Fundamental Shift in Life Insurance? by Lewis Goldman
We are living through extraordinary times, the first truly worldwide pandemic in our lifetimes, which has effectively halted economies and introduced the concepts of #socialdistancing and #flatteningthecurve into the vernacular (not to mention #PPE). Beyond the horrific infection rate and loss of life, coronavirus’ impact on travel, retail, hospitality and other industries has been so profound that it may take years to recover. However, it has had at least one positive impact — the pandemic has forced people to confront their mortality in a way that larger threats (heart disease, car accidents, diabetes) haven’t over the last 10 years.
Life insurance penetration (the percent of adults who have at least one policy) stands at only 57%, down from 63% in 2011. Half are underinsured relative to replacing their income for their family, as the role of life insurance is to replace the current and future income of the person insured (as a rule of thumb, coverage should be at least 10-12 times the insured person’s annual income).
Demand is at the highest level in 10 years
COVID-19 seems to have created a “wake up” moment, raising awareness of the need to protect families and loved ones if something was to happen. Demand for life insurance has spiked and is at its highest since 2011, according to Google Trends, which tracks the relative interest of keywords (in this case “life insurance” as a phrase) over time (100 means the highest interest over the period covered):
This trend has been echoed in numerous discussions with carriers and reinsurers, and this interest will likely continue for a time even after the virus is brought under control.
Macro trends of direct-to-consumer policy originations and automated underwriting will accelerate
With shelter at home, people can’t meet with an agent or have a physical exam when applying for life insurance. This has accelerated a trend toward automated/virtual underwriting and originating policies directly with consumers by carriers (Mobile/Online applications were up 24% in March, according to one study). The need for electronic data, delivered in real time as part of an online underwriting process, has risen as carriers and reinsurers are looking for tools to replace the paramed exam, where someone comes to your home or office to draw fluids and collect other medical data. While current automated data sources (Rx, Lexus-Nexus, MIB, MVR) have been used for several years for both full and accelerated underwriting, there is an opportunity to leverage new sources such as oral health to provide more robust information to assist with underwriting.
In addition, agents can’t have clients come to their offices (or go to their homes), so consumers are searching online and finding a host of carriers and insurtech companies, not to mention marketplaces, where they can get quotes and apply/get covered without leaving their homes.
COVID-19 has, however, created problems for underwriters and actuaries, who are having a lot of sleepless nights trying to figure out how to account for COVID-19 as part of the application process.
Despite COVID-19, net mortality rates may actually decline
While coronavirus is difficult to screen for, carriers have developed tele-exams and questions to at least reduce the risk of underwriting someone with the virus. Even more significantly, it’s possible overall mortality rates could fall due to shelter-at-home orders affecting 97% of the country.
Based on CDC data, almost 170,000 people die from accidents each year, 40,000 of those in car accidents. With driving down so significantly that auto insurers are giving rebates to customers, and other activity curtailed, data from the CDC indicates that deaths may actually be down over the same period as last year. Regardless, because the highest mortality rates are older individuals who are less likely to get term insurance (91% of COVID-19 deaths to date are 55 or older, with 78% 65 or older), it is possible that lower accidental death rates would more than offset the mortality risk of coronavirus for 25- to 54-year-olds (who are the prime target for term life insurance).
While the COVID-19 pandemic is a terrible crisis, one small benefit is that it’s raised awareness of the need for life insurance in families throughout the U.S. (which isn’t in the top 10 countries in terms of coverage). Finding ways to originate and underwrite remotely (including leveraging new forms of data delivered in real time) can help meet this need and perhaps reverse a multi-decade decline in life insurance coverage.
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