Customers Flew To Fixed Options, Guarantees
Life, health, annuity, disability, long term care, and critical illness insurance products made some sharp turns during the year, in both sales and product design.
Customer purchases fairly flew toward fixed products, while the product designs and strategies that gained the most favor were ones that emphasized maturity, stability and guarantees.
In 2003, most executives believe the key trends will be offshoots of trends witnessed in 2002. So, what were the key 2002 product trends? Recent industry statistics tell a fixed product story:
Universal life, whole life and term insurance all recorded substantial increases in the first three quarters, says Elaine Tumicki, assistant vice president, product and distribution research for LIMRA International, Windsor, Conn. Annualized UL premium shot up 32%, and term and WL rose by 16% and 12%, respectively. Meanwhile, annualized premium for variable universal life was off 19%.
Fixed annuity sales galloped ahead, producing $30 billion in 3rd quarter sales alone, reports LIMRA. Variable annuities continue to outsell fixed annuities, LIMRA says, but a huge portion–45%–of new VA premium went first into the fixed subaccounts in the 3rd quarter. The last time VA fixed accounts hit the 45% of new money mark was 11 years ago, LIMRA says. (See page 49.)
Index annuities have seen sales soar all year long. These are fixed annuity products that link their excess interest crediting to a monetary index. By the 3rd quarter, total index annuity sales reached over $8 billion, a record for this product line, says Jack Marrion, president of The Advantage Group, an annuity tracking service in St. Louis. (See page 22.)
Meanwhile, group health insurance reportedly had such a bad year with claims and soaring costs that the major carriers have now raised rates and/or deductibles and copayments by huge percentages. A fall survey just published by the Council of Insurance Agents and Brokers, Washington, for example, found that 78% of small accounts (50 or fewer workers) saw rate hikes of 10% to 30%, and 14% saw hikes of 30% to 50%. Medium accounts (51 to 500 workers) followed suit, with 74% reporting rate hikes of 10% to 30% and 14% reporting hikes of 30% to 50%.
Product design and positioning trends moved in lock step with these developments.
“A lot of independent agents are feeling tremendous frustration over the shrinking number of carriers and the rampant price increases in the health insurance line,” points out Jack Dewald, president of Agency Services Inc., Memphis, and also the new chairman of National Association for Independent Life Brokerage Agencies, Fairfax, Va.
“As a result, many are starting to focus elsewhere–particularly on sales of LTC and disability income insurance.” The upshot: His brokerage is seeing “marked increases” in sales of LTC, especially the tax-qualified products, and also a slow but steady increase in sales of non-cancelable DI.
To support these shifts, Dewalds agency has brought in experienced specialists in the two fields to guide agents through the sales and serve in an advanced sales support function to the writing agents.
“What weve learned is, if you focus your efforts on this, it works,” says the broker.
Agents are not abandoning health insurance products, Dewald stresses. But some of them are tired of selling it and of dealing with the price and other changes that keep coming up, he says.
DI also gained increased attention in 2002 from another market channel, says Brad Parks, sales leader of BISYS-Hanleigh in Dubuque, Iowa, and president of the Disability Income Advisor and Consumer Association.
That channel is producers who previously concentrated on writing high-end corporate life sales, he says. These producers have seen sales slow amid problems in the corporate-owned life insurance market and “continuing uncertainty about estate taxation slowed sales in their market,” he says. Therefore, some are looking at DI insurance as a possible new revenue source.
Corporate life producers are very experienced insurance professionals, Parks notes, but “many have not sold DI insurance for years, if ever,” and so will need some education in the field.
Many younger producers in their 30s are also showing interest in DI, he notes, but here too education is necessary. For instance, “roughly 80% to 90% of the groups to whom I give talks have never sold DI in their lives.” Many started their insurance careers in the early 90s when the DI market was contracting, he says, so they never got into it.