Could consolidation in life insurance market lead to mutual company dominance?

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Over the past 30 years, the number of businesses within the permanent life insurance industry has decreased considerably. Between 1985 and 2015 stock companies dropped from 2,133 to 616, while mutual companies fell from 128 to 110 — all while the U.S. population has grown from 245 million to 318 million, according to the American Council of Life Insurers.

Even so, Catherine Theroux, director of public relations at LIMRA, says LIMRA’s sales data show that market shares of retail whole life and universal life have remained steady. “Whole life is on track to have its 12th consecutive year of positive growth,” Theroux says. “I wouldn’t portray the permanent life insurance market as shrinking.”

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Still, Eileen McDonnell, chairman and CEO of The Penn Mutual Life Insurance Company, says while businesses are seeing positive sales growth, the industry has been shrinking for decades. As such, with continuing pressure on stock company performance, there will be more and more stock companies retreating from the domestic permanent life insurance business, she predicts.

Mutual vs. stock
“Those stock companies are making their products long term in nature,” McDonnell says. “Life insurance and annuity commitments go out 20, 30, 40, 50-plus years in which the insurance company is guaranteeing a payment in future years. Along the way you are awarded a dividend or a crediting rate, depending on the type of product you have, and within a stock company that gets determined after your shareholders have been satisfied.”

The fact that stock company leaders have long-term commitments to their clients and short-term commitments to their shareholders can cause conflicts between the two, McDonnell adds.

“[A mutual company] has more of a long-term view, so we are able to hold a higher capital level for a rainy day as a percentage of our liabilities and obligations because we don’t have the pressures of Wall Street asking to get better returns on that money,” she says.

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Despite the major decrease in stock companies in the past 35 years, Chris Acker, independent life insurance broker for CB Acker Associates Insurance Services, strongly disagrees with McDonnell’s prediction of growing mutual company dominance. Instead, he says, the large mutual companies will remain, but many smaller companies will demutualize and become stock companies.

“Stock has done nothing and yet the policyholders are still there,” Acker says. “They’re paying benefits, they’re paying claims and they have cash values that accumulate, so to say that the mutual companies are the only ones left standing in the next 10 years — I would say quite the opposite.”

Acker added that consumers are more interested in dealing with insurance brokerages rather than specific companies, because brokers are not tied to one specific company and are expected to deliver the best possible service to their clients. “They’re brokers, they are not tied to Colonial Penn or Colonial Life or whoever the flavor of the month is, they represent everybody.”

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