Producers Will Have To Embrace An Income Distribution Focus Soon

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Washington, D.C.

The pressure of demographics in this country is going to force many insurance producers to shift their focus in the near future, said James Benson, who until recently was the interim head of the National Association for Insurance and Financial Advisors.

Speaking at the annual meeting of the Association for Advanced Life Underwriting here, Benson said, “If we are going to be successful in a transforming world, it has to do with the demographics, the longer life expectancy and the fact the Baby Boomers are starting to retire. There is an enormous need we need to think about.”

One of the problems the industry needs to address is its failure until now to focus on income distribution planning, according to Benson.

He said many insurance professionals have spent their entire career focusing on the estate building process. “Now we have to get into another business,” he said. “We have to become income specialists.”

Dealing with the Baby Boomers large retirement accounts over the next several years is an area that has been largely ignored by the industry, Benson said. He related an anecdote about a brother-in-law of his who recently retired and came to Benson with his retirement account worth $1.2 million dollars. “He asked me what to do with the money, and I had no idea what to tell him,” he said.

Getting into the income stream business is something all financial planners need to start thinking about, he said. In the next four to five years, the boomer generation will start entering retirement, and by that time planners should become experts on the topic of income planning.

“This is a coming business, its not here today, but its coming,” he said.

Benson estimates that 10 years from now, the typical firm will derive 30%-50% of its revenues from the sale and service of income stream products.

“The income business will be one of the largest businesses in the country,” he said.

Another speaker at the meeting said that despite all the attention on the boomers, this 76-million member generation is not as close to retirement as the media would have you believe.

“Its amazing how many times you see it in the media–they have all the boomers retiring in the next five years,” said Dr. David K. Foot, professor of economics at the University of Toronto, who spoke from the main platform.

Foot explained that the first boomers were born in 1946, so today they are age 57. Its likely that they will continue to work for an additional three to seven years, he continued.

This is just the beginning of the boomer wave. “So, the first quarter of the Baby Boomers are starting to think about retirement, the rest of them are too busy raising their kids to think about it,” he said.

Foot noted that the peak of the Baby Boom generation was born in 1960. These people, he said, wont be retiring for another 20 years.

By taking a close look at the demographics of the country, Foot drew some conclusions on certain trends found in the economy. For example, after the boomer peak of 1960, throughout the rest of the 1960s and 1970s there was generally a decreasing trend in the number of new births. Eventually, this decrease would lead to the labor shortage seen in the early 1990s.

Similarly in some communities, the reduction in the number of births in recent years will eventually lead to underpopulated schools a few years down the road.

In addition to exploring demographic trends, Foot expanded on the spending lifecycle of people as they age. For example, when people have children in their 20s and 30s they spend a lot of money on child care. After their children grow up, this segment of the population spends money on other things, like eye care. Eventually, as they continue to age their spending shifts to health care and prescription drugs.

Looking at life insurance products, Foot noted that spending on life insurance products hits a peak as people reach their late 50s. “Many of these boomers are beginning to want new products. You need a new product mix for people in their 50s. Theyre entering the next phase of their life, and they need to plan for retirement,” he said.

By “mirroring” this life cycle spending approach to the demographics of the population, it can be determined what products and services will be successful. Foot noted that the success rates for different products in different segments of the economy are dependent on “how many people are in the age groups needing those products and services.”

Another factor that needs to be considered when looking at demographics is the improvements in life expectancy the country continues to see. According to Dr. Richard Woychick, director of The Jackson Laboratory, there will be an increase in longevity over the coming years. “The National Center for Health Statistics and the Social Security administration are predicting that we can expect to live another 10 years–a life expectancy of 80-90,” he said.


Reproduced from National Underwriter Edition, May 12, 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.