Conventional Wisdom is Wrong: Insurance Products Can Prosper Amid Economic Uncertainty
By Nicole Volpe, Contributor at The Financial Brand
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Financial institutions seeking ways to better meet accountholder needs in times of economic uncertainty might turn their attention to insurance products. And what many will find is that product strategy to emphasize or even to include protection in a down-market isn’t clear-cut. Consider two scenarios:
- Consumer No. 1 is weighing the purchase of a life insurance policy. As primary breadwinner, she’s grown increasingly concerned about her family’s financial security. She shops around a bit but eventually decides to put her search on hold: the premiums are quite high and would put too much pressure on cashflow and savings.
- Consumer No. 2 is worried about family financial security, too — especially with layoff announcements increasingly popping up in his newsfeed. One day, while reviewing his checking account balance ahead of monthly bill payments, he notices an offer for a critical illness policy. “This would take care of one of my big worries,” he thinks, and clicks to learn more.
When uncertainty looms, many financial services marketers will focus on people like Consumer No. 1, and lower their expectations for insurance sales, and associated non-interest income, accordingly.
Indeed, the industry’s conventional wisdom says insurance sales weaken as economic pressure and consumer financial anxiety grow. Historically, insurance premium growth has tended to move in sync with GDP — especially in Property & Casualty lines — and in fact sales fell sharply in the 2008 recession. “Hard market” premiums can add to the pressure.
Neglecting Consumer No. 2 may be a mistake, however — especially now, as record numbers of workers take hardship 401(k) withdrawals and credit card and auto loan delinquency rates exceed 2008 peaks. When a Wall Street Journal headline asks, Has the Era of the Mega-Layoff Arrived?, is that really the moment to pull back on protection products?
What Happened in 2022-2023
The post-Covid years of 2022-23 are a case in point. Inflation peaked at 9.1% in June 2022 — its highest level in four decades — as supply chains strained, energy prices surged, and the Federal Reserve began an aggressive rate-hiking cycle that would ultimately push interest rates to a 22-year high. Consumer sentiment, as measured by the University of Michigan, fell to its lowest recorded level in June 2022.
And what was happening meanwhile with insurance sales? Yes, financially stressed consumers were reevaluating policies and coverage: A 2023 survey by Nationwide found that 51% of consumers said they were seeking ways to save on existing policies and 26% had decreased or were planning to decrease coverage limits. But notably, only 20% said they had removed or planned to remove a policy entirely.
A further wrinkle: a survey by LIMRA found willingness to add supplemental health protection among those with access to workplace benefits — with more than half citing inflation and potential recession as factors in their enrollment decisions. Specifically, full-year 2022 supplemental health premiums rose 12% from 2021, with growth across all major product lines: Accident insurance rose by 9%, critical illness by 12%, cancer by 9%, hospital indemnity by 10%, and workplace disability by 8%. Workplace life insurance premiums did fall, but only by 1%.
The Pressure Paradox
The first important learning of 2022-2023 is that demand dynamics held firm even against the backdrop of financial distress. During downturns, consumers often trim back or shop around for coverage. They may even change providers: In Nationwide’s 2023 study, 23% said they had already switched insurance agents or were considering switching to a new one. But few abandoned protection entirely.
Recognizing this, banks and credit unions might focus on enabling accountholders to reallocate their spending toward policies that protect them from major financial shocks, according to Farah Rehman, GVP at Franklin Madison, which works with financial institutions to deliver insurance products to consumers. Specifically, they might emphasize affordable core protection options that ease monthly outlays, such as supplemental health or critical illness coverage or home and auto with lower premiums and higher deductibles.
Workplace Benefits Deserts
The behavior of those with access to workplace benefits unlocks further market insight. These consumers’ willingness to expand coverage amid economic uncertainty was a prominent feature of 2022-2023 activity, but the critical point to bear in mind is that fewer and fewer people enjoy access to workplace benefits.
Zooming out, one of the most powerful trends of the past decade has been the shift to contract and gig work. Current estimates say such workers represent anywhere from 10% to 38% of the workforce. Many of these workers are independent by choice, and they may even enjoy financial stability, but they generally lack access to the suites of benefits available to those who work for organizations with 50-plus employees. And layoffs, of course, further increase the population of workers without access to company-sponsored benefits.
For banks and credit unions, these workers may represent a growing segment of consumers who want protection, including and perhaps especially in a downturn, and have nowhere convenient to turn for it.
Products, Pricing, and People
Financial institutions reassessing their insurance product strategy can start by identifying the products that would meet their customers and members where they are. In a market like the current one, with consumer confidence falling back to mid-2022 lows, this may include supplemental offerings that indirectly protect income and fill gaps in basic protection. But, Rehman said, “the key is to develop a product and pricing strategy that balances financial-risk reduction with consumers’ cash flow concerns.”
In the case of life insurance, she said, instead of a traditional whole life policy with a $300-$500 monthly premium, an institution might instead lead with a $5-to-$10-a-month accidental death and dismemberment or critical illness policy. The latter can provide meaningful income protection, including disability coverage, at a price point that doesn’t compound the financial anxiety it’s meant to address. “This becomes a different conversation entirely,” she said — one that “feels far more relevant and intentional from the consumer’s point of view.”
For an independent contractor with bare-bones health insurance, a critical illness policy can cover the thousands of dollars in out-of-pocket costs that often fall outside coverage when a serious diagnosis hits. Such costs can be devastating for a household already stretched by inflation or rising interest rates.
Mission Critical?
Insurance is fundamentally a low-touch product category: most policyholders interact with their carrier fewer than once a year, according to Bain research spanning more than a decade. JD Power found that 29% of insurance customers switched insurers in 2025, driven largely by premium increases they didn’t understand or couldn’t absorb. In fact, the JD Power research said that high-value, multi-product insurance customers, historically the most loyal, are now among the least likely to renew.
This structural liability for standalone insurers may be an opportunity for banks and credit unions, which already maintain trusted, high-frequency relationships with their customers and members. For these institutions, insurance can be seen as extending and completing the accountholder relationship. “It all comes down to your mission,” said Rehman: “What kind of institution do you want to be, and what kind of relationship do you want to have with your served community?”
For a financial institution looking to become the member’s or customer’s partner in attaining financial security, insurance products have potential to build loyalty and deepen relationship value over time. Properly positioned, such products generate fee income, create a further point of engagement, and keep the institution’s name centered in the customer’s quest for financial well-being.
