No one knows exactly what to expect from life insurance in 2023. There are a lot of factors at play. Pandemic fears wane while a less-than-stellar economic outlook makes consumers uneasy. One in ten consumers say they have reduced, canceled or delayed buying insurance they need—or plan to do so—because of economic conditions.
The fourth quarter of 2022 could be the start of a decline after a period of record life insurance sales. It is difficult to predict how much sales will flatten in 2023 or when they will turn back around. But that hasn’t stopped industry experts from trying.
The Life Insurance Boom
2021 gave us record premium and policy sales growth. Life insurance premium grew 18%. And 2022 is likewise expected to have been a massive year, particularly in the first three quarters. What conditions led to the two-year boom?
One major factor was the onset of the COVID-19 pandemic in 2020, which led to greater mortality awareness. End-of-life planning became a priority for many consumers.
Another was tax law changes. Updates to the U.S. Internal Revenue Code made certain types of ordinary life policies more attractive for wealth management. The changes allowed a better ratio of premiums per dollar of death benefit. Policyholders could add premium without losing out on tax advantages. This led to significant growth in 2021. Whole life policy count increased 6.3% in 2021. It was the second largest increase in two decades. The premium on those policies, however, was a full 20%. This suggests the tax law changes played a large part.
What Goes Up…
The momentum is starting to shift. Life insurance sales are likely to slow down in the coming year. Premium sales were up through the second quarter of 2022, but policy sales dropped 9%. This was a sign that consumer demand was beginning to weaken. Third quarter policy sales fell 12%.
LIMRA predicts life insurance sales overall will have been flat in 2022. But many factors are leading them to predict a slowdown for some products in 2023.
One of the most significant factors is waning pandemic concerns. As we get more distance from the height of the pandemic, consumers feel less urgency to focus on end-of-life planning.
The boon experienced from the tax law changes will also start wearing off. Sales from these changes were likely of the one-and-done variety. Sales growth from the tax law adjustments will probably have run its course by mid-2023.
Inflation will also play a role. It leaves consumers with less disposable income for life insurance. Inflation especially impacts middle-market consumers, the primary buyers of term and whole life products.
In addition, impending illustration changes would also have an effect. Whenever there are adjustments to products or illustrations, it typically causes a decline in sales. The NAIC will likely update Actuarial Guideline 49 in 2023. Some analysts predict this could reduce indexed life sales by as much as 15%.
There will be many less predictable variables affecting life insurance sales in 2023. These include continued changes in consumer expectations as well as process refinements on the side of carriers and distributors. As consumer tolerance for outdated sales experiences wears thin, insurance technology races to keep up with improvements like faster underwriting and connectivity. Life insurance carriers continue to seek technology efficiencies to reduce costs and improve the client experience to capture their share of the sales.
Place Your Bets Now
If and how low the life insurance market will dip—and how long it will last—is anyone’s guess. LIMRA has offered predictions for the coming year, drilling down to the product level.
- Indexed Universal Life – After double-digit growth in 2022, IUL products should see a minor decline in 2023.
- Variable Universal Life – Growth in 2022 should end up in the single digits. 2023’s growth could look similar.
- Whole Life – Historically, inflation has not been kind to whole life sales since the main driver is middle-income consumers. With sales tapering in the back half of 2022, sales in 2023 could remain level.
- Term – After declining term sales in 2022, there is potential for growth in 2023.
What will life insurance look like beyond 2023? McKinsey analysts made predictions for various life products for the period from 2021 through 2026. They expect growth of 2% per year for individual fixed-rate policies. Protection-oriented life should grow around 3% to 4% a year, and policies with cash values tied to investment markets could grow as much as 6% per year.
The Year Ahead
The crystal ball is a little hazy on what the future holds for the life insurance industry. With many variables competing for prominence, it is hard to make sure-footed predictions. After experiencing two history-making years in a row, the industry is eagerly waiting to see what 2023 will bring.
