The turmoil in the stock market, along with the slowdown in the economy, has caused many of us to make changes in our plans.
Retirements and capital expenditures are being postponed, and many business friends are looking for work. To make the situation worse, many purchasers of equity indexed and equity-based insurance products have seen their contract values plummet, and they do not understand what has happened.
Further, the current downturn is a new phenomenon for many people in the financial services industry. The last prolonged stock market slump was during the period of 1968 to 1974. It is probable that the vast majority of people who now work in financial services began their careers after that last long-term down market ended.
Therefore, they have known nothing but economic growth and growth in the stock indexes.
Despite that, most of us who live in the sophisticated world of market-based investments do tend to understand the cyclic nature of the market. We generally expect markets to go down as well as up. We may not like what happens when markets tumble, but we at least understand what is happening.
Can we say the same about customers who have bought the industrys products, on the assumption that their contracts would only increase in value? This is the question the industry is confronting now.
Equity indexed and equity-based insurance products have been the backbone of the life insurance industry for many years. The business has enjoyed tremendous success in sales of these products. And the two of us are sure that most sellers of these products have been circumspect about ensuring purchasers understand the risks of investing in products subject to market fluctuations.
Nevertheless, this is a good time to put a priority on maintaining effective communication with customers. Marketers need to make sure clients are still aware that there are certain risks inherent in the purchase of a product that depends on market performance for its value.
Perhaps the most important lesson to be learned from bad times in the stock market is how important is the long-term nature of the products the financial services industry sells.
Put simply: No one should buy equity-related products with a short-term horizon.
Throughout the history of our economy, long-term holding of equity-based investments has always been a prudent course of action. Yet, there are always times–some seemingly longer than others–when it has been difficult to perceive that holding on for the long-term is the correct plan. Todays stock market may be such a time.
Thats why marketers need to communicate with policyholders who have purchased equity-related products to make sure they understand the long-term nature of their investments.
In addition, the industry needs to institute programs of communication to help people not to take counsel of their fears. These programs should aim to make customers as sophisticated about the nature of the investments as are the insurance professionals who got them started on such solutions.
The halcyon days of the past will return–perhaps not as strongly as in the 1990s, but history shows the market will go back up. Meantime, if marketers learn from this time of turmoil to be even better communicators to clients who own equity-based products, these same professionals will position themselves to sell those clients again in the future.
Such communication should ensure that clients understand the long-term nature of investments; stress that the stock market can go down as well as up; and point out that all investments are subject to the pressures of economic trends that neither the rep or the industry can control.
Marketers also need to remind themselves of a few things: that the industry will weather the current economic storm as it has other storms, and that equity-related insurance products will continue to be a fundamental product (because no other alternative can provide the long-term protection against inflation that such products provide).
Remember, equity-based products are what many customers want and need, even if they do not always recognize that fact. The obligation of the financial professional is to provide the necessary communication so purchasers can understand what they are buying, what they have bought, and how the products fit into their long-term financial plans.
Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are principals in the Ft. Lauderdale, Fla. law firm of Blazzard, Grodd & Hasenauer, P.C. E-mail them at Norse.Blazzard@BGHPC.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 12, 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.