Term insurance policies sales have been outpacing universal life and whole life sales by a significant margin in recent months. While term policies certainly do not generate the highest premiums for the industry, insurance companies affirm the product is not a loss leader.
Last month, The Insurance and Investment Journal published industry sales results for Q3 2017 collected by research firm LIMRA. Although whole life sales still netted the highest annualized premiums in 2017 (57 per cent of the market – this, despite a 20 per cent drop in sales in 2017 – compared to 24 per cent and 19 per cent for term and universal life premiums, respectively) the highest number of policies sold were term products, primarily sold to clients under 45.
Tax exemption rule changes affecting how permanent policies were used in tax and estate planning went into effect Jan. 1, 2017. This significantly impacted sales numbers for permanent products, as advisors and clients rushed to get policies in force before the deadline, creating a run up in sales which then dropped off sharply in the second quarter of 2017.
“The tax changes have affected the entire landscape of 2017 and 2016,” says associate analyst, Canadian markets, and LIMRA Canadian Individual Life Insurance Sales Survey author, Matthew Rubino. “A lot of advisors and consumers were able to get their policies in before then. Sales that year (2016) were much higher than they likely would have been otherwise.”
According to the third quarter 2017 LIMRA survey, the industry sold 310,211 term life policies (58 per cent of the market), 146,163 (27 per cent) whole life policies and 79,005 (15 per cent) universal life policies. Term life products also had the highest face amounts. The average term policy sold had a face amount of $461,280 compared to $298,828 for universal life and $201,925 whole life.
For all of 2017 the total term policy count rose to 415,011, with an average policy size of $462,000.
“We are certainly seeing term life insurance sales outpacing universal life and whole life sales,” agrees Katrina Lee-Kwen, senior vice president of insurance solutions for Great-West Life, London Life and Canada Life. “However, it’s important to note that 2017 was a very unique year. We saw tax exemption rule changes that significantly impacted par and universal life sales in 2016 and 2017.” In addition, there’s been a great deal of uncertainty around the federal government’s proposed changes to the Income Tax Act, with many customers and their accountants not willing to commit to a permanent solution until the budget came out, she adds. “As the effects of those changes start to stabilize, it’ll be interesting to see how growth in these product categories trend over the coming years.”
As for term life sales, Great-West Life says term-10 products are its most popular product being sold in the category, at about a 2:1 ratio relative to the company’s term-20 product. Manulife says term-10 and term-20 products sell equally well, while iA Financial Group says term-20 tends to be the more popular product with its customers.
According to fourth quarter LIMRA numbers, term-10 products made up 41 per cent of all products sold in that category. Term-20 products were 37 per cent of the market in 2017, while all other term products – combined together into its “other” category – made up 22 per cent of the total.
In Canada, LIMRA says 63 per cent of term premiums were brought in by independent brokers and 33 per cent by affiliated agents, while the remaining four per cent came from direct sales.
“For distribution in 2017, the managing general agent groups and the career channels accounted for about three quarters of the new term premiums,” Rubino says.
Although the shorter, more temporary coverages are not as lucrative for the companies – comparatively speaking whole life annualized premiums came in over $1-billion in 2016 and over $859-million in 2017, relative to term life sales which brought in close to $369-million for the industry in 2017 – companies insist the product is not a loss leader.
“We see real value in providing an affordable option that meets the needs of our customers and building that relationship with them early,” says Lee-Kwen. “Over time there are opportunities for conversions and future product sales that create a lot of value for our business.”
“For advisors, it’s a good way to build up a block of clients who may need more insurance coverage in the future,” adds Alex Lucas, senior vice president and head of insurance with Manulife.
Companies also say pricing has stabilized in the term insurance market.
“We’re not seeing the level of price competition that we have in the past,” Lucas agrees. “Companies are trying to differentiate through experience, ease of doing business and other product features.”
“It’s not clear if the insurer makes money on the T-10,” adds iA Financial’s director of insurance products, Louis-Charles Leclerc. “It’s not a product where you can afford to keep decreasing the premium. I don’t see many insurers putting down the price of their T-10. However, on the T-20 and more we still see a bit of a price war. It’s easing a bit. It’s less aggressive than it used to be, but there are still some pricing changes (going on) in the T-20 (market) and more.”
Companies also say there is growing competition in the sale of longer term products, but say this is tempered somewhat by product pricing. “Longer term coverages like term-30 are seeing some growth, but along with longer terms come higher premiums,” Lucas says. “This hurts affordability and makes the price gap smaller relative to permanent coverage.”
Although LIMRA statistics do not measure who is buying the products, anecdotally, companies say the majority of their term life insurance is being purchased by consumers under 45. The experience closely mirrors application activity in the United States, where overall application activity is being driven by clients in the 0-44 age group.
According to the MIB Group, 2017 Life Index annual report, 55.2 per cent of all U.S. individual life insurance applications were completed by clients under age 44. Applications by those between age 45 and 59 declined 0.6 per cent to 27 per cent of all applications, while the remaining 17.8 per cent of all applications were made by clients over age 60.
“The under 45 age group is the biggest percentage of the life index and it’s actually increasing,” says MIB chief executive officer, Lee Oliphant. “The under 45 age group is slowly increasing as a percentage of overall application activity. For several years it’s been the most resilient age group.”
“I think the industry is continuing to look at tremendous under-insurance in the marketplace coming from that age group and they’re continuing to make investments in accelerated underwriting and predicative analytics,” he adds. “To the extent that the industry can shorten the time it takes to issue policies, they’ll get more policies on the books and more business (in general). I think the industry will continue to invest in ways to shorten the time it takes to issue policies. They’re doing that in multiple ways.”
Although at its core the product remains the same, Canadian insurers say term insurance is evolving somewhat in this country as well. Manulife points to its Vitality rewards program, calling it a new way for advisors to engage with their clients. New riders which lower renewal premiums are also available from companies like Great-West.
“We are seeing a lot of evolution in how term products are underwritten with accelerated underwriting, for example,” Lee-Kwen agrees. “You’re seeing companies evolve the customer’s experience, looking to provide value in terms of customer service, ease and convenience.”