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Will COVID-19 Spur Life Insurance Sales?

As the pandemic began to sweep across the world, reports of people panic-buying life insurance appeared in the media. RGA reviewed the available data to determine if a COVID-19-inspired spike in sales is in fact taking place and to consider whether the current crisis could prove to be the tipping point for a new era of digital life insurance sales.

Most people have a problem that life insurance can solve: If your family would struggle to survive the permanent loss of your salary, then life insurance could be vital. This is the case for hundreds of millions of people around the world.

The challenge is that most people do not realize they have this problem. Few people spend time thinking about the consequences of low-probability events and are therefore disinclined to consider the need for life insurance. This has given rise to the industry adage: Life insurance is sold, not bought. 

But surely the COVID-19 pandemic has awakened public awareness of the need for life insurance, right? With the world shut down and media reports filled with stories of tragic loss of life, people are increasingly aware that good health and a long life cannot be taken for granted.

Initial media reports spoke of COVID-19 fears leading to increased online life insurance sales, with Forbes even reporting evidence of “panic shopping.” At RGA, we have been actively analyzing available data to identify and try to explain any early patterns. 

Early data indicates limited early impact

We began with Google Trends data to determine how searches for life insurance have been affected.

Source: Google

NB: The chart covers May 10, 2015, to April 26, 2020. The data is based on random sample of searches, excluding duplicates by user. Results are relative to all other Google searches during that period and geography – decreases are relative to other searches, not necessarily absolute. 100 = highest relative search volume for that term.

As the graph shows, worldwide searches for “life insurance” have risen steadily over the last five years and peaked from January to early March 2020, coinciding with the beginning of the COVID-19 outbreak. However, searches have since fallen back to pre-virus levels. Furthermore, this peak did not occur in all countries. Analysis at a country level shows that the U.K. and U.S. mirror, and perhaps drive, the global pattern, but no discernible peaks or subsequent decreases coincide with COVID-19 outbreaks in Italy, China, Germany, Australia, India or South Africa.

We should be cautious about drawing too many conclusions from Google Trends data. Considerable noise and fluctuations make it difficult to distinguish clear effects from statistical randomness or other patterns. For example, similar Q1 trends occur in the previous four years – although the March 2020 decrease is much larger than in these earlier years. Most importantly, Google Trends does not indicate causation. For example, some people may have been searching simply to check if their life insurance policy likely covered COVID-19.

Yet evidence from other sources supports the U.S. Google Trends pattern. A  LIMRA survey of 47 U.S. insurers assessed the impact of COVID-19 on individual life sales and applications in the U.S. 24% of companies reported that online and mobile applications rose in March, but 63% reported either no change or a decline. Only 7% saw an increase in face-to-face applications and 9% an increase in call center or mail applications.  Nearly half of companies said they were expecting a decline in sales in March, with 20% expecting a decrease of 10% or more. How this reflects normal seasonal fluctuations is unclear, but most companies were expecting sales in the full first quarter to be flat at best. 

According to the MIB Life Index, which measures U.S. life insurance application activity, demand for policies in January and February reached its highest level since 2015 but then dropped by 6.7% in March and a further 5.5% in April. This was a year-on-year fall of 2.2% in March and 3% in April.  

See also: Fundamental Shift in Life Insurance?  

Data available to date suggests that, even if an initial COVID-19-related bump in applications occurred in some markets, that bump was both limited in time and geographic spread and may be outweighed by a subsequent drop in applications. So we must now ask: Why has COVID-19 had such a seemingly limited impact? 

Life insurance is still sold, not bought 

It is possible that any initial rise in searches and applications came from those already considering life insurance and for whom COVID-19 acted as a final spur and accelerant. Some media reports support this thesis. This could also explain why the sales impact was greatest in those markets where it is easy to buy life insurance online or where consumers are accustomed to buying other financial products online. Similarly, advisers may have accelerated sales ahead of the lockdown, as they anticipated delays and restrictions on medicals, lab tests and other underwriting requirements. The subsequent reduction could also then reflect the delays and restrictions that people experienced once the lockdown began.

For the majority of those people not already considering life insurance, data indicates the pandemic has not motivated them to make a purchase. Also, the subsequent drop in searches does not suggest consumers are trying to buy online but finding it difficult to do so. The key reason, of course, may be economic. Most people do not view life insurance as an absolute essential, so if the primary breadwinner has lost, or is at risk of losing, his/her job, it is unlikely the person will decide now is the time to spend discretionary money on life insurance.

