Covid-19 has proved to be an eye-opener for customers of the life insurance industry as they are now more appreciative of the value of life insurance. Prior to this pandemic, even the informed ones had been postponing the purchase of life insurance. And even when they bought it, the insurance cover had always been clearly inadequate. This mindset is probably changing now as customers are visibly opting for more protection products. A life insurance policy should be owned by each and every person at the beginning of their career.
Rising Interest in Insurance Cover
Per a recent survey by Lincoln National Corp. LNC, more than a third of consumers attach importance to life insurance while a similar number confirm that they either have or are planning to purchase one.
According to MIB Life Application Activity, U.S. residents aged below 45 spent a considerable sum on life insurance in July, echoing similar sentiments of excited shoppers who rush to grab a hot new phone or a much-in-demand hand sanitizer. Going by MIB Group report, consumers in that age group filed close to 20% more life applications last month than the July-2019 reading suggests, according to. The under-45 age bracket has been the strongest-performing group since February after years of putting up a dismal show. MIB’s overall life application activity index was 14.1% higher in July 2020 than a year ago.
Insurance industry, which has been slower in comparison to others in the financial services space, has now no option but to embrace digitalization of their processes from selling of policies to claims settlement. In fact the carrier with a smooth and most sophisticated digital operating platform will be the front runner in the current market environment.
Insurers are resorting to online marketing channels to make purchases easy for customers at this time when physical purchases are being avoided.
Per Lincoln National, digital options may increase the possibility of purchasing a life insurance policy, especially among the younger consumers. While 29% of all consumers surveyed will be more likely to buy life insurance, with electronic options at their disposal, the percentage could jump to 40% among the millennials.
A recent Forrester study indicates that more than 90% of new life insurance sales is expected to have a digital interaction by 2020.
The Celent report affirms that nearly half of North American life insurers are investing in direct-to-customer portals, connected e-applications and data-enriched CRM to modernize their distribution channels and target more digitally-savvy customers. Moreover, firms are migrating from their existing processes to digital platforms that enable more incisive analysis, better validation tools and real-time status updates. Data analytics and artificial intelligence are thus revolutionizing the digital value chain for life insurance.
Year to date, the Zacks Life Insurance industry has lost 19% against the Zacks S&P 500 composite's growth of 5.1%.
Stocks in Focus
Nevertheless, the low interest rate environment is a headwind to life insurers. Fitch recently pointed out that insurers' earnings and capital will also come under strain from increased reserves due to assumption revisions and for embedded guarantees associated with variable and indexed annuities, pressure on net investment yields and interest margins, increased hedging costs and a reduced fee income due to lower asset balances.
We shortlist some stocks that should be in focus given the current mixed operating environment. Each of these stocks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Athene Holding Ltd. ATH continues to bolster premiums on the back of its sound credit profile and addition of reinsurance partners. Its inorganic growth story, driven by buyouts and block reinsurance transactions, based on which it offers enhanced retirement solutions to the U.S. retirement industry, also bodes well.
Its next year’s earnings growth rate of 44.2% is more than the industry’s average of 19.2%.
Prudential Financial, Inc. PRU should benefit from solid asset-based businesses, improved margins in the Group Insurance business and robust international operations. Strongly performing asset management business and a deeper reach in the pension risk transfer market are key catalysts for the long term. The company’s strategic initiatives also added to its existing capabilities.
Its long-term growth rate of 9% is higher than the industry’s average of 6.5%.
Brighthouse Financial, Inc. BHF is poised to benefit from growth opportunities, given its expansive and a compelling suite of life and annuity products as well as a dominating market presence. Its focus on exiting the transition service agreements should lower costs. Precisely, the company has been reducing expenses from 2019 onward with its gradual departures from TSAs. Brighthouse is also revamping its life insurance business to ramp up annuity sales.
Its next-year’s earnings growth rate of 59.1% surpasses the industry’s growth rate of 19.2%.
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Lincoln National Corporation (LNC) : Free Stock Analysis Report
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