Sales of life insurance products are poised to be sharply lower this year following a record 2016 and carriers will need to reinvent their products to adapt to the new landscape, according to insurance industry insiders who spoke at the Canadian Association of Independent Life Brokerage Agencies' national conference in Niagara-on-the-Lake, Ont. on Wednesday.
In 2016, total annualized new life insurance premiums were $1.9 billion, up by 43% from the average level of annualized new premiums between 2012 and 2015, according to data from Strategic Insight.
The increase was driven by changes to the tax rules that kicked in this past Jan. 1, which reduced the amount of tax-exempt investment space within permanent life insurance policies and eliminated certain strategies involving those policies. As policies purchased prior to the change were grandfathered under the previous rules, many clients rushed to put policies in place by the end of 2016.
"It was a great year," said Benjamin Reed-Hurwitz, senior analyst at Strategic Insight, during a discussion. "The tax changes created reason for both advisors and clients to act, and obviously it was communicated really well in many of the channels."
Now that the changes have taken effect, however, carriers are seeing a noticeable drop in sales.
"We're in a hangover period," said Dean Chambers, vice president of individual insurance at Sun Life Financial Inc.
"[Application] counts are down a little this year relative to last year; face amounts and premiums are down a lot," added Steve Krupicz, assistant vice president, regional actuarial and underwriting consultants at Manulife Financial Corp. "This year is going to be a low point for permanent [life insurance]."
Whole life (WL) insurance saw the most significant boost in sales in 2016, with new premiums jumping to $1.1 billion, up by 87% from the average level over the previous three-year period. Universal life (UL) premiums rose by 19% over the same period to $524 million while and term life premiums declined by 5% to $293 million.
Those results were somewhat surprising, Reed-Hurwitz said, as UL insurance products were impacted most drastically by the tax changes and were, therefore, expected to experience the greatest jump in sales prior to the implementation of the changes.
However, the growth in WL relative to UL reflects a shift that's been occurring for the past several years, as UL price increases and changes to product features have reduced the popularity of that product.
"This is a trend that was already brewing," Reed-Hurwitz said.
The new tax rules, combined with sustained low interest rates and new capital requirements, are creating significant challenges for insurance carriers, the speakers said. That's driving up the cost of premiums, which could create an additional hurdle for sales this year.
"Products are going to become more expensive," Krupicz said.
As carriers adapt to the new environment, they will tweak their products and develop new offerings that appeal to clients.
"The products changed five months ago," Chambers said, "and they will continue to change."
That will help drive an eventual rebound in permanent life insurance sales, Krupicz said.
"Over the next year or two, I think you're going to see a different mix of what's happening in the permanent space," he said. "We should see a bit of a bounce back."
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