This is another reason why, counterintuitively, now might be a bad time to be promoting life insurance. It is easy to forget many people have an instinctive negative reaction to talking about money in relation to death. We are hearing about an increase in complaints and negative comments in response to online ads for life insurance, even when they are seemingly innocuous and make no reference to COVID-19. One prominent clergyman in the U.K. has even criticized the “grim promotion” of life insurance ads on Twitter. Many insurers have recognized this and are delaying planned email marketing pushes.

It may also be that the risk of COVID-19 is still too abstract for most people. One of the main triggers for purchasing life insurance occurs when someone we know passes away, especially if that individual is young and leaves behind a family. This was highlighted earlier in 2020 with the death of basketball legend Kobe Bryant. The volume of life insurance application requests and submissions spiked by over 50% in the days after the 41-year-old’s death on January 26, before returning to normal levels within a week, according to True Blue Life Insurance, an online aggregator and comparison site for life insurance. True Blue’s CEO commented: “In a lot of the phone calls to our agents, Kobe came up.” 

Whereas a personal story of loss such as Kobe Bryant’s can significantly affect numbers and statistics, the risk of COVID-19 may still feel distant and theoretical for many people. 

Or perhaps this crisis is just another reminder that the life insurance industry has not yet cracked the digital distribution challenge. Buying life insurance is not natural human behavior. In fact, from a behavioral science perspective, it is probably one of the hardest products to sell. We are drawn to personal, immediate and certain rewards – but the rewards of life insurance are for others, seem distant and often appear uncertain.

People need to be persuaded to buy life insurance, and the human-to-human approach remains the most effective. Even if we see an increase in online applications, it may not make up for losses incurred from sales teams’ inability to go out and sell. For example, Ping An in China has reported a hit to sales driven by a decline in face-to-face services.

An uncertain future

It may be that COVID-19 will eventually help drive demand for life insurance, but not quite yet. As lockdowns began and people were stuck at home, often juggling work and parental responsibilities, life may have simply become too busy to think about life insurance, especially as many came to grips with social distancing and other disruptive public health measures. We are still in the eye of the pandemic storm, and people have more immediate concerns than life insurance.

COVID-19 could create fertile ground for future sales opportunities. It has been suggested that younger generations, especially in developed markets, view life insurance as less necessary than previous generations did at the same age.  

See also: Pulse of Insurance Shopping During Crisis  

This may change in a world where illness or accident is no longer a distant threat and where we can clearly demonstrate the value of life insurance to people. Once the immediate COVID-19 fear has passed, insurers may find it easier to help consumers appreciate the “peace of mind” that life insurance brings. 

It is clearly too early to draw conclusions about how COVID-19 will change society and undoubtedly too early to be certain how it will affect demand for life insurance. However, at the moment the evidence suggests that the adage about ‘life insurance being sold, not bought’ still rings true. COVID-19 is hampering the intermediary sales channel more than at any time in living memory. For many developed markets, this merely highlights a problem expected to occur in the next few years anyway as the intermediary market continues to age and shrink. 

In recent years, the life insurance industry worldwide has made great strides in making life insurance easier to buy. The focus may now need to shift toward finding ways to make it easier to sell.

Fundamental Shift in Life Insurance?

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.

See also: Pulse of Insurance Shopping During Crisis

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.

Directive Communication Systems’ Lee Poskanzer

Lee Poskanzer, CEO and Founder of Directive Communication Systems, talks with ITL CEO Wayne Allen about the growth of digital assets and why access to these are at risk of being lost in estate planning without specific legally compliant steps to protect them for heirs. DCS, he says, aims to make this process easier for individuals to decide which assets—from social media, cloud storage, bank accounts and more—should be passed on and to whom..before it’s too late.


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Focusing Innovation on Real Impact

In 2006, years before Lemonade started to disrupt the insurance industry and the terms “fintech” and “insurtech” became known at large, Daisuke Iwase co-founded the first digital life insurance company Lifenet in Japan. Lifenet has been disrupting the Japanese life insurance sector right from the start by providing direct distribution of life insurance products via the internet – something that many still say is impossible to do. We’re therefore excited that Daisuke Iwase, a real pioneer in digital innovation, sat down with us to share his secrets on how he uses his experience in his current role as group chief digital officer at AIA Group.

