The most common prediction about life insurance premium rates is that they would decrease in the near future. Life insurance premiums are based primarily on mortality rate. Other factors that affect premiums are expenses and investment. Investment is not a factor with term insurance however. The main reasons why life insurance would get cheaper in the future are:
1) Decrease in mortality by relevant age-groups: The age-group most likely to purchase life insurance is the 25 to 44 age group. The life expectancy of this age group is increasing by virtue of its death rate decreasing. The actuarial process is a lot more complicated. However, insurers would be more concerned about the statistics of the age group that buys the most insurance coverage.
2) Life insurance is becoming more competitive: The competitiveness of the insurance industry is increasing as a result of the increasing financial strength of insurance companies and the availability of information. With widespread use of the internet, it is becoming a lot easier for consumers to comparison shop. Although buying decisions are not made primarily on premium rates, the transparency of rates would be a significant factor.
3) The liberalisation of financial markets: This would afford insurance companies the ability to shift capital a lot easier beyond regional boundaries. It would lead to higher expectations for investment, which is a component of permanent insurance premiums. Better investment opportunities would increase the assets of an insurer so that they far exceed liabilities. The insurer would not be under pressure to finance reserves and statutory funds with larger premiums.
Although premiums are expected to decline marginally, the decrease in premiums may not be very significant. This is primarily due to the increase in terminal illnesses and increase in “lifestyle diseases”. Premium rates are based on population statistics for particular countries. A marginal decline in premiums is expected in North America, where the inflation rate is still very low. In countries where the rate of inflation is much higher, the nominal premium rates are not likely to decrease. This is because the real premium value would decrease as a result of rising inflation. Due to the presence of discounting factors, premium decreases are not likely to be very significant among countries.