By Robert M. Baranoff
Theres convergence, and then theres product convergence. Theres a fair amount of the first but still very little of the second. Thats the finding of a recently completed survey of LIMRA Internationals North American membership.
Of 32 companies responding, including some of the largest in the industry, just over half distribute their insurance products through some other type of financial services company, such as a bank, wirehouse, regional brokerage firm or a mutual fund company. And that does not include sibling companies owned by the same parent.
Going in the other direction, 14 companies belong to families in which products from a non-insurance subsidiary (often mutual funds, sometimes bank products) are distributed through the insurers distribution channel.
Only one company claimed to have a true convergence product–a Treasury-linked annuity. This same company reported a sister company has a convergence product, too–a Treasury-linked CD.
As the industry gains experience in the deregulated financial services environment, imagination and creativity may yield some intriguing new possibilities.
Of course, many companies sell variable life and annuity products, and a number of others sell equity-indexed products. Indeed, since these products combine features of insurance with aspects of investment products, they certainly would qualify as convergence products in the true sense of the words. In the recent survey, however, these products were excluded, since the survey goal was to identify newer types of offerings, reflecting creative ideas spawned since enactment of Gramm-Leach-Bliley in 1999.
The above is not to say that there is only one non-variable, non-equity-linked convergence product out there. That is not the case.
In addition to the Treasury-linked products already mentioned, theres the much talked about CD offered by Jackson Federal Bank (subsidiary of Jackson National) whose rate of return is tied to the S&P 500 but with a minimum guarantee that the initial sum deposited will be returned if the CD is kept to maturity.
And, while it wasnt reported in the survey, another company is marketing an IRA product that, under one contract, allows a retiree to invest in both mutual funds and an immediate (albeit flexible benefit) annuity. The design is such that, over time, additional funds are migrated into the annuity, allowing for dollar cost averaging and better timing of investments instead of committing the entire lump sum at once.
The preceding suggests that, despite the fact that many insurers are now parts of financial conglomerates, the industry has not been rushing to market with new types of convergence products. It seems the cross-distribution of various types of financial products is certainly on the rise, but very little cross-pollination has taken hold at the product level.
Possible reasons abound. Convergence products may be seen as inherently complex, which may reduce the producers ability and desire to understand them, much less explain them to clients.