A Very Bad Time

The COVID-19 pandemic tremendously affected many industries including life insurance. The most obvious change was the increase in payouts as millions of people died from the Coronavirus. In 2020, life insurance companies paid out $90B to insurance beneficiaries making it the highest amount recorded for a single year. The $90B represented a 15.4% jump from the payouts in 2019 which is the largest jump in life insurance payouts since the 1918 pandemic. Source: American Council of Life Insurers.

Demand Increases

While the horror and devastation of COVID-19 cannot be overstated, American businesses adapted to the changes brought about by lockdowns, school closures, and other major disruptions. The life insurance industry was no exception. For life insurers, the pandemic increased demand. McKinsey & Co conducted a poll which determined that 36% of consumers would buy life insurance. That’s 3 times higher than before the pandemic. This rise in interest translated into increased sales and increased premiums. According to Kartik Sakthivel, VP/CIO of LIMRA, the total amount of premiums paid for the first 9 months of 2021 exceeded the same 9-month period in 2020 by 18% – the largest 9-month growth over the last 25 years.

Process Changes

COVID-19 made virtualization of business the new normal. The life insurance industry, dependent on high touch application processes and in-person medical exams, had to rapidly change to a virtual approach to doing business to ensure health and safety. Video conferencing, e-applications, e-signatures, e-notarizations, and the electronic delivery of policy documents were implemented and accelerated during the pandemic. Even beyond those significant changes, automated underwriting may have been the most startling change for life insurers. The use of electronic medical records in lieu of physical medical exams gained traction and automated underwriting went from 64% of policies in 2019 to 82% in 2021.

Interest Rate Volatility

Central banks sought to keep interest rates near zero (or even negative in some countries) during the pandemic to maintain a reasonable economy during COVID lockdowns. However, supply chain disruptions and a rebounding economy caused a surge in inflation which prompted central banks to aggressively increase interest rates. The rising interest rates allow insurers to invest new cash flows and maturing investments into a higher-rate environment, helping insurers offer competitive yields on interest-sensitive products. Furthermore, as the credit markets respond to higher interest rates and reduced liquidity, earnings may benefit when insurers invest in assets with wider credit spreads than those prevalent in recent years.

An Industry at the Crossroads

While the worst of COVID-19 subsides, the life insurance industry must make a pivotal decision. Will it revert to the old school approach or embrace and accelerate a new, technologically forward business model? Customer expectations are pushing the life insurance industry toward the new. In 2020, a survey conducted by LIMRA found that 9 in 10 life insurance executives said their customers have an increased appetite for digital shopping experiences. Life insurance companies can learn how to start their journey on the path of digital transformation from examples of other established industries. The first lesson to learn is that setting up a website to take orders is about 10% of the journey to true digitization. The remaining 90% involves data science and analytics through the sophisticated use of first party, second party and third-party data.

Next Up – Beyond the Website

In conclusion, higher payouts, increased automation, automated underwriting, and volatile interest rates all conspired to force rapid changes in the life insurance industry. So, do these COVID-19 related changes represent a one time “fix” or the start of a trend toward digital transformation? In the next blog (“Life Insurers: Moving from Automation to Data Analysis”), we will discuss the last four stages of the data life cycle – management, analysis, visualization, and interpretation to learn how your organization can get the value out of your data in the life insurance industry.