Why hasn't COVID-19 led to an increase in life insurance protection?
Working in Life & Health insurance, I naturally followed the development of the COVID-19 pandemic very closely over the last year. While vaccines give us hope that an end is in sight, we are still faced with concerns over a third – or even a fourth – wave in Europe and inconsistent vaccination rates. I feel the value placed on life has never been more palpable. But this hasn't translated into a significant increase in life insurance protection sales. How can we explain this gap?
The pandemic's effect on the rising protection gap
For years, Swiss Re and other insurers have tried to tackle the rising mortality protection gap, which is the money a household would need to maintain its living standards should the main breadwinner pass away. We continuously seek to raise awareness of the value of life insurance protection and strive to make insurance products more affordable and accessible. Despite these efforts, the gap in most developed countries has flatlined or even increased over the past decade. I expected the pandemic would help to change this development. Since COVID-19 tragically made the loss of loved ones a kitchen table discussion, I thought it would open people's eyes to the value of life insurance. And in an ever more digitalised world, life insurance products have never been easier to purchase. With this in mind, I was looking out to see if the pandemic would trigger an increase in life insurance sales.
To my surprise, that hasn't happened yet. Data shows protection sales were broadly flat for 2020 when you average out the decreases and slight increases:
- Germany: Individual term new business (NB) premiums were almost stagnant in 20201
- UK: Individual protection NB premiums decreased by 7.7%2
- Italy: Traditional life NB premiums declined by 11.6% in nominal terms in 20203
- US: Applications for life insurance policies increased by 4% in 2020, the highest year-on-year annual growth rate since 20014
A year into living with COVID-19, it appears the pandemic has had no significant impact on life insurance sales. But the bottom-line data isn't telling the whole story.
Divergent developments are keeping the curve flat
I believe the pandemic has had positive and negative effects on life insurance sales.
On the positive side, we have seen increased awareness and increased intention to buy life insurance in the past year. In a series of surveys we conducted with the general population in the UK, US and Spain between March and June last year, we consistently found that around 30% of respondents said COVID-19 had made them more likely to consider buying life insurance. This seems to be reflected in people's activity: Google Search traffic for “life insurance” jumped 50% in the US between March 2020 – when the World Health Organization declared COVID-19 a pandemic – and May 2020 compared with the same period in 2019.
While intention to buy doesn't always translate into a sale, we observed that people who were nudged to purchase a policy were more likely to do so online. Life insurer AccuQuote and Haven Life Insurance Agency reported a roughly 30% increase in online sales.
On the negative side, we could see the fallout from the hardship COVID-19 caused. People who lost their jobs or made less money simply didn't have the funds to buy a new policy, even if they intended to do so. In addition, the top two triggers for buying life insurance – a face-to-face conversation with a broker and a house purchase – were put on hold or delayed due to lockdowns.
Will life insurance see a boom?
Looking forward, one would naturally assume that life insurance sales should increase once the pandemic has waned. When employment is more secure and lockdowns and social distancing a thing of the past, agents and financial advisers can return to face-to-face meetings. When you combine this traditional interaction with the pandemic-driven willingness to purchase life insurance digitally, I believe we may see a significant increase in sales. In years to come, we may look back at this moment as the beginning of a historic shift, where life insurance finally began to be more valued by customers as a way of providing them with the protection they need.
I believe it is the insurance industry's responsibility to close the protection gap to boost societal resilience. The COVID-19 pandemic highlighted the value of life insurance, especially with income losses due to lockdowns. So, let's continue to work on increasing awareness, affordability and accessibility of our life insurance mortality products to achieve this common goal.
1.GDV Gesellschaft Deutscher Versicherer
2.Association of British Insurers
4.Life Insurance Marketing and Research Association (LIMRA)