Insurance: Sales of life policies strengthen

The Braintree, Mass.-based MIB Group Inc., which tracks risk-related data for insurers, reported in January that policy application activity for individual life insurance in the U.S. in 2015 increased by 2.7%, as measured by the MIB life index. That is the highest rate recorded since the inception of the index in 2001. (Application activity is closely correlated with policy sales.)

Full-year sales figures for the Canadian market are not yet available. However, numbers for the first nine months of 2015 suggest that the Canadian market also experienced a strong year for life insurance sales. New annualized premiums for individual life insurance rose by 11% in the first nine months of the year compared with the same period in 2014, according to Windsor, Conn.-based global insurance association LIMRA International Inc.

“[The growth rate in new premiums] is the highest we’ve seen since 2010, when we were starting to recover from the downturn,” says Karen Terry, assistant managing director, insurance research, with LIMRA. “It’s the first double-digit increase in premium growth since then.”

Whole life insurance policies dominated sales in the first nine months of 2015, with a 14% increase in annualized premiums over the same period in 2014, according to LIMRA. Universal life sales grew by 9% and term sales increased by 5%.

The uptick in sales was noticeable to insurance companies across the industry, says Saundra Edwards, assistant vice president of business development and solutions at Great-West Life Assurance Co., Canada Life Assurance Co. and London Life Insurance Co. in London, Ont. “[The uptick] was a fairly strong increase year-over-year – probably double what we’ve seen, on average, over the past four or five years,” she says.

Edwards believes that the increase was driven in part by market volatility, which has made clients nervous about their overall financial situation.

“When the markets are volatile and going up and down, people tend to think more about financial security, stability,” she says. “So, [clients] are more open to conversations around financial security planning and protecting their families and their businesses.”

The strength in 2015 follows several years of weakness in life insurance buying activity in both Canada and the U.S. Statistics from the Canadian Life and Health Insurance Association Inc. show that the number of individual life insurance policies sold dropped each year between 2009 and 2014, with the exception of an increase in 2013.

In the U.S., the 2015 uptick in applications represents only the third such increase in 15 years. That increase follows decreases in the index of minus 0.6% for 2013-14 and minus 3.4% for 2012-13.

The declines largely have been related to demographic shifts, Edwards says. As baby boomers enter retirement, they’re buying fewer policies than they did in the past. Also, with younger generations getting married, buying homes and starting families later in life compared with previous generations, younger people are not buying policies in significant numbers.

However, the latest MIB life index suggests this pattern is beginning to change. For the first time in the history of the index, younger clients applied for life insurance policies in higher numbers in 2015 than all other age groups. Applications from clients aged 44 and younger increased by 3.9% year-over-year, compared with declines of minus 1.5% in the same age group in 2014 and minus 3.6% in 2013. Applications by clients in the 45 to 59 age group edged upward by 0.1% last year, and in the 60-plus age category – which typically has the highest growth in applications – application activity increased by 2.3%.

The increased application activity among younger clients suggests that insurers are doing a better job of engaging younger clients, says Lee Oliphant, president and CEO of MIB: “The industry is showing some success in its efforts around reaching the under-45 age group.”

Specifically, Oliphant says, U.S. life insurers have had success in engaging younger consumers through social media and by developing more simplified products that resonate with younger clients. “The industry is relating more to the needs of that age group,” he says.

In Canada, the life insurance industry still has work to do in engaging younger clients, Edwards says. Much of the premium growth on this side of the border has been driven by older clients purchasing larger policies as part of an estate-planning process.

“[Success in the marketplace] is a matter of making life insurance relevant for those individuals in the 25 to 35 age range,” Edwards says, “helping them understand why life insurance is an important part of their [financial] planning.”

Once economic conditions improve, she believes, life insurance purchases by younger consumers in Canada should gain more momentum. “As the economy improves and employment rates improve, that’s when those individuals will look at things such as long-term planning and financial security planning.”

Recent improvements in the U.S. economy certainly have contributed to the heightened insurance sales in that country, Oliphant says: “Unemployment rates have been decreasing, as compared to three or four years ago. The increase in confidence is positive in influencing consumers to buy life insurance.”

Insurance sales appear likely to remain strong this year. January 2016 application figures in the U.S. demonstrate a continuation of the trends observed throughout 2015, according to Oliphant.

In Canada, life insurance sales in 2016 are likely to be bolstered further by looming changes to the taxation of certain permanent life insurance policies. Those changes, which take effect in January 2017, will reduce the amount of tax-free cash clients will be able to hold in policies purchased after that date.

“In some instances, the products that we’re selling today are more beneficial from a tax perspective than what we’ll be selling after January 1, 2017,” says Edwards. “So, you will see advisors and clients who are considering making purchases making them prior to January 1, 2017.”

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