Life Premium Growth: Opportunities (and Complexities) Knock

Introduction

Why are there so many superstitions about knocking? Knock on wood, knock three times, etc. I would venture to say that most of us don’t believe in these superstitions and just act on them out of sheer force of habit. The insurers who benefitted from 2023’s robust life premium growth may disagree, as opportunity knocked on their doors last year quite loudly. For the third consecutive year, total life insurance’s new annualized premium set a new sales record, rising 1% to $15.7 billion in 2023 according to LIMRA’s U.S. Life Insurance Sales Survey.[1] In this week’s blog, let’s take a look at the reasons behind the robust premiums of 2023, some key operational strategies for insurers and customers, and how insurers can ensure sustainable premium growth in 2024 and onward.

2023: The Year of the Life Insurance Premium

2023 was a record year for premium growth across life insurance product lines, with the following LIMRA statistics reflecting individual sector success:

• In 2023, whole life new premium was $6.1 billion, up 1% from the prior year, and policy count increased 2%. For the year, whole life product sales represented the largest market share (measured by premium) at 39%.[2]
• In 2023, term life premium reached nearly $3 billion, 5% higher than 2022 results. Term policy count also grew in 2023, up 3% year over year.[3]
• Although 2023 indexed universal life insurance new premium fell 4% year over year to $3.7 billion, the number of policies sold rose 19%, compared with 2022. [4]
• Variable universal life premium totaled $1.9 billion in 2023, an 8% jump from 2022 results.[5]
• Fixed universal life was one of the few sectors that showed weakness in 2023, with new premium of $977 million, 3% below 2022 levels. Policy counts also dropped in 2023, down 6%.[6]

A combination of factors resulted in insurance premium growth, namely mortality rates in addition to economic and product trends.

Mortality rates.

The mortality rate from the lingering COVID pandemic remained high among certain age groups and demographics, resulting in increased claims which prompted insurers to adjust premiums to cover heightened risk.

Economic trends.

Persistently low interest rates continued to reduce returns on investments that insurers depended on to fund future payouts. This shortfall necessitated higher premiums to ensure the financial stability of life insurance products of all sectors. Wider economic conditions, such as the higher cost of living, in turn increased the cost of providing death benefits and managing policies. Insurers also faced increased operational expenses, including salaries, technology, and overhead, which were then passed on to consumers through higher premiums.

Product trends.

Shifting product trends, in particular consumers’ preferences for more comprehensive, fixed-premium whole life products (which requires the insurance company to have higher reserves), further contributed to overall premium increases and more focus on the enhancements of the offerings on the market to meet customer needs.

Looking Ahead: Knocking it Out of the Park

Although higher premiums mean more profitability for insurers, for customers it means affordability concerns and pivoting to lower-priced products such as indexed and variable universal life policies.^[7]  If there is a prolonged affordability gap that results in decreased sales for lower-tier insurers, the industry may see an increase in consolidations as lower-tier insurers will be unable to compete.

Due to insurers’ increased digital presence, customers have the option of shopping online to get the best premium pricing. 2023 was the first year that customers said they prefer to shop and purchase life insurance online versus via in-person meetings, with many turning to social media to research product information.^[8]  This presents a very useful prospect for insurers who can use AI and predicative analytics to track online behavior and use customer data to personalize user journeys and highlight products that reflect generational preferences. For Baby Boomers, that may mean whole life and universal life policies which offer not only a death benefit, but also a cash value component, which can be used for estate planning and as a financial safety net. For Gen X’ers, that may translate into term life insurance, often used to protect their families during peak earning years, and disability insurance, since they may have concerns about the potential loss of income due to potential injury or illness. For Millennials and Gen Z’ers, that may mean health insurance as they are developing awareness of healthcare costs to protect their growing families.

Whatever life insurance products generational cohorts select, insurers need to focus on product innovation. This is to expand their market size to cater to customers with different budgets, as lack of affordability is often the most common obstacle to entry into insurance.[9] Other cost-saving methods include expanding operational efficiency with the focus on streamlining operations, automation for manual jobs which allows high-level workers to focus on more complex tasks, and improving expense ratios to maintain profitability without relying on premium increases.

The Final Word

As insurers continue to adapt to the shifting life insurance environment and the inevitability of rising costs, they must reconcile the need for sustained profitability along with customer needs. In turn, customers must work with insurers learn about different life insurance products and find policies that are suitable for their budgets. 2023 was an exceptional year for premium growth, but 2024 must be one of collaboration between insurers and customers, where affordability concerns, product preferences, and sustainable growth are all prioritized. And to be on the safe side, maybe a knock or two for good luck (and continued growth).

[1] “Life insurance premium growth sets another record in 2023, LIMRA Finds,” InsuranceNewsNet, 3/14/2024

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Op.Cit., Life insurance premium growth sets another record in 2023, LIMRA finds.

[8] Op. Cit., 2023 Life Insurance Fact Sheet, LIMRA

[9] Ibid.