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Some producers say the so-called “transformational” products are just what todays clients ordered. Others say the designs are too complex to bother with.

Either way, theyve arrived, and their ranks are growing in slow but steady fashion.

For producers, that presents several questions: What are transformational products anyhow? Why are they here? Should I promote them? Can I promote them?

In general, transformational products start out focused on one needsay universal life insurance or disability income insurance–but they can morph into, or be used for, other needssay, long term carelater on.

The idea is not new. For many years, term life policies have often included a “conversion” feature that allows owners to convert to permanent coverage later on. And deferred annuities typically allow policyholders to “annuitize,” thus turning a savings tool into an income tool.

Even the withdrawal options in annuities and withdrawal and loan options in ordinary life policies can be seen in this light, for they give the contracts liquidity features.

But, in recent years, morphing has expanded, giving financial products more functions and longer lifespans.

A few DIs can now switch into LTC later on, for instance, via conversion or some other method. Increasing numbers of life policies offer LTC and critical illness benefits or allow death benefit acceleration for those medical events. Many deferred annuities waive penalty fees for LTC and terminal illness. Some immediate annuities allow access to remaining values via “commutation” rights. At least one annuity has a LTC benefit.

The concept is showing up in non-insurance sectors, too: Some securities firms now offer a death benefit with certain securities accounts. And reverse mortgage companies say their product lets older homeowners “reverse” the direction of their “forward” (traditional) mortgage arrangement.

Whats behind it? In life insurance, marketers formerly thought of buyer need as something static, says Paul Ramseth, region vice president-insurance at American Express Financial Advisors, Minneapolis.

“Now we see that people have changing needs. Society has changed dramatically and people are more informed. The trend is more holistic. People need solutions that are flexible and adjustable.”

This has stirred resurgent interest in conversion features in term policies, he contends.

“People are recognizing that life really is a series of temporary needs,” Ramseth continues. In their early years, people tend to buy the maximum amount of term insurance, primarily for survivor needs. But as they age, they need life insurance for other needs (debt, taxes, etc.). Converting the original term policy to permanent helps make that possible, he says.

“Its the continuum of needs, from cradle to grave,” that transformational designs are addressing, he maintains.

Robert Littell, principal of Littell Consulting Services, Atlanta, agrees. “The trend towards life continuum planning is definitely at the root of this,” he says. The industry is “definitely more interested in developing products that follow the phases of life.”

Even automatic rebalancing features in variable products are part of this, he says: “They help keep the policy owner on track with goals, and they make it so you dont have to keep telling your client to rebalance.”

He is so convinced of the value of transformational products that he has partnered in developing a transformational model involving CI insurance (either CI riders or stand-alones). These can “flip” to a paid up LTC policy at an older agesay, 65 or 70.

Such contracts should appeal to younger people, in their 40s and 50s, who often ignore LTC insurance, Littell says. “It gives them a simple way to do something to take care of their continuing needs.”

“The lifetime coverage concept is pretty simple,” contends Mark Ameigh, partner at Disability Insurance Specialists, Bloomfield, Conn. “You get one kind of coverage for your working years and another when you are in retirement.”

His firm has designed a DI to LTC product thats now wrapped by two carriers. “Its one policy issued for the whole of life, but with different benefit triggers. Up to age 65, its a traditional DI, with a definition of disability based on inability to perform occupational duties. After age 65, the benefit trigger is inability to perform activities of daily living.”

This is a way to get LTC into the portfolios of younger people, Ameigh says. “The presentation is simple. Its a comprehensive lifetime program, regardless of health changes down the road.”

Its “one product and one sale,” Ameigh says.

This bundling trend is being pushed along by other factors, too. For one, transformational features provide producers with a reason to go back to the client, Littell says.

In addition, they help insurers enter new markets. Say, if a life company starts offering a policy with a LTC rider, that should help the company get a footing in the LTC market, and possibly at the desirable younger ages, he says.

Aging baby boomers are a key factor, too, Littell says. “Theyre entering their mature years with loads of debt. Theyre also living longer. So they risk facing substantial financial demands at a time when they may suffer a disabling illness.” Traditional products werent designed with this in mind, he says, so designers are now trying to find ways to transform traditional coverages to do double or triple duty.

As things stand now, some older homeowners dont have enough income to stay in their house and also do the financial and other things they want to do, points out James Mahoney, CEO of Financial Freedom, a reverse mortgage lender in Irvine, Calif. That, too, is fueling transformational thinking, he says.

