by Michael S. Pinkans
The stock market recently hit a 3-year high. Judging from the past, variable life sales tend to lag the market by about 6 months, so if this market upturn continues, VUL sales should be pretty good in 2005.
But lets hope the industry does not repeat the mistakes made in selling VUL in the past. Specifically, the business needs to examine how to enhance the value VUL brings to the consumer, to ensure continuing customer satisfaction. Thats important because, despite the recent market rebound, its likely that more than a few customers who purchased VUL in the late 1990s still arent too happy about subaccount performance.
The box summarizes key characteristics of the VUL buyer. The VUL industry always has touted that its product allows such customers complete controlfrom the initial investment decision-making process on to future subaccount allocations. But has this worked out in reality? Do customers really understand the equity marketplace and are most insurance agents well versed enough to provide detailed investment advice?
Lets remember that during the last 20 years, the S&P 500 index grew by almost 13%. However, one would be hard pressed to find an investor who actually earned 13% over that same period. Thus, though availability of customer-directed investments sounds like a great idea, actual performance appears to lag.
How can the industry help the VUL customer make more informed decisions?
The answer lies in offering professional money management services (also called active money management). Some VUL insurers already offer such a service, either for no cost or for very low additional cost above basic contract expenses. Either way, the insurer partners with professional money managers to develop asset allocation strategies and management tools that help the customer with decision-making. The service provides the customer with expert, unbiased advice on which subaccounts are recommended based on the customers risk profile and investment horizon. This service is ongoing, not just at point of sale.