At a recent industry meeting, a panel of portfolio managers and mutual fund distributors were discussing how most mutual fund sales are made using lifestyle or asset allocation strategies.
The approach has been embraced by customers, but there is a side issue that has come up that is relevant to sales in the variable universal life insurance business.
The side issue is, according to the panel, that it has been difficult for individual fund families to market their products to customers unless those funds are included in the lifestyle or asset allocation programs. (To be included, those funds would need to be performing near the top.)
The takeaway is that buyer demand for simplicity is so strong that it is pressuring the industry to comply.
Later that week, I ran into the same point, this time on a sleepless night when I saw a popular TV infomercial for a cooking appliance. The product is not the least expensive one in its category nor is it stylish. In fact, it’s kind of an ugly box. However, the marketing strategy is simple and right on target: Put your meal in and wait for it to be done. The audience gets involved, shouts the product slogan and reinforces how easy it all is.
Clearly, those Americans want simplicity. So do many others including registered reps and their clients.
Think back. How many individuals want to make a life insurance purchase as easy as popping some item into a cooking appliance and saying “presto” a few minutes later?
Actually, most do something like that.
Unfortunately, unlike the cooking machine that already has a mechanism to heat, cook and stop at the appropriate time, VUL insurance contracts need to be managed. It is not a “buy it and put it in the box” kind of policy. If the client buys it and forgets it, and if the rep sells it and forgets it, the end result may not satisfy customer expectations.
This reality may have helped accelerate the decrease in VUL sales over the past few years. In fact, LIMRA International now is reporting that VUL sales for 2005 fell to 12% of new, annualized premium (down from 14% in 2004).
With a VUL purchase, forgetting about the initial asset allocation can be very dangerous. Like many things, both on a macro- and microeconomic level, changes occur that could negatively impact a successful outcome.
Wouldn’t it be nice to have a variable contract that wouldn’t rely on the customer or rep to become and remain knowledgeable about the investment environment so as to maximize performance? Especially since most customers and reps don’t have the time or ability to manage their VULs properly in this fashion.
Recognizing this, some insurers now are partnering with professional money managers to develop asset allocation strategies and management tools to help the customer in the decision-making process.
For no fee, or for a low additional fee above basic contract expenses, customers can benefit from expert, unbiased advice on which subaccounts are recommended. This is based on the customer’s risk profile and investment horizon.
True, most VUL companies provide this service for the initial asset allocation. However, very few provide active subaccount management going forward.
It is likely, however, that more and more companies will begin offering these types of services on a continuing basis. The benefit for the customer is that there is always someone watching over the portfolio, and subaccount changes will be made automatically based on environmental changes.
What’s been so successful for the investment side of the house now is coming to VUL insurance contracts. Perhaps now the customer will become better illuminated about the VUL purchase.
The overall benefits of VUL can be tremendous if customers really understand what they are buying and if there is active assistance in the subaccount management. That makes for well-sold products that are easier to manage.