An interesting theme emerged at the Insurance Innovators USA conference earlier this week, relating to how changing investor preferences are beginning to shape a brighter future of life insurance. Across a couple of speakers and in different contexts, we discussed how innovation within life insurance has been constrained by investors that need to see returns faster than the industry is built to provide. But we have good reason to expect that the pace of innovation will increase soon, as alternative investors that operate on a longer time horizon are seizing the opportunity.
The topic first arose during an insightful keynote address by Brent Korte (CMO, Ameritas), where he noted that in recent years publicly-traded carriers like Principal Financial have been facing pressure from activist investors to get out of the capital-intensive business of underwriting life insurance. He noted the opportunity this creates for mutuals and privately-held carriers that don’t face the same pressure from public company investors, whose expectations have been shaped by the quarterly reporting cadence that public companies are required to follow.
It came up again a few minutes later, in the panel I participated in with Jason Gross (CSO, TruStage) and Michael Vellat (COO, AAA Life Insurance Company Life) and expertly moderated by PwC’s Kanchan Sukheja.
Michael observed that for many years now, life insurance startups received substantially less venture capital (VC) than their property & casualty (P&C) brethren. Life insurance is less attractive to VCs because they typically have ten years to invest their clients’ money and earn a return on it, while the multi-year cash flow cycle of life insurance reduces the time available for a startup to launch and scale.
Also, it occurs that interest rates are likely another factor causing shorter-term investors to blanch at life insurance. Life insurance profitability is highly sensitive to interest rates, and while rates have risen in recent years, they are still historically low and it's debatable if in this rate environment life insurers are actually creating economic value. On the flip side, this means bargains aplenty for investors who can be patient enough for interest rates to return to historically “normal” levels.
Longer-term and value-oriented investors are starting to take advantage. Family offices and other, single-investor firms can be more patient than a traditional VC are investing in more life insurance startups (e.g., the investment we at Everyday Life Insurance just took from Palm Venture Studios). Mature insurers continue to attract interest from privately-held asset managers like Apollo Global Management, Inc. and KKR that value a life insurer’s reserves as a stable source of investable assets for their core business.
A long winded way of saying that my big learning from this excellent conference is that for life insurance, the best is yet to come. Let’s go! 🚀
