Ongoing low or negative interest rates are causing great concern among insurance companies in the United States with worries that they will either have to increase their prices or reduce insurance product features to retain their profit margins, a LIMRA LOMA webinar was told May 26.

But Scott Campion, a partner with Oliver Wyman in New York City, said a recent survey indicates insurers should be looking at many different kinds of assumptions during this time of low rates to make sure they’re up to date and then make changes accordingly.

“What we really hope will happen is that the industry comes up with new value propositions to continue to offer a compelling customer value in this low-rate environment,” said Campion. “If they can’t rely on high yields to create guarantees and crediting rates, they will need to come up with other sources of customer value and modernize the way we serve the customer.”

Sudden interest rate drop puts spotlight on new ways of doing business

Low interest rates have been around for 20 years now, but when rates dropped more than 100 bps in early March because of COVID-19, it got insurers thinking about other, perhaps more modern ways, to do business.

For example, there was a rush by insurers to get ready for the immediate impacts of COVID-19 and social distancing and many of the steps they took will have long-term implications, said Campion.

As an example, there was an immediate push to get rid of physical documents and wet signatures in the U.S., and when insurers came up with a solution most agreed that doing so was long overdue.

Together, COVID-19 and low interest rates making changes in the industry

The same can be said for non-medical underwriting processes, now judged to be far superior to the previous solutions, said Campion.

While 28 per cent of U.S. insurers said COVID-19 accelerated efforts they had already started to deal with low rates, about 22 per cent believe these changes are only temporary and will revert back to previous ways. But 42 per cent said they were already rethinking how they ran their business and felt these new ways would be in their future plans.

Advisors can now use these changes to their advantage highlighting the value that advisors bring to the table, added Campion.

There is an appetite for planning and protection that leads the industry to believe that “the ground is a little more paved now for more integrated holistic planning and protection products coupled with advice,” he said.