2001′s Sea Change For Products
Will Continue Next Year
Sea change: That was the insurance product story in year 2001.
Life insurance sales swelled, fixed annuity sales took wing, equity index annuity sales hit a new record, disability income insurance inched up, and long term care insurance turned more heads.
At the same time, variable annuities swooned, corporate-owned life insurance sales skidded, health insurance premiums rocketed, and product innovators headed for cover.
The dramatic shifts gave proof to the words of Heraclitus, the Greek philosopher, who said that “everything flows, nothing stays still.”
Recession and terrorism get the blame or credit, depending on point of view. Whatever the reason, insurance leaders believe the product trends begun in 2001 will continue on into 2002.
For producers, that means less scrambling to find new types of products to sell in 2002, but more scrambling to find competitive ways to offer products that brought home the bacon in 2001.
For insurers, it means updating the newer product darlings, refashioning flagging product lines, and strategizing over how to maintain existing books.
“This year, we saw more sales of universal life with long death benefit guarantees, often out to age 100,” says one broker, Randy Bratton, principal of Bratton Companies, Memphis.
“People arent so worried any more about cash value build up,” he explains. “They know current cash value projections arent guaranteed, but that doesnt seem to concern them. Guaranteed cash values dont seem as important, either.
“What people are concerned about now is the death benefit being there,” he says.
The trend emerged even before the Sept. 11 terrorist attacks, according to Bratton. He says people starting looking for more security-oriented products earlier in the year, once the stock market started dropping.
That sparked growth in sales not only of UL with long term guarantees but also of fixed annuities, Bratton says. Meanwhile, sales of VAs, variable life, and mutual funds went “way down.”
It was the same at many other shops. “When the year started,” recalls Ronald A. Davis, of the Davis Life Brokerage in West Des Moines, Iowa, “I thought the new estate tax law would hamper life sales. But it turned out that people viewed the law as a temporary measure,” so they kept buying life insurance.
In fact, life sales were up at his shop in 2001. His explanation? People are pretty sure the estate tax will continue. They are also more aware of their own mortality, due to the terrorist events.
Annuity sales were up, as well, Davis adds.
But the types of life and annuity products that sold were different in 2001 than in previous years. The trend was toward products offering “safety and security,” he says.
For instance, fixed annuities were more popular than variable annuities. “And although rate of return was important,” Davis says, “safety of principal seemed more important. People wanted to know: How safe is the company? What are its ratings? How old is the company? What about its assets?”
In life insurance, UL drew more sales than whole life, according to Eric Marcus, president of the Marcus Agency, Sudbury, Mass.
Why UL? “People didnt want to pay the WL premium,” he suggests.
However, he adds, they didnt want any old UL. They wanted UL with a long-term death benefit guarantee, as noted above. “Traditional ULs, which lack such guarantees, make people ask, ‘How do I know its going to be there in the future?” he says.
Term insurance saw its share of the action in 2001, as well. “At the beginning of the year, we thought term sales would slow,” because the Triple-X (reserve) regulations would make the rates less competitive, says Jack P. Dewald, president of Agency Services, Inc. in Memphis.
“But that didnt happen,” he says. In the first few months, sales were dismal, he concedes. But it soon became clear that rate competition was continuing, so term sales ramped back up, especially on large cases.
Much of this happened well before Sept. 11, Dewald notes. Like the other brokers, he attributes some of this to the recession-inspired interest people have in owning traditional types of insurance.
The security-minded trends in 2001 pushed LTC insurance to the front burner, too. At the Davis Life Brokerage, for instance, LTC started coming into its own this year. “The adult children have become aware of it, and they want their parents to buy it. Asset preservation is the key,” says Davis.