1H 2023 Life Insurance Trends Examined

Current Trends Facing the Life Insurance Space: Navigating a Changing Landscape

Last week we examined the 2023 P&C Trends we’re seeing in the first half of the year; this week we are shifting our focus to the Life market. In this article, we will explore several key trends impacting the life insurance industry today.

Impact of Inflation on Life Insurance:

Inflation impacts everything, including life insurance. The face amount when you purchase a policy might be an adequate number at the time, but over a 10, 20, or 30-year time horizon, inflation slowly eats away at the value of the policy. In the past five years alone, inflation has eroded 23% of purchasing power in the US. Rising prices of goods and services, as we’ve seen recently, may necessitate policyholders to review their coverage regularly, increase their face amount, and consider inflation protection riders. Insurance companies are adapting by offering flexible policy options that account for inflationary pressures and ensure policyholders maintain adequate coverage levels.

Rising Interest Rates and Life Insurance:

Interest rates play a significant role in shaping the life insurance landscape. Depending on the type of policy, rising interest rates may create an uncomfortable opportunity cost that customers will begin to weigh as there may be more attractive returns to protect their financial future elsewhere. For reference, since March 2020, interest rates have soared on the back of the Federal Funds Rate Rate rising by a dramatic 500 basis points, one of the steepest hikes in recent memory. Also, as interest rates rise, policy premiums may increase, affecting affordability for customers. This poses challenges for insurers in managing policyholder expectations and adjusting pricing strategies. However, it also presents opportunities for policyholders to secure policies with potentially higher cash values and returns.

Increasing Demand for Life Insurance:

In recent years, there has been a notable surge in customers shopping for life insurance. In May 2023, year-over-year applications were up over 7.5%. Factors such as increased awareness of mortality risks and the COVID-19 pandemic have driven this demand. Insurers are addressing this trend by expanding product offerings, enhancing digital distribution channels, and streamlining the application process.

Accelerated Underwriting and Instant Decisions:

To meet the expectations of today’s digital native customers, insurers are adopting accelerated underwriting and instant decisioning to attract new customers. Overall, accelerated underwriting programs have significantly reduced processing times, benefiting both insurers and customers by expediting policy issuance and enhancing the overall customer experience. Unlike their P&C counterparts, who have slowed down or halted digital underwriting, we’ve seen an increase in investment from carriers looking at implementing consumer-completed policies, including medical histories and binding capability. In the past, we’ve seen carriers willing to digitally underwrite policies with lower face amounts, typically in the low to mid hundreds of thousands, but we’re currently seeing many carriers underwriting policies as large as $1 million to $2 million, with some going as high as $2.5 million. While accelerated underwriting/instant decisioning have many benefits, they also come with an unknown layer of risk that carriers are actively trying to navigate. 

Non-Disclosure is a Major Focus:

There is an increased focus on addressing the rising risks associated with digital applications, particularly nondisclosure. Given the impact questions like tobacco usage, alcohol, medical history, and avocation can have on premiums, carriers are struggling to figure out how to spot misrepresentation and nondisclosure during the underwriting process. With the availability of vast amounts of data (RX, EHR, MVR, and now DX) and advanced analytics, insurers are leveraging new datasets and solutions to identify potential risks and enhance underwriting accuracy. By analyzing sources such as social media activity, wearable devices, and electronic health records, insurers can gain valuable insights into an applicant’s lifestyle, behaviors, and health conditions. In addition, they’re turning to behavioral analytics and nondisclosure solutions to identify material misrepresentations during the underwriting process. This shift towards data-driven underwriting not only allows insurers to make more informed decisions but also helps combat the increased risk that comes with the digital underwriting landscape.

Transition from Tele-Interviews to E-Interviews:

Insurers are increasingly utilizing electronic platforms for interviews, particularly for the medical portion of the application process. This transition offers advantages such as improved efficiency, accuracy, and convenience for applicants. Furthermore, e-interviews help reduce administrative burdens, minimize errors, and enhance data privacy.

This is the second of a four-part series we will be releasing over the coming weeks. Stay tuned for:

(Part 1) 1H P&C Trends Examined

(Part Two) 1H Life Trends Examined

(Part Three) 2H P&C Predictions

(Part Four) 2H Life Predictions