Compensation Will Be The Issue For 2005 Its an issue that most companies and agents really havent wanted to discuss
By Michael Pinkans
Its that time of year againmaking predictions about which life contracts will sell in the retail marketplace in 2005. Will whole life continue to make a small, but sustainable, comeback? Will universal life, with the addition of no-lapse guarantee riders, continue to command a majority of industry sales? Or will variable universal life finally make a comeback as individuals begin to feel more comfortable with a rising equity marketplace?
Yes, yes and yes. However, that wont be the No. 1 issue in 2005 concerning life insurance. I predict that the No. 1 issue for 2005 concerning life insurance sales will be compensation. Its an issue that most companies and agents really havent wanted to discuss, but the marketplace has changed and will continue to change, forcing a rethink on this issue. It doesnt necessary mean that compensation will be universally forced lower, although it will on some contracts, but we will see more levelized and fee-based life contract compensation and cuts in all noncash compensation. The result will be to produce higher initial permanent life cash values for the customer. Customers will demand them in many situations and ultimately, companies will see improved persistency.
Compensation changes will come in 2 forms: overt and covert. The overt changes will be companies openly offering certain contracts with lower load/levelized commission contracts to maximize early policy cash values. These companies see a competitive advantage in these contracts by basically offering a COLI-lite for the individual retail marketplace. There are a number of reasons for this.
While the whole issue of “contingent commissions” affecting Marsh, AON, AIG and other companies really doesnt have anything to do with retail individual life insurance sales, the public doesnt know that. Consumers only need to hear the word insurance in a negative light and the whole industry is broad-brushed with an uncomfortable feeling. So, as we begin to see commission transparency being demanded by consumers for the negotiated business marketplace, once that happens, the retail customer will begin to ask about it on the individual life side.