Individual life insurance competition for clients and producers remains high, and insurers continue to look for ways to improve cost profiles while creating competitive advantages through enhancements to products and services.
The ability to roll out new products, pricing, and product changes rapidly in response to market conditions and regulatory changes is vital to grow revenue. Insurers are waking up to the importance of customer experience from the perspective of both the policyholder and the producer, with continuing straight-through processing efforts and growing acceptance of underwriting without medical exams.
Insurers know that it is critical to stay relevant to younger, tech-savvy demographics in customer and producer communities, otherwise they could lose those populations to consumer-friendly financial services alternatives. Attracting these demographics will require better digital capabilities and new products that fit their needs and expectations.
COVID-19 has impacted underwriting.
Some insurers have added underwriting questions on COVID-19 exposure and travel, or they are mandating good health statements and accepting electronic health records and historical exam and lab data instead of paramedical exams. Some insurers are restricting sales to older age groups and limiting face amounts and premiums for new coverage.
Higher life expectancy may lead to litigation problems for insurers.
Some policyholders with in-force permanent or whole life policy written before the extension of mortality tables to age 120 in the early 2000s face the mandatory cashing out of those policies and cancelation of death benefits at age 100. This means unanticipated lower cash value and increased tax liabilities. This segment of the population is comparatively small, but there is the potential for litigation.
Policy count is up, but premiums are down.
Insurers are reporting increased demand for life insurance as consumers focus more on mortality and seek to improve finances during the pandemic, with understandable growth in mobile and online applications. Digital initiatives that were previously stalled or on the back burner have moved up in insurer priorities. Despite excess mortality, most insurers are coping with the increase in death claims.
Term life showed significant policy count growth, driven by mobile/online and direct-to-consumer sales, followed by indexed universal life. Total individual life premium declined, however. New business premium levels and policy counts drive the ability to cover overhead expenses for many insurers because of “policy constants” embedded in pricing models. Long-term declines in policy production have an outsized impact on insurer financials.
Regulators are beginning to address potential bias in rating and underwriting.
The New York Department of Financial Services issued Circular Letter No. 1. It prohibits life insurers from utilizing external data sources, algorithms, and predictive models for underwriting or rating unless they can independently establish that the processes do not collect or utilize prohibited criteria or result in unfairly discriminatory underwriting or rating guidelines.
Insurers must be able to demonstrate valid rationales for supporting differential treatment and prove that AI and machine learning do not have a non-explainable, disparate impact on protected classes. Circular Letter No. 1 also requires that insurers provide specific reasons for a declination, limitation, rate differential, or other adverse underwriting decision. Life insurers, wary of violating the Circular Letter and facing fines, suspensions, and revocations of product approvals, are slowing down AI and machine learning activity.
Regulation is challenging insurer discretionary spending.
A somewhat unexpected change for insurers came with the passage of the Consolidated Appropriations Act of 2021, which altered key provisions of the tax code related to life insurance contracts. The changes to IRS Code Section 7702 require action by insurers that may reprioritize discretionary project funding in the near term but produce a positive impact on longer-term financial performance.
InsureTech comes calling.
Individual life insurers are exploring the potential advantages of working with InsureTech startups. These startups offer insurers UI and UX capabilities they might not have in-house. InsureTechs are also making it easier for financial advisors and other financial services firms to offer life insurance products.
AI and analytics are an area of increasing interest for claims processing and for marketing use cases including cross-sell/upsell, policyholder retention, product recommendation, and understanding customers’ buying patterns. Several insurers have corporate venture capital arms or programs. Alternative brands create interesting and potentially powerful ways for insurers to experiment at a time when significant demographic and technological changes impact their core business capabilities and markets.
The future is changing for individual life insurers.
Individual life insurers wrestle both with revenue growth and with cost reduction. They are pursuing enhanced product modeling and management capabilities; improving customer experience and customer service; and expanding their use of AI, business intelligence, and analytics in customer service, marketing, underwriting, and other functions.
For a more in-depth look at the trends in this space, read Novarica’s report Business and Technology Trends: Individual Life Insurance.
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