How is the life insurance landscape changing?

Since the end of the recession, the ways in which life insurers have had to interface with consumers to ensure they are engaged have changed a great deal.

Slowly but surely, the economy seems to be improving the general attitude of people toward life insurance and other long-term coverage. While many have always seen the value of life insurance, they may not have always felt they had it in their household budget to actually invest in such coverage. However, more change for the industry is likely to come in the months and years ahead.

Perhaps the biggest shift in the industry has come in how much people now see the value of term life coverage, rather than permanent or universal policies. According to Tech Crunch, term coverage has become a focus of a number of startup companies in recent years, including one backed by the rapper Jay-Z, which connect consumers with insurance providers and collect more data on those policyholders over time.

Ethos, the startup backed by Jay-Z, which has raised tens of millions in funding over a relatively short period of time, says it is changing the game by being more of a technology platform than a traditional insurer. It further differentiates itself by helping guarantee people pay the lower-than-average sticker price for term coverage, because it no longer will be paying salespeople a commission, Tech Crunch noted. Already, the company claims it has received thousands of applications for coverage from interested consumers, as have many other insurance startups that rely more heavily on tech and data than the industry has in the past.

The life insurance environment continues to shift.

A shift away
Meanwhile, a small but growing number of name-brand players in the life insurance industry say they're pulling back their involvement in this type of policy underwriting, according to The Wall Street Journal. In the past year, MetLife and Voya – formerly affiliated with ING – have both made the decision to end sales of life insurance directly to individuals. That does not mean they will cancel policies current insureds carry, but they will stop issuing new coverage, and may instead spin that business off to other, smaller firms.

Meanwhile, those companies will still continue to issue lower-cost, smaller-payout life insurance policies to employers for group coverage, the report said. Generally speaking, even the biggest players in the life insurance game now see other types of investment vehicles as more profitable for them, especially as individual life insurance purchases have declined in recent years – today they're about 45 percent lower than they were in the 1980s.

And while sales have improved since the recession came to an end about a decade ago, they have mostly leveled off more recently, the Journal noted. Insurance industry experts also say the long-term low-interest rate environment hasn't helped them much in recent years either.

Changing attitudes
At the same time, individuals are increasingly cost-conscious in their everyday lives, and permanent or universal life insurance seems to be dropping in popularity as a result, according to the Palisades Hudson Financial Group. While universal life policies are designed to be less expensive than other types of permanent coverage, it's still more expensive than term life and has ballooned in costs in recent years. The vast majority of universal life coverage issued in the 1980s and early '90s is now growing extremely expensive for long-time policyholders, meaning they may eventually have to abandon it if they haven't already.

And because this involves policies that have existed for decades – and were supposed to be far less expensive now than they were when originated – that also means consumers may be less likely to seek this kind of coverage in today's economic environment, after years of recovery though it may be. The fact is that today's low-rate environment is, by all indications, beginning to wind down, but even if rates return to historically normal levels in the next year or two, that might not be enough to provide relief to many consumers who now face extremely high costs.

That, in turn, may lead insurers to continue to see lower participation in this type of coverage, which may consequently impact their businesses to a certain extent going forward, the report said.

Cause for concern?
Another reason for caution could be the fact that more companies are now seeing some of their long-term care policyholders needing bigger payouts, according to Reuters. A number of major life insurance companies have recently announced they are increasing reserves for long-term care coverage, because they expect payouts on these policies to increase sharply in the next few years.

Those efforts are likewise expected to continue into 2019, with insurers likely to boost reserves by an additional 10 percent, the report said.

This comes at a time when insurers are seeing more headlines about their industry, related to rising premiums for people who have had coverage for decades, the report said. When much of that coverage was underwritten, insurers had never been given reason to presume life expectancies and health care costs would both rise so rapidly in a relatively short period of time.

“The good news is that we're living longer and the bad news is that we're living longer,” Michael Frank, an actuary and president of a financial consultancy in Port Chester, New York, told Reuters. “Long-term care insurers are dealing with multiple crises.”

To that end, many major names in life and long-term care insurance are likewise reconsidering their approaches to such coverage, and that's been a trend in the industry for years, the Reuters report said. Even with pulling back from this type of underwriting, many insurers are dealing with significantly higher costs, and are required by many states to be more pessimistic in their long-term forecasting, requiring even more increases in reserving.

With all these considerations in mind, it's important for life insurers to make sure they know how to reach people and continually highlight the value their coverage provides. Any difficulties they experience in drawing in consumers now may end up costing them a lot in the long term.