Critical illness insurance sales in retreat

After years of growth, critical illness (CI) insurance is finally paying the price for rate increases that have affected all products with long-term guarantees. CI sales have declined more than life insurance due to the delayed impact of rising prices caused by low interest rates.ducted by the Life Insurance Marketing and Research Association (LIMRA) in Canada show a marked decline in critical illness sales compared to life insurance in the first three quarters of 2013. New sales of critical illness insurance declined by 11% when measured by premium volume and by 7% in terms of policies sold during this period compared to the same period in the previous year.

“Results through the third quarter showed a sharp decline over the same period in 2012. The large drop in permanent premiums, down 25 percent, was caused primarily by the sales rush late in the prior year,” comments LIMRA analyst Rob Kanehl, who authored the report. He points out that that decline was brought about by the announcement of a second round of CI price increases.

Limited period level products also experienced a reversal in the third quarter. Only renewable term products managed to grow during this period. In the first three quarters of 2013 compared to the same time in 2012, premiums for limited period level products fell 5% while term products grew by 3%.

The career sales channel experienced the largest decline in critical illness insurance sales measured by premiums, dropping 19% in the first three quarters of 2013 compared to the same period in 2012. As for the independent sales network, its sales declined by 5% during the same time period. Independent advisors accounted for 59% of new CI premiums during this time frame, while career agents generated 41%.

Life insurance less affected

The storm, however, seems to have passed over life insurance. Despite a 1% decline in both new premiums and in the number of policies sold, life insurance posted a slight improvement in the third quarter of 2013. “Results through the end of September 2013 were slightly lower than in the previous year, down one percent across all measures. This is an improvement over the position at the half year mark,” said Kanehl.

He also points out that sales in the third quarter were strong in terms of premiums, and that there was only a slight drop in the number of new policies sold. “Due in large part to the pricing changes last year, a weaker first and second quarter of 2013 kept overall results in the red,” he added.

Compared to the same period in 2012, there was a 9% increase in whole life insurance premiums and a 3% increase in term insurance premiums in 2013. Universal life (UL) insurance, however, continues to underperform, with new premiums dropping by 19% compared to the same time frame in 2012.

As of Sept. 20, 2013 whole life insurance was the best-selling product, accounting for 46% of new premiums, followed by term insurance at 31% and UL at 23%. This represents a significant drop for UL, which had accounted for 28% of new premiums during the same period in 2012.

The LIMRA data also shows that whole life had an average annual premium of $3103 in the first three quarters of 2013 and an average face amount of $133,574. “The average whole life policy size was still down, while it continues to recover from pricing changes,” notes Kanehl.

Universal life, on the other hand, only had an average premium of $2027 during this period, with an average face value of $232,893. The average annual premium for term insurance during this period was just $781, while the average face amount was $396,683.

In the first three quarters of 2013, the career sales channel saw its life insurance premiums drop by 6% compared to the same period in 2012. As for independent advisors, they experienced a 12% decline compared to the same time in the previous year. The stock broker sales network, however, posted a 10% increase in life insurance sales, while managing general agents saw their sales rise by 3%.

Growth in the US

LIMRA reports that life insurance sales measured by premiums were stagnant in the third quarter of 2013 compared to the third quarter of 2012, but that combined sales from the first, second, and third quarters still grew by 4% in 2013 when compared to the same period in 2012.

Universal life sales showed signs of weakness, posting a 1% gain in sales during the first three quarters of 2013 compared to the same months in 2012. But taken in isolation, the third quarter of 2013 saw an 8% decline in this product compared to 2012.

“While every other product line experienced positive growth in the third quarter, universal life sales were hampered by sustained low interest rates, a volatile investment environment and increased reserve requirements introduced in 2013,” notes Ashley Durham, senior analyst at LIMRA Insurance Research. “We anticipate universal life sales to continue to decline through the fourth quarter.”

Posting a 2% gain in sales in the third quarter of 2013 compared to 2012, whole life insurance is now in its 17th consecutive month of growth in the US. Term life sales were also up during this period, partly due to sales from insurers who had terminated their term universal life products; LIMRA says they re-introduced traditional term into their product line-ups instead.