Communities around the globe first faced the threat of COVID-19 in late 2019. At the time, no one knew how bad it was going to be, but as cities overseas (e.g., China and Italy) began to experience the effects of the pandemic—and lockdowns were instituted to blunt the spread of the deadly disease—economic turmoil was triggered for many industries.
One sector that was hit especially hard was life insurance. It wasn’t a matter of insurers struggling to pay claims for a significant rise in the number of death benefits—the issue was an inability to make sales for many of their product offerings.
Today, as we look back, it may not surprise anyone that a global pandemic that killed millions of people around the world would make others think about their mortality and ask themselves questions like: “What if my spouse or I get COVID and die?” and “What would happen to our family?” And, it may not be surprising that the number of people looking for life insurance grew significantly over the past year. In fact, Google search traffic for the term “life insurance” jumped 50% between March and May 2020 compared to the same period in 2019.
After reviewing the data for 2020, we can see how the problem started: The lockdowns made buying certain types of life insurance difficult or impossible because people couldn’t go to doctors’ offices or get to labs for medical tests; therefore, they were unable to get medically underwritten life insurance. As we know, these policies usually are less expensive and can pay a more significant death benefit compared to simplified or accelerated-underwriting coverage.
Due to the pandemic, distributors who sent in applications for traditional medically underwritten coverage faced long delays or outright rejection. This led to a rise in people purchasing simplified and accelerated-underwriting policies.
Backlog for medically underwritten coverage
Many distributors attempted to offer their traditional coverage from their trusted carriers. They saw a rise in people inquiring about coverage and found ways to meet with them (e.g., remotely over the phone or through video conferencing), and making a sales pitch. Clients who saw the benefits of this type of coverage went forward and filled out the applications. And then, nothing happened. After many weeks, their agents would notify them that their applications were rejected.
Carriers saw a surge in applications for fully underwritten policies that they just could not sell. According to our data, the best-performing carrier we tracked only managed to place 20% of applications. Additionally, the demographic that carriers found hardest to get coverage for was for people between the ages of 35-50. The jump in applications and a drop in placements skewed the ratio significantly for many carriers. It also clogged up the cases pipeline and led to long delays. It was truly a lose-lose for everyone.
Accelerated underwriting sees a rise
The inability of some customers to get fully underwritten policies led to a rise in accelerated-underwriting sales. These policies are less invasive because they do not require a medical examination. However, they need the collection of traditional and nontraditional data, and they use sophisticated algorithms to predict risk. Accelerated policies are slightly less expensive than simplified ones, but are far quicker to process than fully underwritten policies.
What does the future hold?
The rise in popularity of accelerated policies tells us that consumers are willing to pay a premium to get the protection their families need in a matter of days during a time of crisis.
Through the pandemic, the most successful carriers offered this nearly instant type of policy. From an insurer’s perspective, it can sell a policy with no underwriting necessary at a higher premium.
As the global economy continues to find a new normal, will this trend continue? Accelerated policies likely will remain popular because they are quick to approve, and they don’t require an invasive exam. As a result, more carriers probably will add these types of policies to their product lineups.
However, fully underwritten policies will continue to have their place—especially for people with medical issues who would be rejected for an accelerated policy.
One thing is for sure: The pandemic has made people more aware of their mortality, and this could translate into higher sales going forward.
Scott Fergusson is the chief executive officer at Techficient, an InsurTech company that provides CRM and AMS solutions for BGAs, distributors and carriers. With over 20 years of experience working in the insurance and financial services sectors, Scott notes that success for agents begins with being a good communicator and a better listener.