Contradictions Rule In How Many Products Have Been Selling

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Numerous product consultants have told National Underwriter that, as 2003 ends, inquiries for their design services are up.

Company executives speak of plans for debuting new products fairly soon.

Producers say product guarantees have saved the day for them all year long, so they are wondering whether these features will continue to sell well in 2004.

Marketers everywhere also are wondering how new legislationfor example, Medicare reform, do-not-call and even the CAN-SPAM Act that the President just signedwill affect their fortunes.

That is a snapshot of the insurance product scene as year 2003 comes to a close. It was a year when product sales and development were sluggish in many lines but where there were bright spots, too. In sum, a confusing year for product trend watchers.

For example, 3rd quarter variable annuity sales hit $31.3 billion, and year-end sales should surpass last years total by 10%, according to The VARDS Report, Roswell, Ga. Also, equity index annuity sales, though slowing in the 3rd quarter, should surpass the 2002 total of $11.5 billion, says Advantage Group, St. Louis, Mo.

Even individual life sales edged up 2% in the 3rd quarter, according to LIMRA International, Windsor, Conn. The surging 3rd quarter sales of universal life (up 36%) and whole life (up 8%) accounted for much of this, LIMRA says.

But at many shops, sales of other product lines did not bring home much bacon. These include variable life insurance, traditional fixed annuities, disability income insurance, individual long term care insurance and critical illness insurance.

However, some marketers did have unique success with one or more of the more sluggish lines. So, it was a somewhat confusing product year. Interviews with executives in various sectors confirm that.

For example, at Randy Kilgore & Company, Colorado Springs, Colo., sales were strong in ULs with guaranteed death benefits. But the principal, Randy Kilgore, says “we also sold a lot of term life insurance.” This growth occurred, even though industry wide term sales were flat all year, according to LIMRA.

Why the disparity? One reason, suggests Kilgore, who is the current president of National Association of Insurance and Financial Advisors, is that people in his area are changing jobs rapidly, especially in the tech sector.

“Some lose their term insurance at their former employer and may not have the same coverage at the next employer,” he says. “Others are leaving jobs to become entrepreneurs, because venture capital for that is starting to come back in this area.”

The result is people there are buying their own term insurance to make up for what they lost when leaving the employer, Kilgore says.

Yet, over in New York, the life market went a different direction. Following 9/11, “we had term fever here,” says Jay L. Scheiner, a principal partner at Agent Support Group, a Great Neck, N.Y., brokerage. This demand lasted through 2001 and 2002.

“People suddenly became aware of what might happen to their families if their income suddenly were to stop,” he recalls. “Many realized they had made no plans at all.”

But, in 2003, people suddenly became aware of something else, he says. Clients with underperforming WL or UL polices noticed that their vanish premiums werent vanishing and that their older polices were not performing as expected, he says.

This set off a new wave of demand–for the newer UL policies with secondary guarantees, Scheiner says.

In todays market, clients “want things set in stone,” he says. “They are actually calling their agents and asking: Why havent you told me about these new policies?”

So, in 2003, much of Scheiners business came from selling UL with guarantees. “There is a place for WL, too, but when cost and guarantees are the issue, these new ULs are the only game in town.”

What about variable life? “Its spoken of only in whispers,” he says.

The annuity business produced some surprises, too. For example, although fixed annuity sales plunged at many companies in 2003, American National Insurance Companys fixed annuities will finish 2003 at more than $2.2 billion. Thats up from just $650 million in 2002, says David Behrens, executive vice president-independent marketing group at the Galveston, Texas, insurer.

How could that be? When Treasury bill rates fell precipitously low in the summer, many fixed annuity competitors pulled out of the market, Behrens says. But his company decided to stay in. It cut commissions, dropped the minimum interest guarantee to 1.5%, and made other changes necessary to meet its spreads. It also promoted its 412i plans (which combine sale of a fixed annuity with whole life). The combined effect: Fixed sales soared at the company although they tanked industrywide.

Some other contradictory product trends in 2003:

Disability income product definitions tightened a bit in 2003, says Tedd Hikes, managing director-disability solutions center for BISYS, Bellevue, Wash. But at the same time, he says, carriers expanded coverage via catastrophic benefits, LTC riders, etc. Some also focused on making it easier for brokers to do business with them, he adds, through simplified underwriting or other means.

In the new filings area, even though term sales were down and interest in UL with secondary guarantees was up, “I noticed more term activity in 2003 than previously,” says John B. Palmer III. This includes more return-of-premium products, which industry people either love or hate, says Palmer, who is vice president and senior consultant with First Consulting and Administration, a Kansas City regulatory compliance firm.

Elaine Tumicki, corporate vice president-products research at LIMRA, found the same growing interest in return-of-premium term. “It may be driving more term insurance sales now than previously,” she says.

Some life insurers already have received approval on products based on the new 2001 CSO (Commissioners Standard Ordinary) tables, says Palmer. Now, they “anxiously waiting for more states to adopt the 2001 CSO” before they release them, he says.

Income annuity sales remained a small but growing portion of overall annuity sales in 2003, notes Eric Sondergeld, assistant VP-annuity and retirement research at LIMRA. However, “Ive had numerous calls this year from people wanting to talk about income annuity design.”

Whats ahead for new products in 2004? A review of these up-and-comers gives a clue: IRA rollover designs, retirement income planning and products, new types of guarantee provisions, 2001 CSO life insurance products, lower (and adjustable) minimum interest guarantees, transparency (in charges, fees, etc.), critical illness insurance, updated index annuities, market value adjusted annuities, ROP term, energized disability income market, and health security account (HSA) plans.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 19, 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.