U.S. life insurance application activity for individually underwritten life insurance was down 1.8 percent in November, according to the MIB Life Index – part of an ongoing trend in decreased life insurance sales that predates the current turmoil in the financial services industry.
Stacy Gill, vice president of the actuarial & statistical research group at Braintree, Mass.-based MIB Group, Inc., which produces the index, said while a decrease in life insurance applications is common in any time of economic uncertainty, these figures also speak to some larger trends in the industry.
First, individual life insurance applications overall have declined 12 percent in the past five years, and second, that more of the applications for policies are coming in from people 60 and older. In fact, in that same five-year period, application activity by that older group increased 23 percent.
Year-to-date there was a 2.3 percent decline in U.S. application activity overall, Gill said, with a 5 percent increase for that older age group.
Commitment Shy
The current financial crisis has definitely affected the life insurance industry – directly, in the case of certain companies, and indirectly, in terms of people’s buying habits, Gill acknowledged. However, he said drawing any direct correlations to life insurance buying activity is complex.
On the one hand, he said, life insurance and annuity products are fairly conservative and stable financial instruments, secured by guarantees. Because of that, “life insurance and annuity products might be attractive to consumers at this time,” Gill said.
However, with the general level of uncertainty in the market, many people may be shy of committing to a long-term vehicle like life insurance or an annuity, he said. Generally, though, more specific issues like tax laws and estate planning needs tend to drive the purchase of life insurance, rather than broader economic concerns, he said.
Gill stressed that the life insurance industry is not facing some of the extreme difficulties of other financial services sectors, and that because of the rigors of state regulation, these financial products are extremely safe. Even while AIG, an insurer, is one of the most publicized catastrophes of recent months, he pointed out that it wasn’t AIG’s core underwriting business that did the company in – in fact, many of those life insurance businesses are still sound.
“There is a whole network of support underneath these policies,” he said, including the companies themselves, and many levels of regulators.
Consumers themselves may be looking for more secure life insurance companies as evidenced by what Gill called “a flight to quality.” He said that while a company’s financial rating is usually the main factor in determining its strength, over a five-year period his company saw the top 25 life insurance companies go from just under 50 percent of the total applications for individual policies to just over 54 percent.
“The large companies are writing more and more of the business,” he said, which, along with consolidation trends in the industry, suggests consumers may be seeking the stability that a larger, more established brand provides.
MIB is a provider of information to the insurance market. Its index is based on the number of searches life member company underwriters perform in the MIB Checking Service database, a routine underwriting requirement for most individual life insurance policies.
