“Declared rate and indexed annuities are under attack on multiple fronts,” states a new position paper from the National Association for Fixed Annuities, Milwaukee, Wis.
NAFA “would like to set the record straight,” the document adds pointedly.
That feisty tone captures the mood of much of the insurance and financial product industry for 2005, and it sets the stage for the product environment to come in 2006.
Many insurance sectors saw industrywide sales in key product lines rise only modestly, stay flat or decline in 2005.
True, there were sweet spots. New variable annuity sales rose throughout the year, especially in the third quarter, leading to predictions that year-end VA sales should surpass those of 2004. No-lapse universal life had definite play, and health savings accounts now number more than one million. Also, some carriers reported big sales increases in certain lines, despite the ho-hum results of their sector industrywide.
Still, it’s been nip and tuck. For instance, earlier in the year, some VA watchers saw some flat-lining going on and wondered whether the industry could get enough bounce in 2005 to beat 2004′s year-end total (something that is now expected). In life insurance, fair to flat dominated, with growth showing most prominently in fixed and guaranteed contracts, not variables. Disability income insurance sales are largely flat, say industry leaders. Even index annuity sales, which enjoyed several quarter-over-quarter increases from last year on, took a dip in the third quarter of 2005.
As for long term care insurance, Phyllis Shelton, president of LTC Consultants, Hendersonville, Tenn., openly wondered in her new LTCI Harvest newsletter, “why on earth LTCI sales went from $1 billion in 2003 to $840 million in 2004 and we’re sitting at $340 million as of June 30, 2005.”
In some areas, sweeping laws and regulations have been siphoning off corporate energy from new product development and promotion.
Executives point to reserving regulations and estate tax reform proposals as examples. They also mention ongoing compliance with complex measures such as the Health Insurance Portability and Accountability Act, Gramm-Leach-Bliley, the Patriot Act and Sarbanes-Oxley.
The industry aims to comply and do what is right, but that takes time and money, say executives. The costs “ultimately get passed on to the consumer though product pricing,” says Melissa Millan, corporate vice president of long term care and disability income insurance at MassMutual Financial Group, Springfield, Mass.
The National Association of Securities Dealers’ August 2005 Notice To Members 05-50 is the newest challenge–to fixed products in particular. The NTM recommends that broker-dealer members treat all index annuities as securities, even though the products have not been so declared. Hence, NAFA’s new position paper seeking to “set the record straight.” The paper even suggests that the 3Q falloff of index annuity sales “may well be attributable to the unfavorable climate” resulting from the NTM.
For all these reasons, products people bit the bullet in 2005 and decided to defend, promote and reshape their offerings. They are betting what they set in motion in 2005 will bear fruit in 2006.
Defend the products–The index annuity industry is drafting statements, and organizing initiatives, to counter NASD’s NTM.
Already, some B-Ds are interpreting the NTM as a reason to require all fixed business–including traditional fixed annuities and fixed life insurance, some sources say–to flow through their firms. That has insurance marketers alarmed. Some are preparing for turf wars at many levels.
For instance, some B-Ds might try pressuring an insurer’s top contract, suggests Ben F. Ward, managing director of The Leaders Council Agency LLC, Memphis, Tenn. If that happens, he says, the large insurance marketing organizations will go elsewhere with their business.
Product defense is top of mind in the disability business, too. Several insurance associations recently took the bold step of suing the California insurance department over what they contend are “underground regulations” regarding long-term disability insurance. (The suit was filed by the Association of California Life and Health Insurance Companies, America’s Health Insurance Plans, American Council of Life Insurers and also the California Chamber of Commerce.)
“There is significant concern in the industry about what California is trying to mandate,” says Millan. Disability insurance “is not designed to be an annuity or a retirement product. It’s to take care of income needs if a working person becomes disabled.”
Increase the product focus–Efforts are under way to put more focus on a product line through organizational clout. Recent examples are this year’s formation of two disability insurance organizations, both aimed at growing business by clarifying what disability insurance is, does and needs.
o The new 12-member Council of Disability Insurers seeks to help increase consumer awareness of individual and group disability insurance, says Millan. Similar to the LIFE organization (for life insurance), the Council will use public relations and advertising to drive its public awareness initiatives, she says.
o The new 100+ member International Disability Insurance Society aims to be a forum for all key disability interests to discuss common opportunities and problems, says W. Harold Petersen, president, Petersen International Underwriters in Valencia, Calif.
Reduce complexity– “Across the board, the insurance companies are becoming more creative in the way they provide products, programs and value, and how they price the products,” says Gary Dworkin, president of Dworkin Associates, Rochester, N.H., and the new secretary of National Association of Independent Life Brokerage Agencies.
“They’re providing clients with better, and maybe fewer, products that have few or no moving parts,” he says.
That’s not always easy, say executives. For instance, in disability income and LTC insurance, rendering products less complex and more understandable always entails dealing with the push-pull, says Millan. That is, developers try to respond to consumer desire simply to be protected and producer desire to have products that differentiate them from competitors. Still, that is the direction the industry will need to go, Millan contends.
Even smaller carriers are getting into the act. For example, Fidelity Life Association of Oak Brook, Ill., decided to make simplification the focal point of its move into the mid-market.
The insurer is using a new process that cuts “to days” the underwriting time needed for mid-market life policies, explains chief marketing officer George Vlaisavljevich. The insurer also is offering a “fast, hassle-free purchase experience,” he says, via an accept/decline model, web-based technology, and active involvement of outsourced underwriters on recorded calls with applicants. Also, he says, “we avoid anything requiring full blood testing.”