Time for a Little Spring Cleaning

Why You Need to Pull Your Life Insurance Policies Out of the File Cabinet, Dust Them Off and Have Them Reviewed by an Independent Advisor

Phew, April 15th has come and gone. While you were looking for your tax information and getting ready to file your taxes, did you think it might be time to clean out the filing cabinet? Did you come upon other “stuff”, perhaps the old file holding your life insurance policies? In which case you certainly ignored it and left it where it was. Assuming you ignored most of the other stuff including those life policies, it is definitely time to review what you have, figure out if it still works for you and if it is going to go the distance. Things have changed pretty radically for the life insurance industry over the last 20 to 30 years.

There’s been a trend of consolidation in the life business where two, three, four or more companies joined together under one name, often a new name no one recognized. Several companies have left the business, their policies acquired to be serviced and maintained by other insurance companies or to remain with them as a long-term block of business. Travelers stopped selling life insurance in 2005. Sun Life went out in 2011. Genworth left in 2016. Snoopy has fallen off the doghouse for the final time - MetLife got out of the business of selling individual policies in 2017. Voya, a conglomerate of companies that included Security Life of Denver, Security Life of Connecticut and ReliaStar among others, exited the business at the end of 2018. These consolidations and departures came during and after a time when many life insurance companies had switched from a mutual format and gone public making them responsible to their shareholders rather than their policyholders.

Enough of the history lesson, why care?

These changes in the life insurance industry highlight the critical need for independent advice and analysis by qualified insurance advisors who understand the players. If it is time to move to a different insurance company that has better prospects to remain in the business of providing life insurance coverage, the time to consider change is NOW. A coverage review by an expert while the insured is younger and healthier can prevent problems with policies that cannot be solved as people age and become less healthy.

Where policies are backed by a company not selling life insurance, they really don’t care about their policy holders because the reputation for that line of business is no longer important. Term policies that were convertible will not have a competitive product, or perhaps any permanent policy available for conversion.

Also, adverse selection negatively impacts the risk profile of companies in financial hardship or out of the life insurance business. This is because these companies end up with a pool of insureds that are typically less healthy with death benefits to be paid earlier than originally anticipated. Healthy people who are paying attention have taken their business elsewhere.

Consolidation in the life insurance industry and companies deciding to quit selling life insurance (even when “life” is still in their name) are part of a trend driven by economic, regulatory, and strategic factors. Here’s an overview of what’s going on and some theories on why it is happening:

What is Driving Consolidation?

1. Economies of Scale

   • It is easier for bigger players to manage regulatory compliance, technology costs, and capital requirements.

   • Scale can spread risk and provide leverage with reinsurers and distributors.

2. Private Equity Involvement

   • PE firms are increasingly buying closed blocks of business or full companies (for example, Athene backed by Apollo).

   • They are often trying to optimize returns through reinsurance, asset management, restructuring and tightening operations budgets.

3. Technology and Modernization Needs

   • Legacy systems are cumbersome to maintain and expensive to update.

   • Mergers allow for shared investment in digital transformation and hopefully create improvements for the end consumer.

4. Aging Books of Business

   • Older life blocks can have stable but declining returns.

   • Consolidators or specialists can manage these efficiently as “run-off” portfolios.

What's Next?

• Expect more consolidation, especially among mid-size companies.

• Tech-driven startups (like Ethos and Ladder) are targeting term life with direct-to-consumer models, potentially disrupting traditional players.

• Companies may increasingly reinsure or sell legacy blocks to free up capital.

• A shift toward hybrid products for example, life + long-term care and fee-based services  

Life insurance, like any financial asset, should be regularly looked at by an independent advisor, preferably a CFP. A qualified insurance consultant will understand the current market and steer their clients to a company or companies that have long-term commitments to the industry. Theoretically, if the policy is with a quality company that intends to stay in the life insurance market, a review every two to three years should be adequate. For larger policies or if a change in health has occurred, annual reviews should be considered.

So, get those policies out of the filing cabinet into the spring sunshine and take them to an expert for review.