Traditional life insurance is no longer the primary business of many companies in the life insurance industry. The emphasis has shifted to underwriting annuities, which accounted for 48% of life/annuity direct premiums written.
Annuities are contracts that accumulate funds or pay out a fixed or variable income stream. The income stream can be for a set period or over the lifetime of the contract holder or beneficiaries.
Life, Annuity, Accident and Health Sector
Accident and health insurance, which includes distinctive products apart from traditional health insurance, account for 26% of direct premiums written. In addition to annuities, accident and health, and life insurance products, life insurers may offer financial services such as asset management.
US life insurers saw a 27% jump in death benefit claims – amounting to more than US$100bn as increased deaths resulted in leap in claims.
The figures demonstrate an elevated death rate within the claims spike period, with insurance market experts suspecting the majority of them are the result of the peak pandemic era.
Traditional health insurance, which is not included in this section and is not considered a part of the life/annuity sector, is described under Private Health Insurance.
Health insurance pays for medical, surgical and hospital services received by the insured, as well as routine and preventive care, usually within a network format. Of the many types of plans available, most include a deductible paid by the insured, and benefits received are tax-free.
Direct Premiums Written By Line, Life/Annuity Insurance, 2021
|Lines of insurance ($000)||Direct premiums|
|Ordinary individual annuities||$237,429,226||28.9%|
|Accident and health (3)|
|Credit life (group and individual)||744,296||0.1|
|All other lines||283|
|Total, all lines (4)||$820,753,297||100.0%|
Life/Annuity Insurance Income Statement, 2020-2021
|($ billions, end of year)||2020||2021||Percent change,|
|Life insurance premiums||$143.1||$159.5||11.5%|
|Annuity premiums and deposits||294.6||285.8||-3.0|
|Accident and health premiums||184.7||189.2||2.4|
|Credit life and credit accident and health premiums||1.2||1.2||0.0|
|Other premiums and considerations||(2)||(2)||0.0|
|Total premiums, consideration and deposits||$625.7||$637.8||1.9%|
|Net investment income||186.0||200.8||8.0|
|Separate accounts revenue||37.4||41.0||9.8|
|Increase in reserves||109.8||89.8||-18.2|
|Transfers to separate accounts||-69.2||-75.6||9.2|
|General and administrative expenses||67.0||69.4||3.5|
|Insurance taxes, licenses and fees||11.5||10.1||-12.3|
|Net gain from operations before federal income tax||38.0||53.9||41.8|
|Federal income tax||5.1||8.2||59.7|
|Net income before capital gains||$32.9||$45.7||39.0%|
|Net realized capital gains (losses)||-10.7||-8.3||-22.8|
|Pre-tax operating income||38.0||53.9||41.8|
|Capital and surplus, end of year||440.5||475.9||8.0|
Accident and health insurance, a product provided by the life/annuity and property/casualty (P/C) sectors, encompasses a variety of specialty products related to health, such as reimbursement for the time a policyholder spent in a hospital or was disabled; short- and long-term disability based on employment; long-term care, and critical or catastrophic illness insurance. Accident and health insurance is not meant to replace health insurance.
Upward trend in global life insurance payouts
Reasons for the deaths have not been disclosed, but increased payouts have been seen across multiple global markets.
Royal London reported record Life insurance payouts for 2021, stating it had paid 91.7% of Critical Illness (CI) claims in 2021, averaging more than £70,000 per claim and a total of more than £136mn.
The most common reasons for a CI claim in 2021 were cancer (65%), heart attack (11%), and stroke (7%).
Eight leading life insurers also reported drops in core profits for April-September 2022. They cited record insurance payments following a seventh wave of COVID infections this summer.
Japan’s life insurance sector has begun to limit payment benefits to those covid carriers who are at a high risk of developing severe symptoms. This group includes pregnant women and people over the age of 65.
Increased deaths indirectly related to COVID
Life insurers are also seeing an increase in deaths that appear to be indirectly tied to Covid-19.
Some companies reported spikes in death claims potentially related to delays in medical care as a result of the 2020 lockdowns. People’s fear of seeking treatment and difficulties in arranging appointments are also reasons cited.
Although the leap in payouts has been unexpectedly high, the cost has proved manageable partly because so many victims were in their 80s and 90s and typically had smaller policies.
Market re-balance in life insurance policies
Despite the $100bn peak in payouts, the number of life insurance policies being sold in the US has increased, with approximately 46 million policies sold in 2022. This represents a 6.1% increase over 2020.
The total dollar coverage of those newly purchased policies dropped by 1.3% to $3.3trn.
For the second year in a row, life insurance benefit payments increased by double-digit percentages. And for the second year in a row life insurance companies stepped up to the challenge while also paying record-high annuity benefits, which typically go to retirees.
It is a testament to life insurers’ ability to prepare for any eventuality and deliver on their promises to consumers at all times.
Sentiment on the outlook for the industry
Looking forward there appears to be mixed sentiment on the outlook for the industry. Whilst lapse experience has potentially been better than expected over the period of the pandemic when referencing a loss of business in-force, this has been offset to some extent by policyholders using other contractual options, such as premium holidays and adjusted cover.
There are some concerns that once the vaccination rollout has achieved some scale, policyholders may decide that life cover is now less of a priority than other basic needs.
Whilst for many the COVID-19 pandemic has confirmed the value and need for life insurance, the state of the economy could well override this.
The unrest and economic struggles of the country are well documented and consequently the short-term outlook on lapses is generally unfavourable.
On the mortality side, whilst many of the more recent reports from life insurers suggest that vaccine rollouts and vaccine efficacy could reduce the impact of fourth and fifth waves of the COVID-19 pandemic materially, there is also a growing consideration of the potential long term impact on base mortality rates if COVID-19 continues and becomes like the annual flu cycles we already experience.
by Yana Keller