The Challenges Just Dont Stop For Variable Product Sellers
The riders, guarantees, and living benefits that have been added to variable insurance products in recent years are starting to be perceived as “real” benefits, agreed panelists at a conference here.
“For instance, people are starting to access the death benefits in the policies,” said Richard Randa, senior vice president, First Union Securities, Richmond, Va.
And articles are starting to say things like, “Hey, there really is something to those variable death benefits,” added Juanita Brown, vice president-marketing for the Insurance Services Division of Associated Securities Corporation, Los Angeles, Calif.
The two were part of a five-person Roundtable discussion that kicked off the regulatory affairs conference sponsored by the National Association for Variable Annuities, Reston, Va.
Though the panelists noted that variable products, and public perception of same, have grown tremendously in the last decade, they said the industry still faces challengesoften born of the earlier successes.
For example, though more people are accessing the variable policy death benefit provisions, some claims people dont know how to work with the provisions, said Randa. Some brokers have difficulty with the provisions, too, he said.
Similarly, product manufacturers have become “very aware of the street and of what people want,” said Richard Choi, partner with Foley & Lardner, Washington, D.C. That puts the underwriting relationship on its head, he said, explaining that, increasingly, “the companies are developing what they think the street wants.”
But, as a result, competition for market share is increasing, said another panelist. “The companies will match or beat the features that have been developed,” just to get into the distribution firms, explained Jeffrey M. Green, senior vice president and product manager-estate and trust services, at SalomonSmithBarney, New York.
He said his own firm has good relationships with its carriers, and tries to keep the market share issue out of the relationships. But market share competition is nonetheless a factor in the broader marketplace, he contended.
From Randas viewpoint, the proliferation of features is having another effect–”I see producers exchanging policies (within the firm) to get (their clients) into the new features.”
In introductory remarks preceding the Roundtable, Thomas Conner, general counsel and vice president of NAVA, said the variable business has more opportunities than when NAVA formed nearly 10 years ago, but it also faces new challenges.
For instance, the new insurance protections in variables, such as the enhanced death benefit provisions that have been coming out, have introduced new opportunities. “But that also presents a challenge, [which is] suitability,” he said.
Similarly, Fred Bellamy, a partner at the Sutherland Asbill & Brennan LLP law firm in Washington, D.C., noted that variable annuity success brought new competitors into the business. That spurred development of many new features and, subsequently, the unbundling of those features. (Unbundling means offering features to variable clients on a pick-and-choose basis, each with its own premium charge.)
But that, too, poses new challenges–and new risks, he said.
The roundtable discussion circled again and again on how multiple features are affecting the business.
In developing the features, Choi contended, insurers are trying to meet the concerns and needs of the market–for instance, with the enhanced death benefit and the enhanced earnings benefit features. This is broker-driven, he maintained, adding, “the companies arent thinking of themselves but rather of how to meet the needs of their clients.”
What about when features are offered on an unbundled basis? asked Mark Mackey, chairman and chief executive officer of NAVA and the roundtable moderator. He probed whether the administration issues associated with unbundling might be too cumbersome, and whether the unbundled products might invite anti-selection concerns.
From a distributors viewpoint, anti-selection is not a problem, said Brown. “But I can see it could be a concern for the insurance companies.” They would need to price for it, she suggested.
However, unbundling might make products more expensive (than packaged products), said Randa, because “with choice comes price.”
It raises an education issue, too, he said. “What if the broker doesnt explain, and have the client sign off on, everything? You need a mountain of disclosure” with these products.
In general, he said, having more features “complicates the product and makes it harder to sell.” Thats one reason why mutual funds are so popular, he added. “Theyre simple.”
What about the income solution of deferred annuities? asked Mackey.
Brown said her brokers have begun to understand the value of income annuities and annuitization as “a core piece” of a clients retirement program.
She said the key is to get the brokers to see its function. “Its a perfect planning tool,” Brown continued, adding that “clients clearly love to be surrounded by guarantees” such as those in income products. In the next 10 years, she predicted, “immediate annuities will be perfected” and so will become increasingly popular.
As for now, Randa says income products havent yet taken off at his firm. “They (clients and brokers) see the low returns (in the products) and go elsewhere. Our brokers use systematic withdrawal instead. They think annuitization is way down the road,” once the income products are improved and baby boomers get older.
Marketers will need first to deal with the “psychological hurdle–the fear the assets will be gone, not there when you need them,” suggested Green.
“More commutation options should help address the psychological concern of parting with your money,” offered Choi.
Choi also suggested that marketers concentrate on using words like “income stream” in discussing the annuitization concept with clients. Thats more favorable than using jargon, he said.
Distributors and clients need more education about the concept, too, he said. In addition, people who sell the product need a revised compensation structure, he contended.
“My question is, how does the income annuity work with the other assets the client owns?” asked Randa. “Does the client take the annuity money out sooner or later? Maybe take the bond or CD income first, or the other way around?” The answer isnt there, he said.
Yes, agreed Green, “we need a whole new set of tools–a technology platform to let us incorporate all assets that are available. That wont happen overnight, but we need to start working on it now.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 20, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.