May 19, 2021
Could COVID Help Life Insurance?
by Mike Reeves
While the pandemic may have put the world on pause, it has put the modernization of the life insurance industry on fast-forward.
With vaccination programs rolling out across the globe, and cases beginning to fall exponentially, there is finally hope that the worst of COVID-19 may be drawing to a close. But while this may signal the imminent end of the pandemic itself, it is surely only the end of the beginning with regard to its long-term impact. In almost every area of life, from the political through to the economic, the transformative consequences will be felt for some time.
The world of life insurance is no exception. But while the impact of COVID-19 on many industries remains uncertain, to say the least, the big picture for the life insurance industry is a lot clearer.
Prior to the pandemic, the so-called generation gap when it comes to life insurance was a constant point of consternation for the industry. Back in the mid-20th century, life insurance policies were as common and ubiquitous as mortgages or car ownership – a standard rite of passage for younger households embarking on their journey into adulthood. This culture has almost entirely evaporated. Younger cohorts, especially the millennial generation – under new financial constraints and not necessarily catered to by traditional sales channels – had little awareness of or inclination to take out life insurance policies, and sales withered.
Remarkably, though, the last year and a half has seen a dramatic reversal of this long-term trend. Despite a period of volatility around March and April 2020, coinciding with the initial swath of lockdowns, the MIB Life Index ended 2020 up 4% year-on-year, the highest annual growth rate on record. What’s more, this growth was driven predominantly by younger cohorts, with activity increasing in the 0-59 age range rather than 60+, in stark contrast to recent years, where any growth has been almost entirely driven by the latter group. Recent sentiment research underlines this turnaround; members of Generation Z are now significantly more likely to increase life insurance spending than other generations, with millennials following close behind.
Intriguingly, this shift started slightly before the pandemic came to America’s shores, in January 2020. Kobe Bryant’s death from a helicopter accident appears to have triggered a sharp uptick in demand for financial protection in the case of unpredictable tragedy. Then the pandemic understandably heightened awareness of mortality in generations previously unaccustomed to such perspectives. The economic hit also contributed – with many facing the prospect of losing employer group coverage.
This uptick of interest alone, however, will not be enough to bridge the generation gap in life insurance for the long haul. Consumer demand for life insurance has only ever been one piece in a larger puzzle. For some time now, the industry has been aware that re-engaging with younger market segments, while also continuing to serve its traditional customer base efficiently, will require a wholesale adaptation to more advanced technologies and digital forms of distribution. Technology and digitization – and taking full advantage of the new opportunities and business models they enable – will be key to taking long-term advantage of this renewed interest in life insurance.
It’s good news, then, that on the insurer side the pandemic has dramatically accelerated existing trends. As with many other industries, the chilling effect of lockdowns and other emergency measures on physical, face-to-face interactions has forced life insurers to dive headfirst into technology-driven approaches in underwriting and distribution methods. The transition to digital marketing, digital distribution and automated underwriting and digital policy insurance leveraging new forms of data was already inevitable before anyone had heard of COVID-19. But from early 2020, what was once a priority for future growth has become an immediate non-negotiable. New approaches to underwriting, business processes and distribution models made commercially viable by automation technology are higher up the insurance industry’s agenda than ever.
See also: 6 Megatrends Shaping Life Insurance
While nearly half of agents have reported a collapse in in-person business since the onset of the pandemic, life insurance companies across the industry have leapt headfirst into new digital technologies, tools and channels to compensate for the sharp drop in traditional methods of doing business. For example, embracing new technologies enabling real-time access to medical records and other forms of advanced data allow insurers to underwrite policies accurately even without face-to-face assessments or interactions. These advancements in the underwriting and distribution process are pivotal in future-proofing the industry, and in creating massive efficiencies at the same time.
The life insurance industry has always, by nature, been cautious in embracing technological change. But the pandemic has entirely removed the luxury of time from the equation. New technologies, new data sources and new approaches to automated underwriting that may have spent long periods in planning and testing are already live and gathering momentum. A transition to digital technology that prior to the pandemic could have spanned the next decade will now likely be complete in just a year or two.
This is no bad thing. If the industry is to take advantage of the new interest in life insurance among the young, as well as continue to service its traditional customer base in a more efficient and sustainable way, the sooner the better. The sector was already facing a challenge of modernization; COVID-19 is unlikely to change the future shape of life insurance.
What it does mean, though, is that the future is going to be here much earlier than expected. For those carriers keen to acquire first-mover advantage, the window of opportunity just became even narrower. The time to embrace new technology is now.