COVID-19: opportunities for the U.S. individual life insurance industry - by Varun Sood

COVID-19: opportunities for the U.S. individual life insurance industry

by Varun Sood

Do you think we are ever going do a handshake again? Or will we celebrate by blowing candles on a birthday cake? These common and universal practices might simply disappear from popular culture, never to be experienced again. These are just some simple examples of how COVID-19 will permanently alter social cultures and business practices.

The COVID-19 pandemic has already had a significant impact on almost every industry. While most of the sectors have been affected negatively, a few have seen a positive effect too. With millions of people infected across the globe, individual life insurance is one product which is directly related to the pandemic and is likely to have a major effect. The looming economic recession has forced every industry, including individual life insurance, to look for innovative ways of dealing with it. The way the pandemic scenario has been rapidly evolving, the changes in industry practices are going to be at a pace faster than ever witnessed before.

As per a recent LIMRA study based on the last 50 years data, individual life insurance policy sales have typically shown a decline during or immediately after a recession, but there have been exceptions driven by unique customer behavior like the recession in the early1980’s when policyholders were replacing whole life insurance with universal life insurance in order to take advantage of the then highinterest rates. 1 The impending severe economic downturn also has a unique characteristic that it is resulting from the fear of ill-health and death. There are some early signs that the fear of coronavirus is driving people’s interest in individual life insurance. The life insurance industry is expecting that this new concern about health threats as well as the increased adoption of the internet to access financial service will help them turn a negative scenario into an opportunity.

accelerated underwriting

Many life insurers have started using “accelerated underwriting” for at least some of their applications. This process uses data about the applicants and in some cases cuts the approval time down to less than a day resulting in instant-approval policies, where providers use algorithms and data to quickly process life insurance application information. Coronavirus has made common elements of life insurance underwriting, like in-person meetings and paramedical exams, difficult resulting in enhanced importance of accelerated underwriting which avoids the need for blood or urine samples and relies more heavily on data.

The background check for accelerated underwriting usually consists of verifying the medical and driving records. This is likely to expand and include travel data due to the evolving nature of risk. Even the information collected from the customer is expected to change with a new set of questions likely to be used especially around previous COVID-19 test results, recent travel history, and contact with infected people.

increased direct sales

Life insurance historically used to be sold primarily by captive agents or independent agents. However, life insurance is now also sold directly and through the internet. While the share of direct sales channel has been increasing over time, agents still account for 90% of life insurance sales. Direct sales comprised 6% of the market in 2018, up from about 4% in 20092. The global pandemic is expected to accelerate this shift towards direct sales of individual life insurance policies especially through the web.

digitization of processes

Individual life insurance policy sales used to involve multiple touchpoints which are likely to go away completely or reduce significantly. A major change which is likely to happen is that the face-to-face meeting with an insurance agent or wet signatures on a paper document might no longer be required and will be replaced by agents advising clients by phone, chat or video conference followed by electronic signature for documents and receiving of policies by email. This digitization of processes is not only going to reduce the Selling, General & Administrative Expense (SG&A) for the insurance carriers but also make the process much faster and smoother.

increased claims volume

While most of the challenges related to COVID-19 will have long-term impacts, the count and monetary value of the unanticipated death claims that will come from this virus are the most immediate threat which presents an opportunity to streamline the claims operations by strategic triaging of the claims and straight through processing of the low risk claims.

This will not only help in reducing the claims processing costs and time but also help the insurance companies effectively support the grieving families in these difficult times. Another major concern is that, with the high unemployment rates, the desperation of fraudsters has increased tremendously leading to amplified value of state-of-the-art fraud detection processes.

It is still early to draw conclusions regarding the ways and to what extent COVID-19 will transform society and the life insurance industry. However, we are already seeing significant signs of change across the industry value chain and post this pandemic, there are going to be some clear winners and on the other hand, companies which fail to adapt to these rapid changes might soon go out of business. It is imperative for the insurance carriers to understand the risks and fully capitalize on the opportunities presented by this crisis.

references

1.

2. Coronavirus (COVID-19): The Impact of Economic Recession on Life Insurance Sales https://www.limra.com/en/research/research-abstracts-public/2020/coronavirus-covid-19-theimpact-of-economic-recession-on-life-insurance-sales/

Facts + Statistics Distribution channels https://www.iii.org/fact-statistic/facts-statistics-distribution-channels

author Varun Sood

Varun Sood is an Engagement Manager with EXL Service based in Madison, Wisconsin. He has over 15 years of analytics consulting experience primarily in the insurance domain. He has managed and led several large analytics engagements in areas like risk, fraud, collections, pricing, operations, and customer analytics for various large corporations across the globe. Varun holds a bachelor’s degree in Electronics and Communication Engineering from National Institute of Technology Kurukshetra and an MBA from Indian Institute of Technology Delhi.