US Life & Health Industry – Market Overview

2020 was a tough year for Life & Health Insurance industry. The global pandemic and ensuing lockdowns caused a major disruption in sales and distribution of life and annuity products. Annualized in-force premium were flat or modestly negative in 2020. The drop in new sales was more significant ranging from 3% to 10% for some of the leading insurers surveyed. Carriers who were able to quickly pivot to virtual sales capitalizing on digital investments already made were able to contain the damage.

Group insurers reported a sharp drop in RFPs received. Due to lockdowns, employers preferred to renew with existing providers, rather than go through the arduous RFP process. This is expected to change. With the economy showing signs of recovery and optimism surrounding vaccination programs, lifting of lockdowns by several states, we see momentum building for new sales in 2021.

The Spring of 2021 opens with a strong sense of hope as vaccines are becoming widespread, travel is starting to open up, and stimulus money will make its way into the economy. It will be a time when people who had to forego supplemental insurance are likely to come back into the market. This sudden rush of business may best support nimble players looking for ways to expose the gaps in the market as less nimble organizations are slow to react. Attaching entrants with personalized priced bundles and creative pricing models will offer people an easy way back without breaking the bank. These smaller or more aggressive players may relax underwriting to expand their customer base as there will be more gaps in employment, income, and housing status for traditional models to take into account. Voluntary products will be more important as more companies may defer benefits uptake to first claw back revenue and growth before turning to workers benefits.

As people return to normal there will be more visits to doctors deferred from 2020. These visits will uncover undiagnosed conditions left untreated for a year, alcohol related diseases, increased obesity related problems as well as a number of mental health issues. We will see an uptick in claims and payments eating into the investment portfolio. Companies will be looking for investment strategies to protect investments from a drain of claims. While the market has been surging in recent months, concerns about inflation or market corrections will cause many investors to be less aggressive and move investments new positions.

Few organizations plan investments in their organizations so companies are looking at opportunities to drive down costs without impacts to services. We already expect an increase in claims processing and organizations will be looking for ways to reduce cost per claim quickly through process automation. We anticipate an increase in technical debt for organizations who have not shifted to cloud due to deferring upgrades and regular replacement cycles in 2021. Organizations will need to be strategic in investments so they claw back profitability, but do not leave a long-term expense exposure due to lack of investment. With the workforce more decentralized, additional expenses in collaboration tools can be offset by reduce onsite expenses in telecom and floor space costs.

We see the following factors key for life & health insurers.

  • While new sales are important, retaining existing clients’ business is key to retaining customers and renew contracts. According to a recent survey conducted by BenefitsPro/Eastbridge, the top 5 in the list of carrier selection criteria are:
    • Administration and service
    • Products and features
    • Relationship with carrier’s sales reps and/or staff
    • Product price
    • Comprehensive product lineup
  • Of particular importance is improving billing accuracy and making it easy for employer’s HR staff. Many group insurers have legacy billing systems with limitations requiring manual workarounds resulting in errors. Modernization of billing systems is becoming a key priority to insurers.
  • For life & disability carriers, bundling absence management is becoming critical as employers are looking for integrated disability & absence management solution. Another critical factor is the Paid Family Leave (PFL) or Paid Family & Medical Leave (PFML) benefit. It is currently being offered in New York, New Jersey, California, Massachusetts, and Washington, with state level legislation being proposed or about to get passed in 22 states. Carriers who don’t have PFL/PFML offering run a risk of getting locked out of short-term disability business.
  • Voluntary continues to be a major growth driver. Customers are interested in comprehensive product sets and innovative product bundles.
  • Insurers are also looking for continuing investments in digital. For example, a couple of carriers are looking to implement a new platform targeted for small groups business to streamline and automate quote – underwrite – enrollment process.

An additional area of attention will be M&A capabilities. Before the pandemic, M&A was already at a steady pace in the insurance industry but slowed during 2020 as markets waited to see what the outcome and long-term effects would be. As 2021 settles in by summer, M&A should be back and likely more active than previous for 18-24 months due to 1) struggling companies looking to sell non-strategic assets and 2) niche companies being picked up for their digital capabilities, creative products, and highly tailored pricing models. In either case, the ability for the companies to expedite separation and integration activities will be highly important to growing the business and limiting transaction costs. We expect to see organizations with strong enterprise architecture, digital integration, and ability to package offers in many permutations to be most successful.