Best’s Market Segment Report

Technology Advances Create Urgency for U.S. Fraternal Life Industry

Challenged to attract new members

OLDWICK, N.J., October 24, 2018—Despite posting favorable operating results over the past decade, the U.S. fraternal life insurance industry remains challenged to attract new members, according to a new A.M. Best report. The Best’s Market Segment Report, “Technology Advances Create Urgency for U.S. Fraternal Life Industry,” states that the U.S. fraternal  population, based on data reported by 45 companies in 2017, has reported an average decline of 0.3% in net premiums written over the past five years as the industry saw fluctuating annuities sales and moderate ordinary life insurance growth.

Over the past 10 years, the three largest market players have driven net premiums written: Thrivent Financial for Lutherans (Thrivent), which accounted for more than half of the fraternal market segment, Knights of Columbus and Modern Woodmen of America. Thrivent achieved 54% of premium growth over the last 10 years, but premiums decreased slightly in 2016 and 2017 due to a slowdown in annuity sales, reflecting fraternal membership growth trends.Many fraternals have loosened their requirements to grow membership, potentially diluting their fraternal bond. Fraternals have attempted to increase membership by broadening their target market to include more religious affiliations or demographic groups. Efforts by smaller fraternals to grow membership have been limited, leading to some consolidation and pooling of resources to achieve cost efficiencies.

Reinvention Thru Innovation

Over the past 10 years, the three largest market players have driven net premiums written: Thrivent, which accounted for more than half of the fraternal market segment, Knights of Columbus and Modern Woodmen of America...

Operating returns for the fraternal industry, while positive, also have been challenged to grow. The report notes a large 25.0% year-over-year decrease in net operating gains in 2017, driven by a significant increase in reserves taken by Thrivent on its long-term care block of business. Net income for the population dropped 6.6% in 2017.

Fraternals face many challenges similar to the overall life/annuity industry, which is reinventing itself through innovation and technological advances to modernize distribution systems, increase market penetration, grow life insurance premiums and appeal to younger generations. The demographic shift from rural to metropolitan areas, as well as the aging of the U.S. population, has contributed to the obstacles the fraternals face, given that they have traditionally focused more on rural, lower-middle-income populations. A.M. Best believes fraternal organizations need to focus on the technologies that add value, and outsourcing to benefit from the latest and best core systems while keeping expenses under control.

To access the full copy of this market segment report, please visit here.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

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