Custom-Build Your Products And Private Label Programs
Building a successful term life product offering in todays market requires managing four important performance drivers: mortality, reserves, expenses and service.
Direct writers have long used reinsurance to help manage mortality risk, which continues to be a mainstay for reinsurers and direct writers alike. Post Triple-X, the guideline that establishes reserving for level premium term and UL products, direct writers began seeking help from reinsurers to manage financial risks and strain as well. Today, reserve management can be as important as mortality risk management in terms of the value of a reinsurance solution.
But how much expense management support can reinsurers provide to direct writers trying to manage or create a term portfolio? Quite a bit, actually. More than that, these value-added solutions can provide cost reduction, improve a companys competitive positioning and change the fundamental value proposition of being in the term market.
These services typically attach to a core reinsurance arrangement with pricing factored into the reinsurance piece of the solution. They can improve the retail effectiveness of client companies as well as generate additional reinsurance volume.
For the past decade numerous direct writers have been partnering with reinsurers who provide product design and development along with core reinsurance services.
By outsourcing product design and development, direct writers can leverage a reinsurers strengthsespecially mortality experience, risk selection, lower overhead and strong capital management capabilities. More recently, reinsurers have expanded beyond product consulting and development services.
While case underwriting and policy administration services have been available for some time, it was primarily to offer clients already in the term market a defensive strategy: keep pricing closer to market leaders, reach an acceptable level of return and keep infrastructure costs down. The solutionusually created via an alliance of reinsurer, third-party administrator and direct writerwas attractive to direct writers who provide term as a non-core product to satisfy the demands of a distribution channel.
Private label capabilities have improved greatly over the last few years, and the flexibility they now offer make them attractive to a much wider target audience.
Reducing cost and satisfying distributors remain major benefits of the solution, but other incentives are motivating many firms seeking a private label today. These motives include entering a new market, recasting their brand with an extremely competitive product, plugging a corporate gap such as underwriting or administrative services, or implementing a niche strategy for market differentiation. In this market client companies are just as likely to be non-life financial institutions as they are to be traditional life insurers.
An enormous challenge in designing a flexible private label delivery program is putting together all of the pieces to execute the very complex series of transactions necessary while maintaining service and cost levels that enable competitive product pricing. At a minimum, these services include:
Product design and development;
State filing services;
Call center sales support (licensed and non-licensed);
New business administration;
In-force administration; and
Internet site design and support.
While it may be appealing to think you can do it all yourself or find one strategic partner, the reality of the current market is that no single firm can provide significant expertise, outstanding service and low expense levels over a range of services this broad.
The solution may well be the creation of a strategic partnership with a consortium of firms who each had a proven track record of success (expertise, service and cost) in a particular endeavor and a commitment to create a whole that was greater than the sum of the parts. Created specifically for this market, the partnership combines the experience, knowledge and capabilities of a number of firms who are each industry leaders in the area in which they contribute. Why is this so critical? Case count volumes in a competitive term portfolio make it an unforgiving environment for learning critical aspects of your process as you go.
Identifying potential partners for such an assignment is difficult enough, but an equally daunting challenge is tying the firms together seamlessly to enable successful execution of client solutions. Here, technology can be a critical enabler, allowing process designs that would have been extremely difficult to implement and manage only a few years ago.
A foundation of the business model is state-of-the-art underwriting and administration systems. These advanced systems bring numerous advantages, but two particularly important ones are operating efficiency and ease of integration.
Operating efficiencies can be seen in dozens of applications where automation replaces manual intervention. Automatic ordering and receipting and follow-up of underwriting requirements significantly improve service and reduce costs. Clear case underwriting allows the underwriters to focus on the more difficult cases, thus improving the overall time/service standard from application to decision. Single point of entry insures that any change is carried through the system to provide the latest information to all who need to view it.
Integration is simplified by using Web-based technology and standardized industry protocols. Projects orchestrating a licensed agent call center in one city with the new business administration team in another are seamless to the customer. Where once this would have been a major undertaking, it now is part of the rapid deployment and growth strategy. This private label design with seamless integration enables us to focus on any distribution with a superior service.
Success in todays term market demands greater focus and expertise than before due to new regulations, shrinking margins and reduced shelf life. When term life is not a companys primary product line, committing the internal resources needed to be successful in the market is increasingly difficult to justify.
As economic conditions increase the need for companies to reduce expenses and return focus to core businesses, direct writers can access a full range of outsourcing options. From product design and development to complete private label solutions with varying options between, there are solutions for companies wanting to deliver competitive term insurance to their distribution while minimizing the internal resources expended.
Existing market conditions present significant challenges to a number of companies in the areas of expense management, capital constraints and key resource shortages. In this environment, the attractiveness of private label solutions should continue to increase in the marketplace.
David Dorans is vice president, product consulting & development with Transamerica Re, Charlotte, N.C.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 10, 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.