Life insurers profit even as sales fall during recession

Since year 2000, the only gain in U.S. life insurance sales was a small blip that lasted 4 quarters after the September 11 terrorist attacks back in 2001.

The life insurance industry has experienced a year-over-year revenue decline in every quarter since the fall of 2002.

Still, the life insurance industry remains highly profitable due to buoyant sales of other products.

Annuities now generate about 38% of total life insurance industry profits, while accident and health insurance sales contribute 26%.

Life insurance sales represent 32% of the industry’s annual cash gains, according to an analysis of U.S. life insurance industry profits for 2006. Miscellaneous financial products bring in another 4% of profits.

Recession Further Depresses Life Insurance Sales
Based on a historical study, the Insurance Information Institute’s presentation entitled Source of U.S. Life Insurance Industry Profits 2006 concludes that during a recession:

Policy loans increase.
Life insurance lapse rates rise.
Because of the severity of the current recession, the above two life insurance trends are expected to accelerate. That is, more consumers will take out loans on their life insurance due to the credit crunch while more policyholders are expected to cancel their life policies because they can’t pay their premiums.

While group life insurance sales contribute only 6% of industry profits, group life revenues will probably shrink further as companies cut back on their head counts.

Group accident and health sales should show a more significant drop, since about 18% of total life insurance industry profits came from these products in the early days of the current recession. Also, claims for disability income benefits typically rise during a recession due to such factors as stress, anxiety and depression. These in turn cut into life insurers’ profits.

Life Insurance Companies Will Remain Profitable
By focusing on annuities and similar pension products, U.S. lifecos are strongly positioned to profit from servicing the retirement needs of 84.2 million American baby boomers age 60 and over.

That 84.2 million number is from the U.S. Census Bureau age data of the United States for 2006, and it shows how powerful a force baby boomer spending is on the profitability of the American life insurance industry.

Profitability should continue to grow, even if life insurance sales diminish over the longer term.