By Linda Koco
Some insurance product developers are, at long last, moving toward creating full-feature contracts but with simplification.
They are a variation on the one-size-fits-all design, though, of course, they do not meet the needs, wants and budgets of all potential clients. Their simplification comes from offering design and process attributes that make the products easy to present, understand and use.
A few weeks ago, NU ran an article that spotlighted two examples–variable contracts that achieve simplicity by using no riders, streamlining underwriting, collapsing internal fees and/or making broad use of an electronic platform. There are many other strains of the same trend. In general, the simpler products are heavy on back-end management and maintenance technologies and sleek on front-end forms, underwriting and other customer-facing elements.
The trend should spell good news for marketers who have pulled their hair over insurance product complexity in the past.
It may be especially good news for advisors from wire houses, banks and other alternative financial channels who find traditional insurance products to be cumbersome at best. As NU readers know, such professionals are increasingly interested in selling insurance, but they prefer designs that are easy to present and/or more in sync with their particular discipline.
Even advisors from insurance backgrounds say they want and value product simplification, if it enhances the client-agent interchange and relationship. Being from the industry, these advisors do handle complex traditional insurance contracts with aplomb. But they welcome meaningful, effective simplification, too.
That touches on an essential point: The demand is for simplicity that meets client needs and preferences, coordinates with the advisor’s systems and approaches, and does not create complexity somewhere else.
To ensure they get this, advisors should do some due diligence. Here are some questions to use in dissecting the products:
==Is this for real?
That is, is this really a simpler product than the current offerings? Put them side by side and tally up the score.
==Will the customer benefit from this particular type of simplicity?
The answer may be yes, if the client doesn’t want or need to customize, and if the simplicity does not harbor inside glitches that actually impede performance or achievement of customer expectations. But the answer may be no, if the client’s needs and wants demand a comprehensive approach that entails greater complexity. In short, the marketing messages in the product sales literature don’t tell the whole story. Explore the impact of this simplicity on the client’s overall financial plan.
==Will a product’s lack of moving parts make for a more positive customer experience than products having multiple moving parts and options?
Again, the answer will depend. If a product has few or no moving parts, this may foster greater long-term predictability. But that may be for a price–which the client might not want to pay.
==Do advisors give up anything if they start offering simpler products?
Not always, but they should ask. For instance, consider price competitiveness, service options, turnaround time, commission schedules, etc.
==Will the product deliver on its promises?
If it uses new strategies or technologies to achieve the simplification, relevant history will likely be lacking. So, what measure should be used to evaluate this? Examining how the issuer handled past debuts of technology-enhanced products might help. So might reviews of company ratings, reputation, reinsurance and other business relationships, etc.
==How much disclosure should be provided to the customer about this product’s simplification processes?
Say a technology makes a product not only more price competitive but also easier for customers to access or use. The question for the advisor becomes what type of disclosure regarding this technology or associated feature is necessary? Disclosure requirements are changing rapidly, so it’s worth checking out.
==Will the simplifying feature(s) require (re)education of client and/or advisor?
Perhaps. Take automated asset allocation programs. These variable annuity features greatly simplify the process of making investment decisions. But even though the programs have been around for a decade, advisors still need to be sure that the client understands their purpose and outcomes.
When exploring whether or how to work with the newer simplified products, advisors do not need to engage in endless scrutiny. But they probably should review the products with an inquiring mind.
The demand is for simplicity that meets client needs and preferences, coordinates with the advisor’s systems and approaches, and does not create complexity somewhere else.”