To Realize Opportunities, Insurers Must Push Their Unique Value

“Our products are too complicated” because adding bells and whistles was considered a way to add value, MacDonald explained. For instance, “many long-term care products look like Christmas trees. You have no idea what they are.”

But, he asked, what if the life insurance industry could offer a product that would meet consumers concerns over additional expenses in old age that could arise if they became sick? For instance, he suggested, what if an annuitization feature in a variable annuity paid out $5,000, but increased to $8,000 in the event of illness? Meeting that concern would bring value to consumers, he continued.

What will also bring value to consumers is real-time service, MacDonald noted. In a world of e-tickets and ATMs, where banks get consumers to perform the job of a teller and then often charge a fee for it, insurers must become better at providing service. A consumer can check the status of his brokerage or checking account online, but, he asked, can that consumer find out the status of an annuity online?

Sorensen said that competency in delivering service through the Internet is important and cautioned that Microsoft and AOL could very well set themselves up in the business of insurance.

If variable products without guarantees were offered, there would not be a large capital requirement or risk component, he explained. These companies have a large pool of customers that use their services, he said, and barriers to entry are small.

Life insurers need to return to long-term thinking and develop products that are long-term products, MacDonald said.

There is also one more consideration, he said, and that is retaining control of important parts of the business. Insurers should not relinquish control over parts of the business, particularly distribution, that could be critical to success.

So, for instance, if you are going to outsource distribution, first evaluate the risk, and then, make sure that there is guaranteed access to shelf space, MacDonald advised. In his companys case, he said that of approximately $6 billion in fixed annuities expected to be sold this year, over half will be sold through independent marketing organizations owned by Allianz.

Hartford Lifes Boyko said his company outsources its investment management and retail distribution functions and that it works. By outsourcing investment management functions, Boyko said it allows the insurer to choose expert managers and retain the flexibility of changing when needed.

Outsourcing retail distribution has given Hartford access to over 100,000 registered reps in the U.S., he added.

Where Hartford retains a lot of input, Boyko continued, is through the wholesaling, marketing and customer service support it provides its retail distribution.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 25, 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.