What's In The Cards For Products In 2007

Meanwhile, competition itself continues to be a driver toward greater and greater simplification. Consider term life insurance products. They continue to be simplified and commoditized, says James Gelder, president and CEO at ING, in the Minneapolis office.

“People do need pure death benefit protection,” he says, and for the mid-market–say, a 40-year-old needing $250,000 of protection–the term quote shops are responding. ING uses the quote engines, he notes. It also has introduced an online term product for institutional employees to sell. The simplicity is key for such products, he indicates.

Simplification is important in the disability income insurance market, too, says W. Harold Petersen, president and chairman of Petersen International Underwriters, Valencia, Calif.

“In 2006, the industry trend focused on improving the time it takes to get a product into the consumer’s hands,” Petersen says. That entailed streamlining, both technologically and ideologically.

One result is that some DI insurers have begun looking more favorably at multi-life DI cases (5 lives and up), he continues.

For instance, some have given “significant discounts” of 10% to 15% for such DI cases, depending on premium volume and how many lives are written, he says. And, depending on the case, the underwriting can be guarantee issue or guarantee-to-issue, subject to modification based on certain conditions.

In tandem with this, the 2-year-old International Disability Income Society, Seal Beach, Calif., has made improving DI speed-to-market one of its goals, Petersen says. “The long delays in some states are costly to everyone, including consumers and taxpayers,” he says.

Target markets: Time was when it seemed that the entire life and health industry sought only high-net-worth buyers. No more. Companies are targeting other segments, too.

For example, ING is trying to encourage life insurance agents to resume writing the mainstream market at all ages, says Gelder. The company still writes a lot of older age affluent business, he allows, but it wants to round out its book with more business in the 40- to 45-year-old group of healthy individuals, and others below age 60.

“We think there’s lots of opportunity there, and we want to shine a light on it,” he says, citing business owners and key person cases as examples. To this end, the company is now developing marketing strategies, products, and education and training programs aimed at equipping agents to work in that market.

Meanwhile, the DI industry has begun experimenting with “mass production” initiatives, says Petersen.

Also, most carriers and associations continue to put priority on education and training of producers so they can deal with the product changes coming down the pike.

In 2007, the DI industry will continue its newer focus on mid- to upper-income people, predicts Millan of MassMutual.

This market may be uninsured for DI right now, and it won’t be drawn to it with bells and whistles, she says. It needs products that address the real needs people may be facing. So MassMutual, she says, is marketing “guidance resources” with individual DIs for the underprotected market. This helps people obtain debt counseling, nursing home referrals and other resources people often can’t find on their own. The company also offers counseling and assistance separate from the claims process to insureds who become disabled.

The point is “to add value beyond the contract’s product features,” she says.

Initiatives by government and other bodies: Product developers say they are expecting products and sales to respond to moves by government and other bodies.

Developing hybrids in response to the PPA of 2006 is just one example. Other examples include: the Deficit Reduction Act of 2005, which opened the door to more state LTC Partnership programs and products (nearly half the states had passed Partnership legislation by mid-2006); the joint federal/state LTC Insurance Awareness Campaign (widely viewed as a boost to LTC sales); and the 2006 start of Medicare Part D prescription drug plans (viewed as freeing up dollars for purchase of other senior financial products).

The shift to the 2001 Commissioners Standard Ordinary Mortality Table is impacting products, too. “For instance, term insurance rates came down slightly in 2006 as more companies adopted the 2001 CSO,” says Douglas Mishkin, president and CEO of Algren Associates, a New York BGA.

Michael Kaster, a senior consultant with Watson Wyatt in Berwyn, Pa., and the secretary/treasurer of the Society of Actuaries product development section council, concurs. “There is still a modest amount of transitioning from the 1980 CSO to the 2001 CSO going on,” he says, and it is improving rates for UL as well as term.

But, he adds, life insurance developers are still waiting to see what happens with adoption of the principle-based reserving approach. There has been a big push for this to happen, but it is not imminent right now, he says, adding that some people don’t even want it to happen.

