Newspaper Headlines Highlight Changes in Life Insurance (and TOLI) Business

On October 30th, Voya Financial, a company we wrote about because of a lawsuit filed against it for cost of insurance increases that occurred on universal life policies sold in the past under the Security Life of Denver banner, announced in its third-quarter earnings call it would be ceasing all life insurance sales as of the end of the year.

The company, which was spun out of ING Group, a large financial services firm operating in 40 countries around the world, is not leaving the market because of any litigation.  It is leaving because the permanent life insurance business faces a “sluggish environment” according to a Wall Street Journal report. (1)  The article reports that “since the 1980s, sales of individual life insurance policies have dropped 45%” and in the last few years have been flat.

Voya’s life insurance business the last few years has been bolstered by sales of equity index universal life policies which made up the bulk of Voya’s life sales, a product being packaged by the industry as a retirement supplement vehicle, as the life insurance industry moves from death benefit to retirement funding sales.  As the WSJ article points out many consumers today “are more concerned about outliving their savings than dying prematurely.”

Voya is leaving life insurance sales to focus on pure retirement funding investment management and employee benefit opportunities.  In a Voya press release, Rodney O. Martin, Jr., chairman and CEO, said that going forward Voya would be “focusing on the workplace and institutional clients” and that stopping the sale of new life insurance “aligns with our plans to focus on our higher-growth, higher-return, capital-light businesses: Retirement, Investment Management and Employee Benefits.”  (2)  Voya will continue to administer the current block of in-force business.

The individual life insurance market suffers from an aging workforce and lack of “new blood” to the industry. The average age of a life insurance agent is approximately 60, there are fewer opportunities for new agents to join the industry and according to one survey, the younger generation views life insurance as boring. (3)  As the old guard retires, there may not be enough seasoned agents to replace them.  This is unfortunate, especially in the “higher end” market where wealthy individuals use sophisticated products and strategies in trust-owned life insurance (TOLI) policies and put pressure on a TOLI trustee to be well versed in the changing permanent product landscape.

Ironically, another headline posted the same day points out the new direction of the market.  Ethos, a Silicon Valley start-up that says it can “process life insurance in a matter of minutes” raised $35 million in a funding round that values the firm at “more than $100 million.” According to an industry article, the company “uses data analytics to predict a person’s life expectancy” and this enables it to “cut the time normally taken to apply for life insurance from 10 weeks to 10 minutes.”   The company’s funding has come from big business names like Google and entertainment figures like Jay Z, Robert Downey Jr, and Will Smith.   The company is focused only on term insurance providing 10 to 30 years of coverage for those in the “prime” of their life.

Making life insurance easier to purchase is a great selling point, and many carriers are stepping up with AI and algorithms to speed the underwriting process along, but in the high-end market where life insurance is still used for estate planning, permanent products, not term insurance is typically used.  Term is more of a commodity sale, the only real differentiators being price, carrier stability, and conversion options, so it lends itself to this quick online sales process. Permanent products need consultation, as their nuances and application are harder to explain.

In the TOLI market, there will always be a need for a good advisor to oversee the purchase and management of life insurance.  As we move forward, we think that role will fall more to the TOLI trustee, who more than ever will have to be a specialist in this asset.

  1. Another Insurer to Cease Selling Life Insurance to Individuals, Leslie Scism, Wall Street Journal, October 30, 2018
  2. Voya Financial, Inc. (NYSE: VOYA) today announced financial results for the third quarter of 2018, Business Wire, October 30, 2018
  3. One in four insurance agents will be gone by 2018, Caitlin Bronson, insurancebusinessmag.com, February 23, 2015.
  4. Google, Accel, and Jay Z invest in life insurance start-up Ethos, valuing it at more than $100 million, Ryan Browne, cbnc.com, October 30, 2018

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s