Recently I spent a day with a North American client discussing the life insurance market. We had an active discussion about how the life insurance industry is at a pivotal crossroads. While the need for protection remains as vital as ever, insurers are facing a troubling reality: declining volumes of new life insurance policies and rising costs per policy. While annuity sales are making up for some of the declines in protection products, the economic reality is interest rates may not stay high forever and today's annuity boom could end. to throw gas on the fire, some insurers who have had success with annuities are facing some cost issues.
Several factors contribute to this trend—shifting consumer behavior, competition from digital-first financial services, and perhaps most critically, outdated legacy systems and manual processes. These inefficiencies not only slow down application processing and underwriting but also drive up acquisition and operational costs, making it harder for carriers to compete in a fast-evolving marketplace.
Legacy technology remains one of the largest barriers to transformation. Many insurers still rely on fragmented systems that were designed decades ago, making integration with modern digital tools complex and costly. Manual workflows—such as paper-based applications, wet signatures, and in-person medical exams—add further friction to the customer journey. As a result, insurers struggle to deliver the seamless, digital-first experiences today’s consumers expect. The longer these antiquated processes remain in place, the higher the cost per policy becomes, undermining profitability and eroding trust with younger, tech-savvy customers. To combat these challenges, insurers must accelerate digital transformation across the value chain. Our 2024 Previsory report discussed this need for transformational efficiency which includes investing in cloud-based policy administration systems, automating underwriting with data-driven engines, and integrating third-party APIs for real-time access to health, behavioral, and financial data. Electronic health records, predictive analytics, and AI-powered decision support can replace traditional evidence-gathering methods, enabling faster, more accurate risk assessments. These technologies not only reduce the cost per policy but also create opportunities to grow volumes by making life insurance simpler, faster, and more accessible to a wider audience.
Ultimately, reversing the trend of declining life insurance volumes requires a cultural shift in addition to technology adoption. Insurers must reimagine their products, distribution strategies, and customer engagement models through a digital lens. That means empowering agents with digital tools, embracing hybrid or direct-to-consumer platforms, and delivering personalized experiences that resonate with modern buyers. By shedding legacy constraints and embracing innovation, life insurers can lower operational costs, improve policy conversion rates, and reestablish relevance in the lives of today’s consumers.
Reach out to Celent if you want to discuss how we work with clients to understand the trends facing the life insurance industry and how insurers are handling the challenges they face.
