It goes without saying that any sizable economic downturn is going to have a negative impact on business for many life insurers, and that's especially true because of the current rate environment. But there may be more reasons why the sector could be in for a bumpy ride in the near future, and understanding what they are may be key to avoiding those problems.
On the one hand, the cause of the current downturn - a pandemic driven by a highly infectious, dangerous virus - clearly has people thinking more about their mortality. As such, many life insurers saw a huge increase in interest from consumers earlier this year, and that may lead to strong positive conditions for the sector going forward, according to industry experts on a recent online panel convened by the National Association of Insurance and Financial Advisors. On the other hand, a lot of those same insurers have stopped selling at least some of their products to at least some of those applicants simply because of the rate concerns they understandably carry.
Instead of focusing on the negatives of the downturn, however, many insurers are taking the opportunity to review their exposure to risk and modernize many of their old ways of doing business - including simply talking to clients about their financial risks and concerns on an ongoing basis, and taking the opportunity to provide more valuable investment advice.
In this way, the sector is looking at some potential roadblocks or rough terrain and trying to make the most of it.
A closer look
When it comes to the specific changes they are making - or plan to implement in the near future - life insurers are understandably pursuing a number of different avenues for growth and change. A recent LIMRA survey found that 89% of executives polled were concerned about pricing and profitability from newly underwritten policies, and 60% were worried about their reserves and capitalization. About half listed customer demand as a potential issue they're monitoring - though evidence suggests that, at least for now, it's not that much of a problem - and nearly as many are keeping tabs on product design.
However, despite all those various concerns - and many more - nearly 3 in 5 companies say they have started reviewing their pricing, caps and crediting rates more frequently in the past few months, and even more have increased how much they monitor new business. Roughly half also say they're tracking the profitability of that new business, and a similar number has altered non-guaranteed elements of their business. Almost a third have also been forced to adjust guaranteed elements as well.
Interestingly, given the circumstances, the survey found that only about 1 in every 3 companies has actively updated its long-term rate assumptions.
How are consumers feeling?
With that understanding that the majority of industry insiders polled said that they've been keeping close tabs on consumer sentiment, it's worth noting that nearly all Americans have at least some concerns about the coronavirus, related to both their physical and financial health. A separate LIMRA survey found that only 3% of individual respondents are "not at all concerned" about these issues, compared with 66% who say they are either "very" or "extremely" concerned.
Just under half of respondents said they're concerned about both their long-term (49%) and short-term financial security (44%), and similar percentages were observed for job security in both the near- and long-term. In fact, 40% say they're worried about their ability to access or afford necessities, including food.
Moreover, 71% said the broader economic impact of the pandemic has been a concern, and nearly as many felt the same apprehension about how long the situation is going to last. Alison Salka, senior vice president and research director for LIMRA, noted that prior to the pandemic, people were generally feeling good about their personal financial situations and the economy as a whole, and that if current events didn't totally wipe out that optimism, they certainly eroded much of it.
A word of caution
Even as companies move to help consumers understand their financial situations, and more closely evaluate their own, experts caution it is important not to feel totally prepared for any circumstances, or to feel especially well-insulated from risk. Digital Insurance calls this "optimism bias" a sort of "it-won't-happen-to-me thinking" - the feeling that while the industry may be in tough times right now, a given person's individual life insurance company is well-positioned for success. While many actually may be, it should never be taken for granted that things are all accounted for.
The more companies can do to craft contingency plans for just about any eventuality, even worst-case scenarios - and then build further contingencies into those contingencies - the better off they will be when it comes to responding to any shifting conditions in the sector or the broader economy.