AIA Group is 100% focused on the Asia-Pacific with a presence in 18 markets, and headquarters in Hong Kong. The portfolio includes over 33 million individual policies and over 16 million group scheme members. AIA has an outstanding track record of growth. It is the largest life insurer in the world in terms of market capitalization. There is a major commitment to digital innovation, especially in transformative business models.

Summer 2006, many years before people even thought fintech and insurtech could disrupt the digital landscape and the overall industry, you decided to start a digital life insurance company. Can you share how this came about?

Daisuke: “Let me start by describing the industry landscape at that point. Many complex products, lack of transparency, mistrust, distrust in life insurers, consumers looking for more simple, transparent and convenient solutions. At the time, we had most industry colleagues telling us it was impossible; no one would buy life insurance digitally. Regulators wouldn’t give a license to two random individuals. But then, May 2008, we launched Lifenet with a capital of more than $120 million and with a license awarded to a new independent company. This was the first license awarded since 1936!”

Impressive! Basically, you were insurtech 1.0, operating in a time before unicorns or the rise of fintech and insurtech …

Daisuke: “In hindsight, we were a little bit ahead of time, yes. Fast forward three, four years to March 2012, we were still small but growing rapidly. We basically tried to build something that made total sense, but faced many challenges. We went public on the Tokyo Stock Exchange, raising additional capital. We also persuaded Swiss Re to come on board to become our lead investor. And a little later, in 2015, KDDI, Japan’s second largest telco, became the largest shareholder of Lifenet. So it has been a journey, but a very interesting journey.”

See also: New Efficiencies in Life Insurance  

Lifenet celebrated its 10th anniversary summer of 2018. Many say the company not only stands out because of its business model, but also because of its corporate culture. About 65% of the staff comes from other industries. Can you share a bit about this exciting period at Lifenet and being the first challenger in a huge, matured market?

Daisuke: “At that time, Japan was the second-largest life insurance market in the world with over $400 billion in premium written every year. We came with a very simple solution: term and supplemental health insurance that was sold online with transparency, empowering the consumers, saving cost and giving the cost back to the consumers. We had successes, challenges and setbacks. I must say I am really proud of what we have achieved at Lifenet. I think we inspired many other challengers that shared the belief that incumbents could change the way they engage with their customers, the way they design their products, the way they engage with the millennials. But we did not yet disrupt the market.”

Nevertheless, you had
a significant impact on the Japanese life insurance industry and probably also beyond Japan. What lessons did you learn?

Daisuke: “Let me share three lessons. First, consumers do not necessarily behave in an economically rational manner. Makes sense if you think about it. When was the last time you made a purchase solely based on economics? So, there is a lot more than just delivering value to the customers. Second, having the best products does not necessarily make you the one with the largest market share. History has shown that many times the companies with the best products do not necessarily win, but companies with the strongest distribution do prevail.

Third, my humble experience reminds me of a case I read during my time at business school. It was on channel distribution strategy in marketing, and it said, ‘You can eliminate the intermediaries, but you cannot totally eliminate the functions they are serving.’ So, while we believe that by going direct to customers we can create significant value, there are many reasons that insurance agents have existed for a long, long time in history, and there are multiple functions that they serve that cannot be totally eliminated; they have to be replicated in different forms. That’s why technology is a tool to either help you sell life insurance in a more productive manner or help consumers buy life insurance more efficiently. But, during this time, from 2008 to 2018, most consumers did not wake up in the morning yearning to buy life insurance more efficiently.”

Technology, at the end of the day, is a means to an end. So, then in late 2017, Keng Hooi, CEO of AIA Group, approached you and offered you another challenge.

Daisuke: “Yes, and I shared these views with my current CEO now at AIA. AIA, given its strong distribution presence, should focus on enabling and empowering the distribution force through the power of technology. Not much later, as Lifenet celebrated its 10th anniversary in the summer of 2018, I made my transition from an entrepreneur to lead the digital and innovation initiative for the largest Pan Asian life insurer.”

In Europe, most people know AIA through the Tottenham Hotspur sponsorship. Can you tell a bit more about the company?

