THE LIFE/HEALTH INSURANCE INDUSTRY
Whether measured by premium income or by assets, traditional life insurance is no longer the primary business of many companies in the life/health insurance industry. Today, the emphasis has shifted to the underwriting of annuities. Annuities are contracts that accumulate funds and/or pay out a fixed or variable income stream. An income stream can be for a fixed period of time or over the lifetimes of the contract holder or his or her beneficiaries.
Nevertheless, traditional life insurance products such as universal life and term life for individuals as well as group life remain an important part of the business, as do disability income and health insurance.
Life insurers invest primarily in corporate bonds but also significantly in corporate equities. Besides annuities and life insurance products, life insurers may offer other types of financial services such as asset management.
CAPITAL AND SURPLUS
Capital, in a publicly owned life insurance company, is the shareholders' equity. In a mutual company, capital is retained earnings. Surplus in both cases is what is left when basic liabilities (unearned premiums and reserves for unpaid claims, etc.) are subtracted from assets (earned premiums, investments, reinsurance, etc.). The life/health insurance industry’s net income fell 11.7 percent to $32.0 billion in 2007 from $36.2 billion in 2006.
DISTRIBUTION CHANNELS
Life insurance was once sold primarily by career life agents, captive agents that represent a single insurance company, and by independent agents, who represent several insurers. Now, life insurance is also sold directly to the public by mail, telephone and through the Internet. In addition, in the 1980s insurers began to market annuities and term life insurance through banks and financial advisors, professional groups and the workplace. A large portion of variable annuities, and a small portion of fixed annuities, are sold by stockbrokers. In 2010 independent agents held 46 percent of the new individual life insurance sales market, followed by affiliated (i.e., captive) agents with 42 percent, direct marketers with 4 percent and others, including stockbrokers, accounting for the remaining 8 percent, according to LIMRA. In 2010, 26 percent of adults preferred to purchase life insurance via the Internet, or other direct channels, according to LIMRA.
PREMIUMS BY LINE
Measured by premiums written, annuities are the largest life/health product line, followed by health insurance (also referred to in the industry as accident and health) and life insurance. Life insurance policies can be sold on an individual, or "ordinary," basis or to groups such as employees and associations. Accident and health insurance includes medical expense, disability income and long-term care. Other lines include credit life, which pays the balance of a loan if the borrower dies or becomes disabled, and industrial life, small policies whose premiums are generally collected by an agent on a weekly basis.
There are several types of annuities. Fixed annuities guarantee that a specific sum of money will be paid in the future, generally as a monthly benefit, for as long as the annuitant lives. The value of variable annuities fluctuate with the performance of an underlying investment portfolio. The equity-indexed annuity is a hybrid product, with features of fixed and variable annuities. Annuities play a key in financing retirement for many Americans. (See also Retirement Assets: Annuities, page __.)
