Eight Predictions For Life Insurance

Underwriting is becoming more sophisticated and more reliant on technology, with heavy focus on large policies and risk assessment innovation for older applicants (e.g., prescription databases and cognitive testing).

What is on the doorstep now? Here are eight thoughts.

1) Interest rates. It's hard to envision a large rise in interest rates in the next few years, though modest increases are likely. Subdued rates will pressure fixed accumulation and UL secondary guarantee (ULSG) products, but have less impact on indexed UL. A meaningful, steady upward rise, however, would be the biggest positive boost to life sales in the next few years.

2) Estate taxes. Clarity around estate tax rules will re-engage survivorship sales.

3) Equities markets. The markets will generally move up, but with regular periods of choppiness. This favors indexed UL, but challenges VL sales.

4) Mortality. Improvements will continue, but at a slower pace than in the past. There is simply a limit to how quickly mortality can be underwritten out of life insurance. Reinsurers will play a vital role in keeping small and mid-sized carriers in the game.

5) Regulation. Regulatory activity will tighten requirements around sales practices and disclosure. Agent training and communication will be critical. Efforts to mandate more principle-based approaches to insurance liabilities will help some products (e.g., term) but have smaller or negative effects on others (ULSG). Core tax advantages of life insurance will remain.

6) Target markets. Boomers have money and have reasons to believe in the benefits of life insurance. Accordingly, carriers must develop messages and processes that appeal to the older age market. The growth markets for life insurance are female, Hispanic, Asian, and African-American. Distributors having affinity relationships with these growth markets will need to be developed.

7) Compensation. Commissions will be less heaped, not level, but more levelized. This seismic boost to life products needs to occur in order to move products to the next level. Strong leverage exists in product pricing if sales compensation is levelized–products can be cheaper, more attractive, and reps can sell more and may even increase their overall compensation.

8) Life settlements. Continued emergence here will require comparable offerings by life insurers and/or joint ventures. Disclosure of settlement options to policyholders will be broadly required.

Tighter profit margins, smaller product portfolios, and greater in-force management all lie ahead for insurers and producers. One thing is definite: The next 10 years will be very interesting and challenging for those in the life insurance business.

Timothy Pfeifer, FSA, MAAA, is president of Pfeifer Advisory, LLC, Libertyville, Ill. His email address is [email protected].