Daisuke: “AIA is the largest independent publicly listed pan-Asian life insurance group – with a presence in 18 markets around the Asia-Pacific region. We were rooted in Shanghai a century ago in 1919.  We completed the reorganization driven by AIG’s liquidity crisis in 2008, leading to the positioning of the company for a public listing.  As of June 2019, AIA was valued at $120 billion, becoming the largest life insurer in terms of market capitalization.”

So, here you are, making the transition from a start-up to this huge company. What drove you to make this transition?

Daisuke: “The reason is exactly the size and the potential impact that I can have through the AIA platform. Through AIA, I can touch the lives of our 30 million customers across 18 markets. Needless to say, I am very excited about the opportunity. I truly believe that we are at a very interesting time, when the fundamental nature of a life insurer is significantly changing from a payer to a lifetime partner, supporting the health and the life of our policyholders. But I also believe that the life insurance industry will not be disrupted in the foreseeable future because of one reason; it is the low purchase frequency of the product. The power of digital is at its best when it involves something that is of very frequent purchase like an Amazon product or travel, etc. With the way life products are designed to date, this is not the case.”

What should be the way forward then, in your view?

Daisuke: “We can add much value by going digitally but with somehow limited impact. What we can do is change the nature of the engagement. The engagement takes place when we pay you when you’re sick or you are diseased and thus becoming a more engaging partner of your healthy life. The opportunity for digital to have more impact will be larger. Just looking at the fundamentals, Asia’s middle class will continue to grow. This middle class will make up the majority of the new rising middle class who, as they increase their fluency, would seek protection coverage for their loved ones. AIA’s competitive advantage lies in our extremely robust and competitive distribution force through highly disciplined management of agency and through the new partnerships that we are pursuing with our bank or telco partners and other non-traditional partners as well as our focus on health and wellness.”

Can you share a bit about the strategy to make this happen? 

Daisuke: We’ve identified four strategic areas that we would like to focus on as part of this innovation initiative. First is distribution digitalization. Second is customer engagement and ecosystem. Third is proposition enhancement, primarily around health tech. And fourth is artificial intelligence and data analytics. We’re looking for companies that are willing to build a base in Asia to properly support us, offer robust technology and solutions and partner with other countries in our 18 markets to realize the vision that I’ve shared with you right now.”

Scaling insurtech innovations with the incumbentsorganization seems difficult. Having been at the other side of the table, I’d say your experience as an entrepreneur means that you probably approach things differently compared with a traditional large insurance company …

Daisuke: “I’m not interested in doing innovation for the sake of innovation. I only want to focus on things that have real impact, and by impact we mean something that moves the needle for our $120 billion market capitalization. I’ve noticed that innovation cannot happen in an isolated lab or isolated group office.  It has to be embedded into the strategic priorities, it has to be driven by the markets, the countries that are running their businesses day to day. We need to have a clear budget to support that. We need to have close alignment with our internal technology team to assess and build real businesses, and of course there needs to be a change in the culture and the mindset, which so often hinders innovation and challenging new initiatives.”

See also: What Is Really Disrupting Insurance?  

How do you tackle this from your current role as the executive who is responsible for digital, data and innovation?

Daisuke: “As I mentioned earlier, I think there’s a lot that we can do to make our distribution partners, our agents, our banks, our telco partners sell life insurance more productively to enrich our customer experience and to enable our employees, our colleagues to operate much more efficiently. Previous to my arrival, AIA had already embarked on many digital initiatives. For instance, last year we led a strategic investment of $500 million, as an investor group collectively, in WeDoctor, an online healthcare solutions platform, providing seamless online and offline healthcare services as well as integration of general practitioner and specialist doctors in China. WeDoctor has 27 million monthly active users on its platform, and through this strategic alliance we believe that we can deliver a new value proposition for our customers and access the broad customer base that WeDoctor has and many more digital initiatives we have pursued.”

How do you think the future of life insurance will look?

Daisuke: “I think of many things that may change in the future, but then my 10 of years experience running Lifenet made me humble about how slow or how little consumer behavior actually changes. What will not change is the fundamental nature of the life insurance product, a financial solution to offer protection for families in the future. But we are listening to many changes that are happening around us, that affect the way consumers behave, the expectations consumer have, and the role that life and non-life insurers may play. I hope that you can feel the energy from Asia. The opportunities ahead are serious commitments to driving our growth further through technology and innovation.”

A Scary Future for Life Insurance?

