The new year is here and the life insurance industry is changing along with just about every sector. Life insurers, however, will face challenges and factors that aren't shared by most other companies. It's wise to start planning now for a successful 2019 to be able to adapt to a changing marketplace.
In some ways, 2018 has been a positive time for life insurers, with the most obvious strength being the fact that interest rates have risen steadily with the improving economy over the course of the year, according to the latest outlook on the industry from Kroll Bond Rating Agency. In general, Kroll sees 2019 as being more of the same: a relatively stable year for life insurers as capital firms up and liquidity increases, all of which translates to potentially greater profitability for many companies.
While there are some emerging concerns of another recession in the next few years - some estimates say it could arrive toward the end of 2019, while others project a start in either 2020 or 2021 - it's unlikely that the life insurance industry in particular would be affected any time soon, the report said. Life insurance could take a bit of a hit, as many other businesses would during a recession, but the long-term outlook would likely remain quite strong.
"A number of years ago, a slowing in the rate of growth of earnings caused a certain insurance stock to sell off," KBRA said. "Bond spreads widened in sympathy and some traders looked to sell. Those who understood insurance credit bought. It was a good trade. Despite the slowing rate of earnings growth, the company remained profitable, liquid and well-capitalized, and continued to generate ample capital to support its business. It can take a long time to turn a tanker, and KBRA takes a patient, through-the-cycle approach to credit ratings."
At the same time, it seems that some types of insurance are also getting a little more regulatory scrutiny these days, and it's something for which life insurers need to be prepared, according to Property Casualty 360. Indeed, companies issuing P/C, as well as life insurers and annuities underwriters need to be aware of new rules related to consumer protections when buying certain types of coverage, especially as regulators get a better handle on some of the technical aspects of consumer risk around cybersecurity and privacy.
This comes at a time when many firms might already be dealing with other regulatory concerns, such as how risk is calculated or the reserving rules under which they must operate, the report said. Some may choose to take a more conservative approach internally, while others are still willing to be a little more flexible. Of course, every company's approach depends upon their own unique situations, but when decision-makers are able to formulate strong long-term strategies, they put themselves in much better positions for the year ahead.
More channels broadening
At the same time as regulatory pressures and long-term economic concerns may be mounting, thanks to the tight labor market, companies are starting to think outside the box when it comes to worker benefits as a means of both attracting and retaining talent, according to The Street. The reason this is a potential boon for life insurers is that it means more group policies are likely to be sold in the year ahead as a "fringe benefit" that is designed to help boost employee loyalty.
Data suggests that group life insurance offerings - typically providing life insurance protection of one or two times employees' annual salaries for a relatively low price - are becoming increasingly common among companies of all sizes, the report said. And likewise, employees seem pleased to receive this type of benefit, as it shows companies are willing to go above and beyond traditional offerings for increased retention efforts (such as higher salaries, reduced health insurance costs, larger retirement savings contributions and so on). That potentially highlights how much consumers broadly value life insurance in their daily lives, even if they still hold misconceptions about how much an effective individual policy would end up costing them.
"Life insurers must take advantage of every avenue of opportunity."
What needs to be done?
With all these issues in mind, it might be important for those in the life insurance industry to make sure they are taking advantage of every avenue of opportunity available to them, according to Think Advisor. A strong economy may put more people in a position where they believe they can afford life insurance but it may not be enough to wait for people to come to insurers. Insurers would be wise to make policy offerings as clear and simple to understand as possible, providing both a personable and uncomplicated enrollment process.
Perhaps the biggest hurdle, unfortunately, is the misunderstanding in consumer perception between what life insurance costs and what it provides, the report said. People still tend to think such coverage as costing thousands of dollars a year despite the actual cost, particularly for term coverage which often comes in at a fraction of that price.
Generally speaking, the more life insurers can do to simplify the process of obtaining coverage - such as by reducing requirements for medical checkups beforehand or reducing the amount of time needed to sign off on an application - or demystify long-term costs related to it, the better off both they and consumers will be. Rethinking the way they do business in 2019 could help insulate them from the kind of long-term risk that may be on the horizon for many other industries.