In particular, it spurs seniors to consider taking out a reverse mortgage, he says. This “transforms” their life by paying them a monthly income for as long as they stay in the house (instead of them sending a monthly check to a mortgage company).

“Some people are using that money to pay off the first mortgage, pay their LTC or life insurance premiums or make deposits to other accounts,” Mahoney says.

Right now, he adds, “we are working with the LTC industry to develop a product that dovetails with LTC.”

[The federal government is giving a boost to that kind of cooperation, Mahoney points out, via the new American Home Ownership and Economic Opportunity Act of 2000 (PL 106-569). Among other things, this Act allows waiver of upfront federal reverse mortgage insurance premiums (charged by FHA) if a senior uses money received from the reverse mortgage to buy a qualified LTC.]

Despite all this activity, transformational products havent yet set sales records.

“Agents get all excited about our Viacare policy during our seminars, but few have actually sold it,” notes Robert A. Miller, vice president-life marketing for CNA in Nashville, Tenn. Viacare is a life policy that accelerates in event of LTC.

Why? He says agents say combo products are too complicated. “They think it will confuse the client and make them lose the sale.”

Furthermore, in states that require delivery of a disclosure form with such contracts, “the agents dont want to fill out the paperwork.”

Education programs–pointing out that this is a bridge product, an alternative to full LTC insurance–and product redesign efforts havent helped much, Miller adds. Nor have warnings about possible errors-and-omissions claims against agents who dont advise that the combo is available.

“The product sits in No Mans Land,” Miller says.

Yet, hes a believer in it and in combination products. For them to work, he says, “we need more companies selling the products. We need critical mass. We also need to have a few agents lose a case to someone selling a combo.”

This will take time, Miller predicts, but it will happen. Then, people who are shoppers will start hearing about the products. And they will want them, he says, because “shoppers look for value; they dont like to waste their moneyTheyll see this as a value”

What about now? Transformational marketers have several suggestions to help move things along.

“First, sell the client on the base product. Then talk about the other benefits and how they can help prepare for something else,” suggests Christine Ryan, director of Annuity Marketing at John Hancock.

The Boston insurer is marketing a variable annuityRevolutionthat does triple duty. It offers: tax deferred savings, death benefit options (including a new beneficiary tax relief option), and two care-related options. (One care option credits the VA value with a monthly benefit if the owner needs LTC. Another offers: discounts for care services; eldercare referral; and a nursing home/CI waiver of surrender charges.)

If producers think thats too much for consumers to digest, Ryan suggests this: “Remember, these features are optionalBrokers can bring them up if they want.”

Hancock positions its own product as “a logical progression, the next step for the client (and the agent) in the planning process.” Its not everything the client needs, Ryan says. “Its a way to start the process” (in this case, the process of LTC planning).

When presenting transformational products, “ask, which feature does this individual client need?” suggests Celeste Cardin, vice president and national sales director at Allmerica Financial.

Currently, this Worcester, Mass. insurer is debuting a new death benefit rider that “locks in” a new death benefit level any time the contract value increases 15% or more of the existing lock-in value. To do this, the insurer reviews the values daily.

There is a cost for that rider, as there is for many transformational features in other contracts, allows Cardin. Producers do need to weigh in those costs, she says. However, the cost doesnt get in the way of making the sale, she thinks, if the feature has value associated with it.

When a product has several such options, it can be complicated for producers to sort it all out, she agrees.

Thats where insurers can help, Cardin says, by providing materials that clearly explain the features and how they fit. (Example: Allmerica provides software that helps producers select the right VA death benefit from among six.)

“Agents want to be scripted on these products,” adds Ameigh. “So give them something to say. And put information on your Web site, to help them learn the details.”

Provide consumer disclosure information, too, he suggests, noting some states require it. In view of lawsuit trends, its a “good thing to do. And in view of consumer understanding issues, its the right thing to do.”

“Disclosure is important in the context of innovative products,” contends William Bossi, president of Disability Insurance Specialists. Thats because they are different from whats generally known.

“The agent needs to be a relational expert,” stresses Littell. “So put information out there thats easy for the agent to get to and simple enough to understand and use when talking with clients.”

The agents biggest concern is “not looking dumb in front of the client,” concludes Ameigh. So, “if you help agents communicate simply and with confidence, these products will sell.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 10, 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.


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