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5 Questions About Life Insurance for 2019 – ThinkAdvisor

Life insurance has been like the oatmeal of financial services products in recent years.

Life insurance serves an important financial wellness purpose, and it fills life insurers with premium revenue. But, except for variable universal life and indexed universal life, it has not been a hot growth product.

(Related: 5 Big Questions About Life Insurance for 2018)

If, however, the investment markets keep flying up and down, that could suddenly make the stability of life insurance look a lot more appealing.

Here’s a look at five questions that could end up shaping our life insurance coverage in 2019.

1.  How’s the economic backdrop?

Low interest rates have been helping stocks and mutual funds, and hurting the sales of traditional insurance products, according to Ernst & Young’s 2019 outlook report.

Now, Increased interest rates and record high employment favor life insurance sales,” the Ernst & Young analysts write.

2. How are the economics for life insurers?

Dennis Glass, president of Lincoln Financial, pointed out at recent conference organized by Goldman Sachs that life insurers care at least as much about credit spreads, or the difference between what less secure borrowers pay in interest and what more secure borrowers pay, as they care about the actual rate.

Today, when the interest rate yield curve goes down by 0.01 percentage points, credit spreads increase by 0.01 percentage points. Spread compression has cut Lincoln Financial’s growth by 2% to 5% over the past few years, Glass said.

“Volatility is not particularly healthy for any business.” Glass said.

But the wider spreads created by the volatility should be good for life insurers, Glass said.

Analysts at Kroll Bond Rating Agency reported in its 2019 outlook that life insurers have strong bases of capital and liquidity, and that they can handle short-term volatility.

3. How are consumer preferences changing?

Ernst & Young makes the case in its 2019 outlook that the Millennials, or people born from 1981 through 1996, are much more likely than boomers to let spending on going out to eat, going on vacations and other fun activities crowd out life insurance than Boomers are.

The firm contends that the new focus on “financial wellness” efforts is necessary to getting Millennials to build life insurance premiums into their budgets.

It may be interesting to find out whether Millennials are really different from the Boomers, or simply younger and facing different kinds of expenses.

4. What’s happening with opioids?

More than 70,000 people died of drug overdoses in the United States in 2017, and there are signs mortality may be accelerating.

In December alone, the list of opioid overdose victims who have made the news has included two nurses in a Dallas hospital; Colin Kroll, the co-founder of Vine; and Brian Joyce, a former Massachusetts state senator.

Due in part to the increase in drug overdoses and other drug-related deaths, overall U.S. life expectancy has been falling slightly for three years in a row.

Other sources of sudden spikes in mortality, such as Ebola, could also raise questions in 2019. The Democratic Republic of Congo is trying to control a severe outbreak of Ebola while coping with civil unrest. The outbreak has killed at least 347 people, according to DRC health ministry figures.

5. Are the new accelerated underwriting systems working as expected?

Insurers and system developers have talked a lot about how the systems should work, but they have not published much readily available data on how well the systems have actually worked.

We’re bringing this question back from last year, because the widespread use of web-based accelerated underwriting systems should make this question a different kind of question. This is no longer a matter of asking how a new approach might work in the future; it’s a matter of finding out how the approach is working now.

How We Did Last Year

Here are the questions we came up with a year ago, and how we think those questions look now.

1. What will happen to high-quality corporate bonds and other investments life insurers’ favor?

This is still a great question. High-quality corporate bonds performed well this year, but some credit analysts are still a bit wary about how they well they might do in 2019.

Grade: INCOMPLETE

2. How well will efforts speed up and simplify the underwriting process work?

This is still a great question that has not been answered.

Grade: INCOMPLETE

3. How well will life insurers fight off efforts to get at their reserves?

This is still a great question that has not been answered.

Grade: INCOMPLETE

4. Can members of the life insurance community explain themselves to other players in the financial services sector?

This is still a great question that has not been answered.

Grade: INCOMPLETE

5. What’s up with death?

The U.S. death rate got a little worse this year, in part because of the effects of opioid abuse. But the increase in the overall death rate does not seem to have had a noticeable effect on life insurers’ claims.

Grade: B

OVERALL GRADE: INCOMPLETE

— Read All Product Eyes Will Fix On The Economy In 2009on ThinkAdvisor.

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Source: https://www.thinkadvisor.com/2018/12/26/5-questions-about-life-insurance-for-2019/

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