Web users, especially business owners, already have plenty of good reasons to be careful with what they put online. Shifts in public perception, the increasing threat of data leaks and continual attempts to steal your identity might be enough. However, new state rules for New York’s insurance companies could highlight another worrying trend. What you post could affect your premiums.

It’s already legal for insurance companies, including life insurance and business protection insurance providers, to use public data to decide what you pay. From credit scores to court records and now including your Twitter feed, they can effectively use nearly anything they want to set insurance prices.

Now, however, New York is taking a bold step forward as the first step to codify the practice. Discrimination by race, sexual orientation, faith and other protected classes is still illegal, but the use of personal data to inform insurance decisions is a trend that many are worried other states will follow.

See also: New Efficiencies in Life Insurance  

Your data is just another way for insurance companies to measure your risk and make more efficient decisions. Regulations are designed to keep the needs of the companies and their customers both satisfied, but many are concerned that it’s just giving the providers license to be more invasive when deciding premium rates. Your rates aren’t only decided by what information you fill out; examinations are reaching further and deeper into our data than ever.

The automation of the industry is making it easier to collect and collate data from many sources, but there’s always a human involved in the judgment, and many are concerned that business protection and life insurance providers expose too much.

Social media use in setting insurance premiums isn’t commonplace, yet. Only one of 160 insurers in New York use it, but “big data” is spreading across industries, showing the power of using data from diverse sources. At the moment, social media is used to determine falsehoods in applications, but there’s no reason it can’t be used in ways that customers might consider more invasive. And while discrimination is prohibited, some fear there’s nothing to stop providers from doing deeper dives. In many cases, the deeper you look into anyone, the more likely you are to uncover something that could be used to raise their premiums.

Algorithms may seem impartial, but they are designed by humans with all of their own biases. One textbook example is COMPAS, which predicted where crime would occur based on criminal justice data from the U.S. The tool vastly overestimated rates of recidivism for black defendants while underestimating the same risk for white defendants.

This trend of using social media data might not be widespread just yet, but there are justified fears that social media surveillance and investigation will become more common as reliance on the technology spreads. As such, it may be even harder for customers to see what affects their premiums, as much of it could be determined by big data gathering information from dozens of sources and obscure algorithms used to highlight risk factors.

This risk of surveillance, even if it has no application in reality, affects how we use the internet. A trend toward “deleting Facebook” arose shortly after its sizable data breach last year. Data-sharing from sites and businesses of all kinds has seen use of virtual private networks (VPNs) skyrocketing. This might seem prudent, at first, but if our social media use is being so closely monitored, then we’re less likely to use those platforms to talk and associate freely.

The issue isn’t just in the data we share, but also the data we consume. If a business protection insurance provider looks at who you follow on Instagram, what’s to stop it from deciding premiums based on whether you follow high-risk individuals, even if you are not a high-risk individual yourself? The same goes for health and life insurance companies, which could raise premiums because someone is seen as a higher risk because they are part of suicide prevention groups on Facebook.

Business are already under great scrutiny for their social media, mostly by customers, which is justifiable. However, when it comes to business protection insurance and key man insurance, the premiums for protecting the people and assets most important to your business’s growth could be rising for reasons that are more obscure than most will be able to work out. We don’t know how far into your posting history insurance providers can go in their search for data, so it’s best to create a strong social media policy as soon as possible.

The law is always slow to catch up on technology. While many fear that the wheels may not turn in time for smart, context-driven regulation, other solutions are being looked for. Some want broad restrictions on the ability of insurance providers to use public information, while others are fighting for great transparency. Some consider it of utmost important that insurance companies be clear with what data drives their premium setting, as well as when new algorithms and data sources are used to adjust them.

See also: How to Resuscitate Life Insurance 

However, insurance companies have a vested interest in protecting their algorithms and how, exactly, they find their premiums. Protection of trade secrets and other intellectual property is part of what keeps them competitive. Furthermore, if the widespread ignoring of terms and conditions on the internet shows anything, it’s that notices of new algorithms may not register with the majority of customers. Most people simply don’t understand the technology that could be used against them.

More detailed regulations, such as a need for algorithmic impact assessment, are looked at as another potential solution. In answering questions that find out the data that insurance providers use, why they use it, what they test and whether they have tested the system for bias, discrimination could be halted in its tracks. The insurance industry and its customers rely on the ability to use the data available to set premiums based on risk level. However, the threat of discrimination is driving concerns.