coverage in 2020.

1. Wait, what’s “principle-based reserving”? We forget.

Years ago, in the before times, state insurance regulators developed model laws and regulations that supported efforts by U.S. life insurers to base reserves for some products on the results of sophisticated statistical modeling and actuarial judgment, rather than on static formulas.

That principles-based reserving (PBR) approach could begin applying in the real world this year.

Will it really begin applying, or will it be one of those changes that everyone talks about but keeps getting postponed?

Will it really be different from the old approach?

Will it usually work? What will happen if and when it doesn’t work?

2. Will Ebola or some other disease lead to a spike in death claims?

Public health authorities have tried hard to get an Ebola outbreak in the Democratic Republic of the Congo under control.

So far, they haven’t.

World health regulators have approved Ebola vaccines. But, if a vaccine-resistant version of Ebola, or some other equally deadly disease, runs wild, that could throw off the life insurers’ mortality tables.

3. Will the return of estate taxes become the Democrats’ return of risk pools?

Republicans who want to kill the Affordable Care Act have to face this question: “Do you really want to force people with cancer and people with diabetes to return to getting their health coverage from risk pool programs designed for sick people?”

Before 2014, some states had well-funded risk pool programs that provided solid coverage and worked. But other states had underfunded programs with low benefits caps that had long waiting lists for would-be participants.

Now, any Democrats like Bernie Sanders and Elizabeth Warren who want to bring back smaller estate tax exemptions may have to face a different but somewhat equivalent question, “Do you really want families to have to sell the family farm or the family hardware store to pay the taxes on Mom and Dad’s estate?”

4. Will life insurers become the nation’s real wellness monitors?

Health insurers say they want to keep the insureds healthy, but they have an obvious financial incentive to skimp on expensive forms of care, and little direct responsibility for the enrollees’ morbidity or mortality.

Life insurers have an obvious incentive to minimize their insureds’ mortality. They are the ultimate consumers of longevity.

Companies like John Hancock have already started using premium discounts to encourage life insurance insureds to eat right and exercise.

Will the life insurers begin to use their data to hint at which health insurers, health care systems and other health care system players are doing a good job, or bad job, at keeping their insureds and patients healthy?

How We Did Last Year

Here are the questions we came up with a year ago, and how we think those questions look to us now.

1.  How’s the economic backdrop?

Value of question:  Good.

Answer:  Fragile. Actual unemployment is low, but only a handful of people seem to have great private-sector jobs in Silicon Valley. Everyone else seems to be working for the government, a health care delivery organization, a restaurant, or a store that’s suffering from Stage 4

2. How are the economics for life insurers?

Value of question:  Good.

Answer:  Life insurers seem to be making it work, through sheer force of will.

3. How are consumer preferences changing?

Value of question:  Weak.

Answer:  Consumers mostly seem to be too dazed and short on cash to be acting on conscious preferences. The most popular preference seems to be, “Stay a few feet ahead of the student loan bill collectors.”

4. What’s happening with opioids?

Value of question:  Meh.

Answer:  They’re a popular topic for op-eds, but maybe not all that relevant to the commercially insured population.

5. Are the new accelerated underwriting systems working as expected?

Value of question:  Good.

Answer:  To be determined.

— Read The Year 2020, for Agentson ThinkAdvisor.

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