January 2024

With every economic cycle, there are headwinds and tailwinds. This year will be no different.

Insurance and annuity players are carefully monitoring high inflation, high interest rates and a high probability of a recession in 2024, according to MarketFacts Forecast survey participants. How do they expect these conditions to affect their organizations?

“They will likely create greater focus on expense management and surplus growth as we look to balance the need to make strategic investments,” says Aaron Ball, SVP & Co-Head of the Foundational Business, New York Life.”

“High inflation and a potential recession continue to loom large in the minds of employers and employees,” notes Amy Friedrich, President, Benefits and Protection, Principal Financial Group. “These macroeconomic trends are driving an increased need for employers to offer flexibility and additional benefits to attract talent. This is driving more creativity and innovation among both employers and carriers in the workplace benefits space.”

How else do current economic conditions affect insurance companies? According to Gordon Watson, Chairman, AXA Asia, “Rising interest rates are generally positive for savings-oriented business over the longer term, but can make equity-investment-based products, such as unit-linked, less attractive.” He adds that high inflation puts pressure on profitability. He also notes that economic uncertainty adversely affects consumer confidence, causing consumers to shy away from longer-term financial commitments.

Adrian Griggs, EVP & Chief Operating Officer, Pacific Life, agrees with Watson that rising interest rates are an overall positive, but cautions that if they rise too rapidly they may drive more rapid [insurance policy] lapses and cause greater than expected impairments in a company’s credit portfolio. With respect to products, notes Griggs, “Higher rates continue to favor market demand for fixed retail and institutional products, while lowering hedge costs on products with embedded guarantees.” If economic conditions weaken, however, “Investment income and performance, reserves and capital become an even more highlighted focus.”

According to Wade Harrison, EVP & Chief Retail Officer, Protective Life, continued equity market volatility and the prolonged higher interest rate environment “will continue to push retirement retail consumers toward purchasing lower-risk products like fixed annuities and create friction in selling [equity] market-based products like variable annuities.” He points out that current economic conditions also are affecting available disposable income and, in some distribution channels, negatively affecting life insurance sales. And while rising interest rates improve product profitability and product feature flexibility, “they also open the market to new entrants, increasing competitive pressures.”

Legal & General America monitors economic conditions continually to ensure its value proposition to the individuals, families and businesses it serves is appropriate and aligned to the best outcomes. “But that is business as usual for us, not something new when trends shift,” says Mark Holweger, President & Chief Executive Officer, Legal & General America. “We need to look to our clients first and anticipate how the economy may affect them. With inflation and increased cost of living, we’ll continue to emphasize the importance of protection with clients at key life events, such as purchasing a first house, getting married or starting a family. There are lots of priorities for them to juggle, and life insurance should be a foundational piece in their planning.”

“With every economic cycle, there are headwinds and tailwinds,” notes Paul Lapiana, Head of Brand, Product & Affiliated Distribution, MassMutual. “That is why diversification of one’s portfolio — both on the consumer side as well as the business side — is critical. During the current economic cycle, we might expect to see some hesitance and procrastination with permanent life insurance decisions, increased interest in convertible term life insurance and greater interest in annuities.”

WoodmenLife is taking a very proactive stance with regard to the economy. “We have planned for various economic condition scenarios as part of our enterprise risk management (ERM) efforts,” says Denise McCauley, President & Chief Executive Officer, WoodmenLife. “Part of our strategy has been to invest in technology and business process changes to address unit costs impacted by various economic condition scenarios.”

Joe Monk, SVP, Financial Services, State Farm, notes that rising interest rates can benefit life insurers given the amount of revenue earned from investments. They can use this revenue to improve overall financials and to improve product competitiveness, especially products with an investment component. “However,” he says, “inflation will put pressure on expenses and prices. This will likely lead toward expense management efforts, including a push toward increased utilization of technology and digital capabilities.”

Continued inflationary pressures could impact our customers’ ability to afford life insurance, he adds. “At the same time, this will push the industry to find ways to lower costs, leverage technology and simplify the process to make our products more affordable and accessible. Should this result in financial pressures on organizations, we may see further consolidation in the industry, with a push toward more and more scale.”