Some product development issues just wont go away. Take simplification. As you can see from this weeks spotlight on cutting edge products, simplifying products is back on the minds of insurance product developers.
The new area of concern is product guaranteesparticularly in universal life, variable universal life and variable annuities, but also in other areas.
The insurance world seems awash in guarantee features and options right now. The advisor can, for instance, recommend a term life policy with a return of premium guarantee, or not. Or recommend a ROP guarantee of 10, 20 or 30 years. The advisor can recommend a secondary (no-lapse) guarantee in UL of assorted durations, or not. In long term care insurance, the advisor might recommend a 10-pay plan that guarantees paid-up status after 10 years of premium payment, or not. In annuities, robust death benefit and withdrawal guarantees in variable products are abundant, and in the fixed products, not only are minimum interest rate guarantees offered but so are CD-type interest rates over several years. The options go on.
This is insurance heaven for the practitioner who understands how different guarantees work and which ones are most suited to what situations.
But heaven help the advisoror call center workerwho doesnt get it. Heaven help the consumers, too, if they get stuck with insurance people who dont get it.
When the new breed of guarantees started surfacing in the last several years, they seemed to provide desperately needed respite from the uncertainties of the risk-shifting, youre-on-your-own 1990s. Here, finally, insurance contracts once again were doing what insurance is known to do very wellprovide guaranteed protection against a stated risk.
Wow, what a concept. In the late 1990s, some VA experts said they could not sell the new VA death benefit guarantees fast enough. “It is so simple,” they exuded at the time. “More, more,” they said. And developers compliednot only in VAs but in various other products, as noted earlier.
Now, though, the great simplifiers, guarantees, are poised to become the new complicators. Part of the complexity has to do with the cost of the guarantee to the consumerdo people really want to pay so much just for the right to get back their deposited premium after 10 years?
Another part has to do with the funding level required to support the guaranteesis it adequate? Is it possible? Can it be reinsured? What about hedging it? Are the standards fair and equitable?
Still, another part is the wide variance in guarantee provisions. As you know by now, not all guarantees are made the same.