Insurance Agenda: Life
Make It Personal

• John Weber
• December 2020
• 

Over the past decade life insurers have struggled with growth and profitability, but according to a new McKinsey & Co. report, The Future of Life Insurance: Reimagining the Industry, insurers can reinvent themselves and reestablish their vital role in customers' lives. One of the report's authors, Kweilin Ellingrud, senior partner, McKinsey & Co., spoke with ^AMBest TV about the bright spots and challenges in the life insurance market.

Following is an edited transcript of the interview.

It's no secret that life insurers have struggled in recent years; what are some of the reasons?

As COVID-19 hit, we saw life insurance carriers get hit almost twice as hard as other industries in terms of stock price and market valuation. Interest rates were also dropping at record rates. The combination of COVID-19 and unknown risks in terms of global life claims and very low interest rates have made it much more difficult to make profits in the medium and long term.

Have there been any bright spots for carriers, either geographically or otherwise?

The bright spots have been in developing countries, where about half of the global growth in profitability has been. We also see more personalization, quite a few hybrid products that are serving not just core life protection needs, but also health and other needs.

You mentioned COVID. Has the pandemic had any other impact on life writers?

Initially the [health] risks were unknown, so a number of carriers paused or stopped writing term insurance for policyholders above a certain age or term policies above a certain base amount. Now you're seeing more comfort in that space. A number of carriers have written down their reserve amounts and what they're expecting from death claims over the next year or two. Also, we find that in the United States, for example, the groups that are most affected by COVID-19 are also the least likely to have life protection. Those are people over age 65 or from diverse groups, such as African Americans.

As you well know, life writers in recent years have become more aggressive in their digital marketing and distribution. Have those efforts had any impact?

Absolutely. Carriers are really thankful now for all those investments, big or small, they made over the last three to five years. Some are betting big and investing significant amounts in digital and analytics. That's paid off big time in the last six months or so.

The big question for you, and the basis of your report, as well: What do life insurers need to do to increase premiums written and profitability?

They need to personalize their products, and products must adapt to the life stage and needs of the policyholder. Life carriers also need to think about the future of work. Even without COVID-19, automation and digital are rapidly changing the skills and capabilities needed. There will be a significant reskilling needed over the next five or 10 years.

Do you think life writers run the risk of less-than-disciplined underwriting at the expense of writing business?

As we saw from COVID-19, underwriting discipline will likely be pretty consistent with the past. There's even more reason to believe in the importance of that discipline and being calibrated. The coordination between underwriting, pricing, claims, and those tight feedback loops are going to be more important now as trends move faster than ever before.

Do you think there is reason for optimism for life writers, or are we going to be sitting here 10 years from now discussing the same struggles?

The guarantees that life carriers can uniquely provide are more relevant now than they ever have been. There's this window of opportunity for life carriers to jump into, to create flexible, personalized policies in a way that provides risk protection for a broad set of policyholders. The carriers able to move quickly with digital, analytics and flexible products that are engaging for policyholders are going to do quite well over the next 10 years.