Product Trends From The Fields Point Of View

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“People dont want life insurance. They want to be educated” about their financial needs, says Todd McDonald, an agent in Albany, N.Y.

“We have a good old hard conversation with the client, look them in the eyes, and then they say, yes, we need it.”

A career agent with MassMutual who is president of The Commonwealth Benefit Group LLC in Albany and Boston, McDonald says life insurance was a key product trend for his agency in 2004. In fact, his firms life sales have grown by 30% a year since 2000, even though the industrys total life sales have flatlined and even dropped in some sectors over the same period.

McDonald is among several experts contacted by National Underwriter to give a field perspective on product trends for 2004 and the year ahead.

In 2004, life sales were affected by a trend in the surety bond world, says McDonald, who has many clients in construction and materials supply and who therefore need to obtain surety bonds. The companies issuing the bonds generally have become more conservative, he says, citing greater losses (reflecting rising insolvencies) and more industry consolidation as key reasons.

As a result, the surety firms want to be more comfortable with the risks they are taking in issuing bonds, he says. Specifically, they are looking for client firms to have life insurance that has guarantees, he says.

Guarantees have become increasingly important in succession planning, estate planning and key person life insurance, according to McDonald.

Life policies that build high early guaranteed cash values (say, 90% of premium in year one) are becoming important, too, he says. “The CPAs and surety companies love it, because the guaranteed cash value is booked as an asset in year one: Its part of a general back-to-basics trend that McDonald believes will continue and get stronger in 2005.”

Significantly, despite continuing uncertainty regarding the permanence of the estate tax repeal after 2010, “none of my clients are deferring their estate planning decisions,” says McDonald. He says most are skeptical that the tax will go away, and “most want to be conservative in their approaches.”

Gary Pendleton, president and owner of Pendleton Financial Consulting Inc., Raleigh, N.C., says 20-year level term insurance was a big seller in his firm in 2004. He prefers selling term first”to take care of the clients needs right away”and then going back later on to start converting it to permanent insurance.

In 2004, Pendleton also sold “plain-old universal lifewith secondary guarantees, if the client wants to pay for itand a fair amount of variable UL.”

“Were seeing that a lot of people really like nonqualified deferred compensation plans and buy-sell agreements,” Pendleton adds. He uses not only life insurance for the buy-sell agreements but also disability buy-sell insurance. “I dont know of any other agents who are offering the disability buy-sell,” he says, “but when I offer it, about 50% of the clients buy.”

Of course, he adds, clients also buy life insurance, the old stand-by, for buy-sell funding. He says roughly 80% of his business clients carry this coverage.

On the annuity side, more people this year have been choosing fixed annuities with 10- and 15-year interest guarantees, Pendleton says. The rates these annuities pay have stabilized recently, after a period of going up, but “clients who have no confidence in the stock market still want those annuities,” he says.

What about variable annuities? He sells them, too, “but only to people who have confidence in the stock market.” If VA buyers want guarantees, hell sell them, but he says “guarantees are not as important in VAs as in UL.” People today tend to want guarantees with their life insurance, Pendleton stresses.

Several experts believe long term care insurance is being positioned for strong sales in the next few years. In fact, Claude Thau, president of Thau Inc., Mission, Kan., says “we are getting out of the doldrums of the past two-and-a-half years a little sooner than I had expected.” Tighter underwriting, rate increases and consolidation are producing more stabilization at the carrier level, he explains, and “that will be the basis for future growth.”

In addition, due to the aging of the baby boomers and with favorable tax treatment, LTC sales should “explode” in the next 3-5 years, predicts McDonald. LTC sales at his practice, Commonwealth, are already up 50% in the first 11 months of 2004, and at his MassMutual general agency, tax-qualified LTC sales are up 70% -80%.

When McDonald talks with clients about this coverage, many will say: “I dont want to burden my kids with caring for me, and I dont want to worry about my son or daughter having to quit work to take care of me.”

Questions remain, however. For instance, Thau asks, “how effectively can the industry serve the middle class? The key to that would be expanded use of state partnerships (which currently can be offered only in 4 states).

Also, while voluntary true group LTC products have improved noticeably in quality, industry leaders are generally expecting too much, in terms of sales, from this market right now, Thau says.

Agents need much more education on LTC insurance than on other products, contends James M. Glickman, president and CEO of LifeCare Assurance Company, Woodland Hills, Calif. One strategy would be for new agents to partner with experienced agents, Glickman said in a presentation at the annual meeting of National Association of Independent Life Brokerage Agencies in Boca Raton, Fla. “They need a full-time expert,” he said. And, they should affiliate with carriers that are in the LTC business for the long haul.

Meanwhile, Pendleton notes that critical illness insurance is being pushed heavily by some carriers. In fact, he says, the annual Top of the Table meeting even had presentations on CI from the main platform, for 2 years in a row. He does offer it, but he says, “I am finding that if clients already have good health care, good long term care and good disability insurance, they dont want critical care insurance.” Therefore, he is wondering how CI will fare over the long term.

McDonald has a general concern, too. It regards ongoing service. He frequently takes over as agent-of-record for many orphaned insurance accounts, and he says he has found that many of these accounts have UL or VUL policies that are underfunded. “It is amazing how many there are.” In addition, a lot of attorneys and CPAs who become trustees of a clients irrevocable life insurance trust often do not know anything about the funding levels of UL and VUL or how to determine how the policy is performing.

These situations have convinced him that, “if you are going to collect a renewal, you should do something for it.” For instance, agents should monitor and take steps to ensure that the ULs they have sold do not become underfunded.

“The insurance business is not about us,” he stresses. “Its about what we do for the client.” Providing good service is how agents earn their living. Thats important to keep in mind, he suggests, because “no one has yet named us [the agent] as their beneficiary.”


Reproduced from National Underwriter Edition, December 16, 2004. Copyright 2004 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.