More Agents Asking How Guarantees In VAs Are Backed

He says this is likely because the companys business modelselling through a career agency forceensures that the producers know Northwestern very well, and are already familiar with its products and any guarantees therein.

Also, the company competes not by creating more features with which agents might need to familiarize themselves, but by creating “core value,” Nelson says.

“Weve stayed away from competing on features,” he says, “and done it more on keeping prices down.”

Nelson also credits the “deep relationships” Northwestern career agents have with their clients for the absence of questions on how guarantees are backed.

“They have strong relationships with their clients, so their clients arent concerned,” he says.

Henderson says agents who do need more specific information than whether or not a guarantee is reinsured should next ask whether the company is a large reinsurer with the capacity to handle all the benefits it guarantees or a smaller company that might not have the same capabilities. Also important to know is how the contract works, he says.

“If every guarantee offered is reinsured, that doesnt necessarily mean they are covered, because often the reinsurance contracts have caps and limits,” Henderson warns.

“Its important to go beyond the do you have reinsurance question to who that company is, how strong it is, and how the reinsurance contract is structured,” he says. “Does it cover everything fully or only partially?”

An agent should also know how diversified a product provider is in terms of what it writes. One should know whether the company writes solely VAs or other products as well, such as life insurance, fixed annuities and pensions, Henderson says.

If the other products it writes are impacted by market fluctuations, how that could affect the companys bottom line is something else an agent should ask, he says.

Another important question to ask is about the breadth of diversification across the types of benefits within a product providers VA line, he says. Specifically, they should find out whether the benefits are all those with a lot of risk or whether the risk is evenly spread.

“That can have a huge impact because you may have a certain risky benefit thats maybe affecting 10% of your contract,” he says. “If something goes wrong its a problem, but its a manageable problem. If its affecting 60% or 80% of your contracts, it may no longer be a manageable problem.”

Reproduced from National Underwriter Edition, February 17, 2003. Copyright 2003 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.