The insurance product scene in year 2008 saw 3 forms of flight–to quality, to ratings, and to guarantees. Much of this came in response to the financial meltdown. Here is how the story unfolded.
Flight to quality. Since the summer, agents have encountered a “flight to quality” among their customers, says Jim Medici, senior vice president-marketing, Senior Marketing Group, Charlotte, N.C. This has been a “critical” change, he says, noting that agents “want to present carriers that won’t present dilemmas for clients.
“Safe and conservative have become the buzzwords for life and annuities. The same goes for long term care insurance–agents want to be sure the carriers they use will be around when it comes time to pay claims,” Medici says.
Flight to ratings. People are looking at ratings of companies issuing their policies, says Greg Olsen, a partner at Lenox Advisors, New York. “They want double- or triple-A rated carriers, 150-year-old blue chip,” he says, “and they are looking at ratings by all the rating firms.”
That is especially so if consumers are buying a long term care policy and don’t expect to make a claim for 30 to 40 years, Olsen says.
“Ratings have also become extremely important in life insurance,” he continues, noting that “it used to be that people wanted AA-rated companies. Now they want AAA-rated companies.”
Many also want to buy life insurance from mutual companies that pay attractive dividends, he says. They don’t want “stock companies that have been in the news.” Some mutual carriers are responding by putting their 2009 dividend rates on their websites, he notes.
Where fixed annuities are concerned, people are looking for “reasonable” rates and “more than reasonable” company ratings, says Medici. Advisors keep asking, ‘what kinds of assets are on the books of this carrier?’” he says. “They ask because more of their customers, or customer gatekeepers like attorneys, CPAs and trust officers, are asking that.”
Olsen agrees. It’s not just advisors who are asking, he adds. “Clients are asking too–’how stable is my annuity company?’”
Agents need to bring the ratings to the attention of the client, Olsen concludes, contending that “disclosure is paramount at this time.” Agents should also check to see if their companies have reduced their dividends, he says.
Flight to guarantees. As 2008 wore on, clients started saying, ‘I can’t stand any more losses,” recalls John Rucker, president, The Rucker Company, a BGA in Dublin, Ohio. “So we saw a flight to guarantees–for instance, FIA sales went down but traditional FA sales went up.”
Because of the guarantees in whole life, customers often came to agents saying they want WL, observes Marilyn M. Tavenner, president, the Tavenner Agency, a brokerage general agency in Springfield, Ohio. But they were interested in universal life with guarantees after learning that the UL premium was lower than the WL premium, she continues.
ULs with longer guarantees do cost more than ULs with shorter guarantees, Tavenner allows. But in 2008, she says, “we could still make a case for UL with no-lapse guarantees out to age 95 or 100–provided the agent was able to sell the point that ‘you’re getting the value of permanent insurance without the cost of WL.’”
What about trends in the products themselves? The product pros saw the above themes played out in virtually all product lines and areas. Examples follow.
Annuities. In variable annuities, the dominant products were VAs with guaranteed minimum income benefit and guaranteed minimum withdrawal benefit features, says Olsen. In 2008, “clients didn’t want to invest in the stock market unless they got the belt and suspenders that these products offer,” he says.
GMIBs and GMWBs provided consumers a way to dip their toe in the market, Olsen explains. “No matter what happens, they are guaranteed” to get the stated percentage as income or withdrawals.
Also during the year, single premium immediate annuities became more popular, he says. “People wanted guarantees, consistency and predictability,” Olsen says, and SPIAs provide that. “We’re getting back to basics now. Clients are looking for return of their money, not on their money, and being paid consistently no matter what (via the SPIA) is what matters.”
Indexed products. Today, in late 2008, is a good time to buy indexed products–annuities or life policies–because the market indexes should rebound in coming years, maintains Rucker. Even fixed indexed annuities? Yes, he says, provided that the clients have liquidity. But in 2008, he notes, not everyone had liquidity–especially in the 2nd half.
Life products. In 2008, using life insurance as an asset class became increasingly important to some customers, Olsen points out.
They or their advisors might have compared earnings the client gets from bank accounts, certificates of deposit and stocks against the buildup in a life policy, he explains. With the life policy, “they saw growth, its tax preferred status, and the death benefit,” he says. “So, if they had liquidity, some figured, ‘why not use it to buy life insurance and view the insurance as a long-term vehicle for appreciation?’”
Here’s what happened with specific types of life insurance:
o Whole life. Some customers and advisors revisited WL in 2008, exploring how it can fit into their portfolio, says Olsen. “People tend to add to their portfolio the things that go up,” he reflects. “They also liked the guarantees.”
o Guaranteed UL. This had appeal, especially for people age 50+, due to its guarantees, Olsen continues, noting “it’s cheaper than WL.”
o Term life. Due to the economy, agents were selling term as a low-cost choice, Olsen says–i.e., “more protection for the least amount of dollars.” There was more interest in the annually increasing term, he adds. The idea was that, after the economy improves, perhaps 5 years from now, the customer can then stop the ART and purchase a 20-year level term policy.