While change has often come slowly in the life insurance sector, a metamorphosis may be underway. The effects of the pandemic are lingering, company ownership and product mix are evolving, inflation and interest rates are soaring, and consumer expectations are growing and diversifying.
The pandemic-driven surge in premium growth since 2020 appears to be waning.
Global life insurance premium growth in real terms is expected to contract slightly (-0.2%) in 2022, primarily due to inflation-driven disposable income pressure and financial market volatility.
There is an expectation for a turnaround in 2023 of an estimated 1.9% rise in global premiums in real terms across advanced and emerging markets, as inflation pressures ease and economic conditions improve.
Dynamics requires insurers to shift away from the reactive measures
Addressing these dynamics will potentially require insurers to shift away from the reactive measures used to navigate the pandemic. To take control of their own transformation and destinies, carriers should be proactive, whether it’s by doubling down on their pandemic-spurred digital enhancements; introducing new products, services, and distribution options; or by seeking out new customer niches.
Therefore, to drive sustainable growth in the life sector through the shifting operating environment, insurers will likely need to take initiative to seek out previously unserved and underserved markets,
by customizing propositions and innovating distribution to the unique requirements of each of these various groups.
While life insurance premiums
While life insurance premiums in real terms are expected to contract slightly this year across regions, emerging markets (excluding China) are estimated to grow, led by a 6.6% increase in India
|Emerging markets excluding China||3.5%|
This will likely require identifying, activating, and personalizing products and services for underpenetrated segments in various geographies. A US consumer survey revealed that respondents’ needs and desires differed widely between demographics.
The youngest age groups and lowest income earners surveyed were least familiar with the value and features of mortality products, respectively, while the lowest earners and oldest age group expressed the least comfort using digital and online options in addition to or instead of agent interaction.
In the Asia/Pacific region, a consumer survey found two-thirds of respondents citing online features as key criteria for life insurance purchases,28 while the US consumer survey showed only about one-third of respondents willing to use an online channel to purchase life insurance.
Digital Insurance Consumer Experience
Consumers more hesitant to use digital options may be more open to the medium if they better understood the products and their value. Insurers could work to raise financial literacy by exploring new ways to educate underserved populations to potentially drive more online interaction.
This suggests not only focusing on demographics that are least likely to understand the value of mortality coverage at all, but also those that might benefit from a better understanding of more sophisticated products, as increased confidence could potentially make online options more palatable.
Heightened client expectations for transparency, ease of doing business, instantaneous transactions, and hyper-personalized experiences mean carriers should ensure the most advantageous digital innovations initiated by necessity during the pandemic are augmented to maintain the momentum of digitization and derive its full value.
Life insurers a more attractive M&A target
Rising interest rates could make life insurers a more attractive M&A target, as anticipated higher future yields can help both product pricing and profitability. Indeed, the sale of legacy life insurance businesses will likely continue to advance the transformation of some life insurers from protection providers to fee-based asset gatherers, administrators, and employee benefit sellers.
Many carriers, including a number of private equity (PE) sponsored insurers, are also seeking to increase asset yields of their acquired business through less liquid and higher-yielding, but also higher-risk, assets.
Some acquisition opportunities for public life insurance companies may be hindered by reduced currency embedded in their stock prices. Nevertheless, the M&A market may remain active as the PE-sponsored platforms need to acquire books of business, including reinsurance structures, to maintain growth.
Yield volatility is also something carriers should consider going in to 2023. For example, carriers could experience client attrition or an increase in policy surrenders as customers seek higher returns if yields lag on existing portfolios compared to alternative investments. This could put more attention and pressure on asset liability management capabilities.
Inflation may be a double-edged sword for life insurers
Some inflation can be beneficial, improving investment yields as well as spreads on annuities and other interest-sensitive assets, which could boost sales of these products.
Higher operating, labor, and administrative costs will likely pressure earnings. In fact, Manulife Financial Corp is one insurer that is increasing premiums to offset higher costs this year from inflation that has risen to a three-decade high.
Inflation pressure is expected to be greatest in emerging markets but may also have significant impact in the United Kingdom, European Union (EU), and United States.
AUTHORS: Karl Hersch – US Insurance leader, Principal Deloitte Consulting, Neal Baumann – Global Financial Services Industry leader, Principal Deloitte Consulting, Michelle Canaan – manager Deloitte Center, Sam Friedman – senior manager, insurance research leader Deloitte Center.