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December 02, 2004 at 07:00 PM
At The Cutting Edge: Nascent Realism
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Time was when asset allocation and maximum performance were the cutting edge issues in life insurance and annuity product development. More recently, safety and guarantees took the lead.
But today, the frontier of insurance product thinking might better be characterized as nascent realism. That is, developers are concentrating on responding to the emerging realities of the 2000s. For example:
–Simplicity. While flexibility is good to have, producers are saying that customers dont always want the complexity or the cost that comes with it. So, insurers are stepping up efforts to simplify approaches and/or gain new efficiencies.
–Compliance culture. Increasing regulatory scrutiny is spurring greater focus on providing product transparency.
–Longevity. Now that the oldest boomers are fast approaching retirement age, developers are debuting new retirement income programs, features or products.
Guarantees are still hot, especially the so-called secondary guarantees on universal life policies. In fact, exhibitors at the annual meeting of National Association of Independent Life Brokerage Agencies, in Boca Raton, Fla., told National Underwriter that secondary UL guarantees were all the rage among visitors at their booths.
Still, the “whats-next” people are looking beyond.
One step that ING is taking is to make all products it offers available for distribution by all its channels, says Donald W. Britton, president of the U.S. Life Business Group of ING U.S., based in Atlanta. No more does the company offer one product for one channel and another one for another channel.
“Were offering open access to all our channels,” says James R. Gelder, president of Life Insurance Distribution at ING U.S., based in Minneapolis, noting this simplifies distribution arrangements. Street level compensation is the same, too, for all channels (though unique compensation arrangements, for support, continue by channel).
This change reflects a larger view that ING has regarding the product turf. Companies today must differentiate themselves by underwriting and service, contends Gelder, explaining that the insurers relationships up and down the food chain are vital. “There will always be some differences at the product and feature levels,” he concedes, “but that is only one part of the overall equation. A company cant just sweep the whole market with that. It needs to be a change agent, to help influence the buying decision.”
That is so even in the term insurance market where price is so important, he says. On a large term life case, for instance, if a company can deliver a rock-bottom price but takes 6 months to get the policy underwritten, “brokerage general agents wont sell that product.” Its a balancing act between product and service thats required, Gelder says.
The move to simplicity also impacts policy design. Take the proliferation of guarantees that now are available in UL, variable universal life and variable annuities. “Its getting far too complex,” says Andrew W. Hutchinson, vice president-product development at Mutual of Omaha in Omaha, Neb.
In the future, he says, “I think youll see simpler designs and options for people.” For example, he says Mutual of Omaha has debuted Priority Max GUL, a UL that offers a “dial a guarantee.” This allows clients to choose the secondary guarantee period they want. Not everyone thinks theyll live to age 100 or more, Hutchinson says, so this simplifies things for the buyer. “People can just choose the period they want.”
Likewise, at Lincoln Financial Group, Hartford, Conn., the company lets clients choose, in the same VA contract, between a 5-year step-up option and a new annual step-up option for its guaranteed minimum withdrawal benefit (GMWB). Now, says the firm, clients do not have to make their VA purchase decision based on which annuity is paired with which GMWB.
That is significant because, when new policy features, such as GMWBs, start to come out in different versions, manufacturers often tend to offer the newest version in a new policy. That means the financial advisor often has to keep up with multiple policies of roughly the same design.
Hartford Financial Services Group Inc., Simsbury, Conn., also offers 2 income protection benefits in its VAs. Both allow annual withdrawals, regardless of account value. The Principal First rider allows up to 7% of premium to be withdrawn a year, while the new Principal First Preferred rider allows withdrawals of up to 5% of premium for a “significantly lower cost.”
Simplification fosters greater transparency, too, notes Heather Dzielak, vice president of Lincolns variable annuity business, Hartford, Conn. And increasing transparency is definitely on the agenda at broker-dealers that sell VAs, she notes.
B-Ds always have been interested in understanding product value for the client, Dzielak says, but in view of this years regulatory investigations into insurance, the compliance environment is at a “whole new level.” Now, there is even greater focus on performing due diligence than in the past. B-Ds need to know what is the most suitable product for clients and transparency helps B-Ds have a better understanding.
This is leading to increased effort on the part of manufacturers to simplify policies in a way that clearly shows the value proposition, Dzielak says.
