The economic downturn that accompanied the current global pandemic has put millions in dire financial straits, but it seems to have also piqued consumers' interest in life insurance. Indeed, a number of polls show that the pandemic reframed the importance of such coverage. Partly as a consequence, industry experts broadly believe life insurance as a whole could have a strong final quarter of 2020 to set up a healthier-than-expected industry for 2021.
It's important for life insurance companies to understand how the global pandemic will affect them, however. While there has been a massive negative economic impact because of the current circumstances, millions will be feeling the fallout for months or more. The Insurance Information Institute projects that effect on the life insurance sector will be "moderate." Leaving aside the potential for many more applications in the U.S. — already experienced in May, June and July, and likely to continue — the most obvious change brought on by the outbreak is how it will affect insurers' mortality risk.
Notably, older people have been at the greatest risk for death from COVID-19 and resulting complications, and this also tends to be the portion of the population most likely to have life insurance. As such, there may be more ups and downs for certain providers depending upon their exposure in this corner of the market.
Another point of concern for life insurers these days is the extreme low-rate environment that persists, which could prompt them to raise rates if they have to make more payouts on death benefits. Industry analysis from Zacks notes that one such change is insurers are reeling in their offerings of longer term life policies, but these are being made in an effort to ensure a healthier near future.
Another big shift in the industry is that, as consumer interest in life offerings rises, companies are increasingly investing in technology that allows them to smooth the underwriting process amid the COVID-19 pandemic. With less ability to conduct business (whether consumer-facing or back-office) in person, companies are increasingly reliant on all-electronic application and signing processes, all of which consumers have been clamoring for in recent years. Other tech advancements, such as artificial intelligence and process automation, make behind-the-scenes work more effective as well, streamlining costs.
As such, Zacks rates the life insurance sector in the top one-third of all industries it examines, and notes that areas of the economy in the top 50% tend to perform more than twice as well in the long term as those in the bottom half.
A closer look
Just how much are these changes buoying the life insurance industry? Further Zacks data notes that 90% of new life insurance sales this year will have at least some electronic component, rather than being done entirely in person, and close to half of all underwriters are investing in customer portals and other consumer-facing electronic improvements and online marketing to connect with interested shoppers.
Because industry findings suggest consumers are increasingly interested in obtaining coverage, and insurers are making investments to help them do so as seamlessly as possible, that's likely to provide some shelter from the ongoing economic storm. As such, even the fact that interest rates are rising likely won't be as much of a head wind for insurers as it would have normally been.
The big picture
Certainly, it's fair to call 2020 a down year for just about every aspect of the global economy, but life insurance has weathered the difficulty better than most, and seems poised to rebound strongly in 2021. Allianz notes gross life insurance premiums grew 4.4% in 2019 around the world, and all that progress could be erased by the end of this year. However, compared to property and casualty insurance — which was up 2.8% last year but now projected to see premiums slide 2.9% this year — conditions could certainly be worse.
That relatively more stable ground may also be a reason for projected success in 2021, though: Global premiums could grow by as much as 5.6% next year, setting up a strong decade overall for the sector, driven by massive market growth in Asia, and China in particular.
With all this in mind, insurers may need to do more to make sure consumers have all the help they need in finding and understanding their coverage options. Outreach will be critical at this time, particularly if people are losing their existing group policies during these difficult times due to layoffs. The more the industry can do to make sure people have an easier time connecting with the coverage they need, the better off they will be to start forging strong relationships that could end up lasting decades.