For 2007, Kaster predicts that “more insurers will seek out solutions on their own, concerning funding what they think are redundant reserve requirements.” Previously, they used reinsurers for this, but now he predicts many will set up their own reinsurance outlets and fund them through investment banks.

The result? Depending on the solution, “term and UL insurance will become more competitive or more profitable,” Kaster says, and that will open up more opportunities for customers and their agents.

Another development–setting up organizations to promote awareness of specific product types–shows no sign of abating. The newest entry is the Council for Disability Awareness, which formed in mid-2005 and named its first executive director, Robert G. Taylor, in February 2006. CDA is now using its website () to launch educational information. The goal is to help raise awareness of disability and proper disability income planning, says Millan.

Reinsurance pressures: Both life and DI products have been impacted by reduced reinsurance capacity and by players, say industry executives.

For example, reinsurers have pulled back on older age life insurance business–a move Gelder believes reflects a desire to avoid over-concentration in age 75+ cases.

The life insurance business “OD’d” on older age sales starting in 2004 and peaking in the first quarter of 2006, he points out, noting that stranger-owned and investor-owned cases fueled a lot of this. Reinsurers did not want any part of it, he says, since it is unlikely that such cases would lapse–a problem, since most products were issued with lapse-supported pricing.

In response, many carriers, collectively and individually, have taken steps to curb older age volume–for instance, by increasing over-75 rates, Gelder says.

Mishkin, the BGA, says life underwriting and pricing has become “a challenge.”

“It’s now much harder to get top rates, especially for preferred risks, and underwriters rarely grant exceptions anymore,” he says. “In 2007, I expect more of the same. So now, more than ever, agents should not quote the top rates.”

In the DI business, there are now only 2 active reinsurers, notes Petersen. As a result, DI policies tend to have “very similar issue and participation limits, definitions, and policy features,” he says.

What’s more, the business has fewer players than in its expansion days in the 1980s. In 2002, in fact, DI carriers numbered just 26, says Petersen. The market became so limited that DI marketers “shouted” about it to commissioners, company presidents, and anyone who would listen. They also started the International DI Society as a forum to air concerns.

Not coincidentally, Petersen thinks, the industry now has 32 carriers, making for broader product opportunities.

Some other product trends follow. They are arranged by contract type.

o Critical illness insurance: In 2006, 3 CI designs were prevalent, says Daniel Pisetsky, president of U.S. Living Benefits LLC, Old Lyme, Conn. These were individual CI with portability; a hybrid group chassis with limited portability; and an annual-renewable-term type CI for voluntary sales, with limited or no portability.

Pure individual CI was not a major player, he says, and overall CI industry did not show significant growth. “A few of the companies are committed to pushing CI,” especially for filling liquidity gaps in financial plans, he adds.

A future strategy may be to position CI on a continuum with LTC insurance, he adds, explaining that the CI would be for the insured’s working years, and the LTC for ages 65+. Another strategy under discussion is to sell CI for mortgage-related business, as is done in the United Kingdom.

o Fund of funds: These investment options will be a “tremendous growth area” for deferred VAs, predicts Plotnik. Many VA insurers require contract holders to choose such a fund if they elect the VA’s living benefit guarantee, she explains. “Also, people like the convenience. The fund of funds options are professionally managed and balanced, so advisors and clients don’t need to go in and modify the choices every so often.”

In 2007 and beyond, Plotnik says, these funds may start showing up in immediate VAs, too. This may help make investing for retirement income less intimidating than, say, choosing from 70 different options, Plotnik suggests. In turn, this may encourage more people to consider IVAs.

o Active conservation programs: Many VA players are getting the message from critics about having too many 1035 exchanges, observes Plotnik. So, several have already begun narrowing their activity here. Meanwhile, VAs with GMWB features will serve to lock in more owners to existing contracts, she says. The combined effect could be “more insurers will start monitoring net sales regularly, not just gross sales, and taking steps to conserve existing business. They’ll also be checking to ensure that exchanges that do occur are needed and suitable.”