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March 24, 2015updated 13 Apr 2017 8:31am

Rapid change ahead for the US life market

Recovering economic conditions and rising disposable income levels are expected to support the growth of the US life insurance segment – the largest in the world – between 2013 and 2018, according to the Life Insurance in the US, Key Trends and Opportunities to 2018 report, which is available at Timetric’s Insurance Intelligence Center (IIC).

By Ronan Mccaughey

Recovering economic conditions and rising disposable income levels are expected to support the growth of the US life insurance segment – the largest in the world – between 2013 and 2018, according to the Life Insurance in the US, Key Trends and Opportunities to 2018 report, which is available at Timetric’s Insurance Intelligence Center (IIC).

The US life insurance market’s gross written premium is forecast to rise from $666bn in 2013 to $731.6bn in 2018, having stood at $599.9bn in 2009.

The segment’s growth can be attributed to various factors such as the recovering economy, falling unemployment, rising disposable incomes and a growing aging population.

Agencies were the largest distribution network for the life segment in the US. The channel accounted for 53.4% of the new business gross written premium in 2013, which is expected to grow to 53.5% by 2018.

Growth driversLooking ahead to 2018, the key growth drivers according to the IIC for the US life insurance include:

  • Recovering economic conditions
  • Increased life expectancy
  • Insurance in the US, Key Trends and Opportunities to 2018 Page 33 © Timetric. This product is licensed
  • Demographic changes
  • Improved analytic and predictive modeling techniques

Recovering economic conditions: The International Monetary Fund (IMF) projected stable growth for the US economy between 2013 and 2018. GDP is anticipated to grow at annual rates of 1 .6%, 2.6%, 3.4%, 3.5%, 3.4% and 3.1% during 2013-2018.In addition, the country’s unemployment rate fell from 9.3% in 2009 to 7.4% in 2013. It is projected to fall further between 2013 and 2018 to reach 5.6% by 2018.

Demographic changes: Prior to the financial crisis, US life insurers mainly targeted ‘baby boomers’, designing retirement, savings and investment products specifically around them.

However, insurers now target the younger population, much of which is uninsured or underinsured. Nearly 48 million US citizens were uninsured in 2012, representing 15.2% of the population, and US life insurers are investing in products such as term and whole life insurance to meet different customer needs.

Increased life expectancy: In 2013, there were 43.9 million people over the age of 65 in the US, comprising 13.9% of the total population and a prospective customer base for life insurers.

This figure is expected to reach 51.2 million by 2018, representing 15.5% of the country’s overall population. With this group favouring long-term savings and investment products, healthy segment growth is projected over the forecast period.

The expanding middle aged (40-64) population will also support growth. In 2013, there were 103.4 million people aged 40-64 in the US, comprising 32.7% of the population and a key customer base for life insurers. This figure is expected to reach 104.1 million in 2018, representing 31.4% of the overall population.

Improved analytic and predictive modeling techniques: Life insurers are increasingly using predictive modeling techniques and analytics to enhance risk management and efficiency. These techniques increase the accuracy and speed of traditionally expensive and time-consuming underwriting.

Asked about the key trends in the US life and health insurance market, Richard Kappers, director of marketing at global health and life insurer, Cigna, says as medical advances continue to occur, Americans will live longer, but with increased morbidity, and many will live longer in a state of some form of disability.

As a result, Kappers says: "Insurance carriers will look for opportunities to identify at-risk individuals more holistically such as through the medical underwriting process for life insurance and will make more pro-active interventions to better assist insureds with chronic health issues."

In the health insurance space, Alison Salka, senior vice president and director of LIMRA research, says the most influential occurrence in the health insurance space was the passing and implementing of the Patient Protection and Affordable Care Act (PPACA) of 2010 or the Affordable Care Act (ACA), which came into effect on 1 Oct 2013.

Salka notes that according to the federal government and other research organizations (RAND, Commonwealth Fund and Gallup), the uninsured population declined by as much as 9 million as a result of this legislation.

Salka adds: "The legislation has accelerated the growth of private exchanges and alternative delivery systems.

"Our research has shown that consumers would be willing to purchase other financial products through these exchanges – so perhaps there is an opportunity for carriers to reach a broader audience."

In terms of the changes in the US market, Kappers says: "The market is less centralised with more non-insurance carriers operating within it such as third party administrators and exchanges. It is anticipated that consolidation will occur as the exchange market matures."

In addition to opportunities, another challenge confronting the US life segment is low interest rates, according to the IIC report.

Low interest rates

The Federal Reserve Board (FRB) took initiatives to spur the US economy during 2009-2013 as GDP contracted by -3.5% in 2009 as a result of the financial crisis.

The protracted low interest-rate environment in the US since the beginning of the financial crisis and subsequent eurozone sovereign debt crisis impacted the profitability of, and demand for, life products in the US.

As a result, insurers are expected to focus on high-yielding asset classes such as private equities, hedge funds, commodities and alternative assets to generate higher returns. This is expected to pose a threat to insurers in the US over 2013-2018.


Competitive landscape

The US life insurance market is highly competitive and fragmented, with the ten leading companies accounting for of 53.5% of the segment’s direct written premium in 2013.

MetLife was the leading life insurer and accounted for 14.9% of the segment’s total direct written premium in 2013.

