5 Biggest Challenges in Life Insurance Industry

You’ll agree with me when I say;

Life insurance is very important to your family as it leaves non-taxable finance on their table when you are no more. 

Also, in the case where you have a debt, the life insurance policy will cover that for your family when you die.

However, there are some challenges in life insurance industry that have made people think twice while buying premiums. 

In this guide, we will do justice by listing some of those challenges.

Challenges in life insurance industry

1. Impact of COVID-19 on global interest

One of the challenges that the life insurance industry is currently facing since 2020 was COVID-19. 

However, the impact of the pandemic on the life insurance industry isn’t strong compared to other insurance policies like auto insurance.

Statistics have it that the auto insurance premium reduced by 25% or more in March 2020.

Further, the life insurance companies had to adopt the method of increasing premiums due to an increase in mortality risk. 

Especially for customers that have COVID-19 already before applying for life insurance cover.

Also, one of the reasons COVID-19 is one of the challenges in life insurance industry is because most life insurance companies removed policies for people aged 75 and above.

Fortunately, due to the pandemic, more people saw more reasons to have life insurance cover. 

Which increased demand for it.

2. Getting big data

Data is one of the resources that makes insurance companies reliable. And, poor data can be one of the challenges in life insurance industry.

With quality data at their disposal, they can improve customer experience.

Also, technology has made it possible that huge amounts of data can be easily exchanged, which is formally known as big data.

Moreover, not only do the Insurance industries need big data to survive, but the big businesses also leverage this big data to deliver their best to their customers.

3. Cyberattacks

In as much as data is needed in the insurance world when this data breaches into the wrong hands they can illegally misuse the users’ personal details.

Which includes stealing their hard-earned money.

Cyber theft is one of the biggest challenges in life insurance industry. 

In the last few years, the rate of successful cyber attacks that hit the business world has grown exponentially.

In America alone, there had been attempts to steal the personally identifiable information (PII) of more than 100 million Americans.

Insurance industries are one of the highest attackers by these criminals because of their high level of storing policyholder’s data.

It doesn’t just possess a great threat to the Insurance industry, also to other businesses. 

Fortunately, most life insurance industries are adopting the latest technologies and employing intelligent security personnel to be in charge of these technologies. 

4. Versatile Customer Approach

The world is changing, and some still insist on following the path they grew up on. 

I’m talking about the elder generations who against all odds have refused to accept the growth of the internet.

They still prefer to use paper and visit offices for some issues as simple as getting quotes.

There are also baby boomers who still fight digital growth and still prefer the paper approach.

GenX who have grown up to start accepting the digital world but still has some characteristics of the paper world.

We now get down to the millennials that are prone to the digital age but not deeply into it.

Finally, the GenZ, who are addicted to the digital world, the internet age.

The question is, how do insurance companies cater to all these generations?

This is one of the challenges in life insurance industry.

So, for insurance industries to survive, there has to be a versatile approach to customer relationships.

Where they are ready to satisfy each customer irrespective of the generation.

5. Unending Competitions

Business is the place of survival of the fittest.

Most of the big businesses, centuries ago have been kicked out by current giants.

And the Insurance economy is not exempted.

High competition is one of the greatest challenges in life insurance industry.

Due to the emergence of takaful (a type of Islamic insurance, to comply with their Sharia law), there has been more competition in the insurance industry.

Just like every other organization, there will always be competitions, and more to come.

The Growth of Life Insurance

There have been amazing changes over the past decades in the global life insurance industry. 

Some continents like Asia that contributed less to life insurance for Expats are now contributing significantly to global life insurance growth.

According to Globaldata, the life insurance written premium in the Asia-Pacific region is projected to grow from US$1.2 trillion in 2019 to US$1.5 trillion in 2023.

Despite the COVID-19 crisis, many countries have started seeing gradual recovery in their insurance policies especially due to the lifting of lockdown restrictions.

Further, Technology has been of prominent help to the growth and has reduced some challenges in life insurance industry. 

The pandemic made some companies start considering technology in their workforce.

The provision of technology in life insurance has made clients easily file claims, request quotes, and speak to agents or brokers in their pajamas.

Also, some companies have created their own technological tools to enable them to

  • Virtually communicate with their clients.
  • Educate their employees
  • Collect suitable data from their customers
  • Access large amounts of data within a short time and with less error.

Moreover, with the help of chatbots life insurance industries have been able to communicate to clients’ pressing needs 24/7/365. 

According to GEOSPATIAL WORLD, in 2025 more than 90% of all customer communications will be handled by chatbots.

Whereas, in the United States, Limra’s 2020 Insurance Barometer Study showed that, in 2020 54% of all people in the United States were covered by some type of life insurance.

How Life Insurance Companies Make Money

To know the best way life insurance companies make their money, you need to understand how life insurance works.

A Life Insurance policy begins when the potential policyholder pays a premium and signs necessary documents which proves that he has purchased the policy. 

In the incidence of death of the policyholder, the insurer will pay a certain amount of money/benefits to the beneficiaries.

Therefore, one of the ways life insurance companies make their money is by the premium the policyholder purchases.

But before they will charge the policyholder their premium, they will use some actuaries to know their survival risk.

They will want to know if the policyholder smokes, drinks (especially while driving), or has a serious health challenge.

This will help the insurer to decide the premium price to give the policyholder. 

So, if the policyholder has a high chance of surviving, that is, he’s young; doesn’t smoke; neither does he drink while driving; has no big health issues.

Then his premium will be low.

Another way life insurance companies make money is by reinvesting your premium. 

That is, they invest your premium in interest-bearing securities like bonds, real estate, stocks, and other solid investments.

This also enables them to get finance to pay their customer’s cash value.

Finally, life insurance companies also earn from lapse policies. This is when the life coverage of a policyholder expires without the death benefits being paid.

It can also be when the policyholder doesn’t have enough finance to continue with the premium which will lead to the cancellation of the policy.

So, the company will have the premium and still won’t pay the beneficiaries.

This mostly occurs in term policies, where it is renewed annually. Statistics show that only 2-3% of term policies fully payout. 

Therefore, most policyholders with term policies either outlive their policies or cancel the premium.

Challenges in Life Insurance Industry Conclusion

The challenges in life insurance industry shouldn’t make you assume you don’t need life insurance coverage.

Investment is risky, and so is insurance.

Most importantly, you don’t want to leave your family’s future unsecured. 

We don’t wish for death, especially untimely death, but it’s better to prepare for the storm.

Author’s Recommendation

Leave a Comment

Your email address will not be published. Required fields are marked *