5/05/15

How Longevity Challenges the Life Insurance Industry

LifeInsuranceDayWe recently attended the Life Insurance Conference where Governor Dirk Kempthorne presented a general session that could not have been timelier. May 2nd was National Life Insurance Day, the anniversary of the first day life insurance was made available for purchase in the US. The conference was held in Washington D.C, which Kempthorne used as the background for his presentation.

He began by naming the places we should make sure to visit during our time in the Capital City. Of the long list, he mentioned Mt. Vernon where the bust of President Washington was and the chambers where the first Titanic hearings were held among other places. It was becoming a long list until he began to explain the significance of every place he implored us to visit in terms of life insurance. It was fascinating.

The famous sculptor of that iconic bust of George Washington was only able to travel to America when a life insurance policy was secured, providing death benefits to the King of France. Those chambers held the beneficiaries of life insurance policies held by travelers lost, paid out only a week after the ship sank.

He concluded his speech by telling the crowd of life insurance professionals that throughout challenges in history, as an industry, insurers have been there for Americans. Insurers face even greater challenges today with life insurance enrollment being at a long time low and the average person living longer. Longevity is the next challenge facing the industry which he was sure will be tackled.

Why is longevity such a challenge for insurers?

  1. Longevity risk exists due to the increasing life expectancy trends among policyholders, and can result in payout levels that are higher than what a company or fund originally accounted for. Insurer will need to explore ways to address this through either reinsurance options or more conservative pricing models.

  2. Products will need to meet the changing needs of the consumers.  Having options to address items like living benefits to cover long-term care or income protection riders to help ensure the policyholder won’t outlive their income will become more important.  Products may need to be created to provide more lifetime benefits instead of just death benefits.

This year marks the 256th anniversary of American life insurance, which is pretty remarkable. This particular insurance product is so important that it is older than America itself, and you as an insurer are a modern member of this cornerstone service. As you reflect on that humbling fact, take a few minutes to think about how you will solve the longevity problem and ensure that this industry remains stable, helpful, and widely available.