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To Lead The Pack, Focus On Simplicity

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New York

Standing out in the crowded financial services pack is possible if insurers can distinguish themselves in two key areas: product and distribution.

Detailed discussions of how those two critical components are developing were covered during the 12th PricewaterhouseCoopers conference.

Panelists concurred that insurers should offer simpler products to consumers.

“We need products that are simpler. Insurance companies should come back to their strengths–protections and payouts,” says Scott Sleyster, president, retirement services and guaranteed products, with Prudential Financial, Newark, N.J. “To some extent, we have overcomplicated products. Mutual funds are understandable.”

Complex product features may be a cause of concern in the future, executives said.

“We are seeing guarantees in the variable area and frankly, Im a little worried. Im not sure that the market is pricing those guarantees properly,” said Sy Sternberg, chairman, president and CEO, with New York Life Insurance Company, New York.

“If it looks like its too good a deal, then a company might not be pricing it the right way,” said Edward Zore, president and CEO with Northwestern Mutual Life Insurance Company, Milwaukee.

One product that looks good to Zore is the immediate annuity. “The immediate annuity will be a very large market in the future. It is the next sweet spot.”

Simplicity was a theme that speakers also weaved into discussions about distribution.

One option open to insurers is to focus on underwriting and risk assessment rather than on bells and whistles, said John C.R. Hele, deputy chairman, president and CEO with Worldinsure Limited, Bermuda.

Summed up, insurers should offer “Comprehensive, accurate, timely services that doesnt take agony to deliver,” said Jeremiah Riddle, managing director and division manager with Marsh Financial Services, New York.

Distributors are not looking for another product in their distribution system”it is already fairly cluttered,” said David Kahal, senior vice president with AXA Distributors, New York. What they want, he continued, is to build segments of the market that they have not been successful in building, leveraging off of an insurers expertise in a particular niche.

Kahal said that the marketplace offers insurers plenty of opportunity. For example, he said that 1% of wirehouse revenue comes from life insurance. “If that doesnt excite people in this room, then we need to check our pulses,” he quipped.

One opportunity that insurers are missing is the retention of retirement assets from retirement plan rollovers.

Robert Baranoff, vice president and head of research with LIMRA International, Hartford, Conn., quoted statistics to support this finding. According to Baranoff, life companies hold 15% of retirement assets but retain only 6% of rollovers. However, he continued, stock brokerages hold 11% of retirement assets but retain 40% of rollovers. “The insurance industry is missing an opportunity,” Baranoff said.

Flexibility might be one means of retaining more assets.

Fred Castellani, executive vice president, retirement services division with MassMutual Financial Group, Springfield, Mass., said that in the future more people will work part-time rather than fully retire. Given this likelihood, Castellani asked why there arent products such as an SPIA that would make periodic rather than regular payouts and would better meet the way people are living.

Worksite marketing may be another way of expanding market share. Caitlin Long, managing director, equity research with Credit Suisse First Boston, New York, called it a “huge distribution opportunity.”

The only potential obstacle, according to Long, is the potential for legal liability for implicitly endorsing a product if that product does not perform as promised, she said.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 3, 2002. Copyright 2002 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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