The top-five insurers; MetLife, Prudential Financial Inc, Jackson National Life Insurance Company, Aegon and Lincoln National Corporation collectively accounting for 35.2% of the segment’s total direct written premium in 2013.

The number of life insurers has fallen steadily in the last few years, mostly due to consolidation and mergers. The total number of life insurers operating in the US life segment fell from 1,000 in 2011 to 967 in 2012.

The demutualization and formation of a mutual holding company is another factor leading to reduction in number of companies. It will be a challenge to increase or maintain steady growth of life insurance business over the forecast period, with a decrease in the number of life insurers.

It is also worth stressing that the US’s gradually growing economy, changing regulatory environment and low interest rates have shortened product lifecycles and development in several product categories, leading to more competition in terms of product features. For example, as part of the company’s strategy to strengthen its life insurance portfolio, Metlife announced on August 11, 2014 that it would reduce rates on its guaranteed level-term product.

Similarly, on February 4, 2014, MetLife launched a new simplified-issue term life insurance product that aimed to make life insurance affordable and accessible to US consumers, enabling more of them to become insured.

Jackson National Life Insurance Company has also developed the Elite Access variable annuity plan, which is a combination of traditional investments, guidance portfolios, tactical and risk management, and alternative assets.

Furthermore in January 2014, New York Life developed a new Chronic Care Rider, as an extension of its whole life product portfolio, which gives participants the option of using their whole life policies to help fund chronic care needs

Changing regulatory frameworks, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which was signed into law in 2010 and is still in the process of finalization, could potentially cause competitive and strategic challenges to life and annuity insurers.


Regulation update US insurers have been confronted with multiple regulatory reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the solvency modernisation initiative, and Solvency II.

The Wall Street Reform and Consumer Protection Act, also known as the Dodd-Frank Act, was signed by the US president in July 2010.

The legislation contains many provisions affecting the insurance industry in the US. The major change is the creation of a Federal Insurance Office (FIO) within the Department of the Treasury.

The FIO is responsible for monitoring all aspects of the insurance industry and the extent to which traditionally underserved communities have access to affordable non-health insurance products. It is also responsible for representing the US on prudential aspects of international insurance matters.

Meanwhile, although it is a European directive, Solvency II will have both direct and indirect implications for the US insurance industry.

The direct implications relate to those companies who have direct compliance requirements such as US subsidiaries of European parents, or US parents with European subsidiaries. More importantly, US companies are also likely to face indirect impact from changes in market competition, rating agencies’ expectations, and US regulatory regimes.

Solvency II includes the concept of equivalence, which establishes regulatory characteristics non-EU countries must implement for their capital standards to be deemed equivalent to Solvency II.

There is a strong feeling in the US insurance industry that, because US insurers weathered the 2008-2009 crisis, the US does not need to substantially upgrade its solvency regulations to achieve equivalence. Overall, the expectation is that the US will be granted provisional equivalency status for Solvency II.

Commenting on regulatory issues in the US life insurance market, Michelle LaFond, vice president and chief regulatory counsel for Unum, says as US sales of indexed universal life products grow, regulators are taking a closer look at these products out of concern that low interest rates will impact insurers’ ability to achieve returns outlined in product illustrations.

LaFond says: "Some states like New York are particularly concerned with the number of complaints from disappointed consumers. In 2015 regulators will look at requirements for illustrations and disclosures as well as guidelines for marketing to prospective purchasers."

LaFond adds that a number of state regulators, treasurers and legislatures are requiring life Insurers to proactively identify potential claims through regular comparison of covered insureds and annuitants against the Social Security Administration Death Master File (SSA DMF).

"In 2015, the landscape will continue to evolve with legal challenges to the authority of treasury departments to require insurance companies to find beneficiaries before a claim is filed," says LaFond.


Industry view: Alison Salka, senior vice president and director of LIMRA research

The prolonged low interest rate environment is also taking a toll on the industry – impacting product development and pricing, investing strategies and overall strategic deployment of capital.

While there are signals from the Federal Reserve that interest rates may be raised, a LIMRA survey of top industry executives found that 7 in 10 believe the U.S. economy will remain stable and 9 in 10 expect their companies’ performance to be similar to prior year.

Another important factor impacting the industry is the changing consumer landscape.

Demographically, the U.S. population is becoming more diverse: minorities are expected to double by 2060; more women are playing a role in the household financial decisions; and for the first time, four generations are in the workplace.

LIMRA research indicates that these demographic segments have unique needs, expectations and desires on how they want to shop and buy our products have changed as well.

LIMRA research shows that consumers, advisors and carriers are embracing the technological advances available.

New LIMRA research found that more consumers are relying on the Internet to research individual insurance products – 71 percent of consumers used the Internet. This is an increase from 61 percent in 2012 and 38 percent in 2006.

That said, financial professionals remain the most-used information source, at 77 percent and are considered the single most valuable source by 1 in 3 consumers who sought information within the prior 24 months.

The study also found that consumers would be more willing to buy online if they know the product they want, and they are familiar with the company, if the company is known for its service, and if the company makes someone available to answer questions by phone.

On the distribution front: Sales capacity continues to be a challenge for the U.S. market. There are simply not enough new people are entering the industry to replace those leaving or retiring.

This is especially the case in independent insurance distribution. Independent insurance professionals are predominantly male, Caucasian, and average 57 years old. What does the future hold for this channel? It is ripe for disruption.

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