Customers Flew To Fixed Options, Guarantees

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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.

It is “exciting” to see so many new faces in the field today, Parks says, but adds that “many producers need a lot of education, especially on how to integrate DI into the rest of their practice.”

Shifting distribution arrangements in 2002 resulted in a different kind of problem for some producers and carriers: This is the massive proliferation of marketing materials concerning products. Producers repeatedly say they feel as if they are being buried in an avalanche of e-mail, snail-mail, faxes, forms, applications, new product kits, support service brochures and more. They want it to stop.

Safeco heard those complaints, too, and decided to do something about it. A few weeks ago, the Seattle company debuted a new Web site that lets agents elect to see only the parts of the site they want to see and the tools they actually use.

Earlier in the year, Safeco also put many immediate annuity sales documents on its producer Web site. That was an improvement because “selling immediate annuities had become a very paper intensive process, involving the products, illustrations, faxes, and so on,” says Leroy Brashears, director of communications, life and investments marketing. “Agents wanted to run from it like a thief.” Now, he says, “most everything is online, including updates.”

These changes have “filtered out some of the clutter” for producers, says Rudy Erb, e-commerce manager, life and investments. Do producers notice or care? The response to has been “overwhelmingly positive,” Erb says, adding that has been “rewarding” to see. “Now, we know we were on the right track.”

Product maturity gained momentum in 2002, as well. Take VAs. In the 1980s and 1990s, modern VAs went through infancy and adolescence, contends Pamela Moret. She is senior vice president, marketing and products for Thrivent Financial for Lutherans, a Minneapolis fraternal formed out of the January 2002 merger between Aid Association for Lutherans and Lutheran Brotherhood.

“But in 2002, VAs became more mature,” Moret continues. “For instance, they are no longer fixated on accumulating funds for retirement.”

Now, says Moret, VAs offer more liquidity options, fixed account options and flexibility in income options than ever, in recognition of the fact that more and more people will keep their annuities for all of their lives.

Thrivent has such a multi-feature VA, Moret notes, and consumers are moving money into it from brokerage accounts, wrap accounts and managed mutual funds. The corporate scandals of the past year have made people rethink their investment strategies, she indicates, and the newer VAs provide more options and protection.

LTC policies have hit a new maturity level, too, according to Jesse Slome, president of Sales Creators in Westlake Village, Calif. The industry has entered a new stage in the product maturation cycle, he says, explaining that insurers did such an “incredible job” of educating their target market about the product that many people bought, and the original target market is now largely saturated.

The next step, Slome says, is for insurers to expand their reach into the mass market. To do that, he says companies will need to simplify products in a way that will appeal to a broader market.

Unless and until this happens, he cautions, there will be more agents chasing fewer viable prospects and that will hinder widespread LTC sales.

CI insurance has also turned a corner, according to Daniel Pisetsky, a CI insurance marketer and the managing director of US Living Benefits, Manchester, Conn. For instance, he says he no longer encounters questions about whether CI should be a part of a clients portfolio, nor does he get calls from skeptical people. In addition, he says, “the product has become commonplace in many worksite programs, and some A+ rated carriers have entered the market, as well.”

What about annuities? The market is currently “circling the wagons,” looking for fixed products and for guarantees in variable products, says Frank T. Gencarelli, president of Retirement Services Group, Wealth and Income Management for GE Financial, Richmond, Va.

This is a reaction to the fear and distrust that consumers and producers feel in response to the bursting of the equity market bubble and the continuing low interest rate environment, he contends.

As a result, producers and consumers now want guaranteed returns over a fixed number of years, he says. “Its a mandate from the market.”

For this reason, he says GE Financial is pushing to develop various income solutions, including those using annuities. The goal? “To provide products that will help consumers lock in what theyve accumulated,” Gencarelli says, and “also to help them learn how to manage that money so they can live comfortably in retirement and leave a legacy.”

In short, 2002 marked the beginning of the return of protection-oriented products, says Gencarelli. Income annuities, LTC policies, and single-premium variable life are examples of products that are rising in public favor.

In 2003, he predicts, “income solutions will explode.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 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.