Is a particular new product strain a trend (slow-growing but long-term) or a fad (fast catching but short-term wow)?
Insurance professionals, in the field and at the companies, aren’t always sure. But they should try to decide, at least for themselves, as this will impact how they handle the products they see.
First, some examples of the confusion that is out there.
In the middle of 2007, a few insurance experts told me that they think “the retirement income thing has pretty well run its course.” This was said even though the major players in this market were just then debuting new products and approaches, some with startling differences from each other and from previous versions. (See this week’s articles by Milliman’s Susan Sell and Brent Hamann and also CANNEX’s Lowell Aronoff for a taste of what has been going on.)
Meanwhile, others see no end in sight for retirement income needs and planning, not only because boomers will be retiring in ever-greater numbers, but also because of the greater longevity that people have today. For these professionals, income planning is a trend, not a “thing” that is pass?. It’s a market they “need to be in.”
Long term care insurance is another example. Some people believe the current stand-alone LTC designs are state of the art and au courant in terms of trends. They view the newer hybrid plans–life with LTC features, for instance–as mere fads that will never catch on in great numbers.
But in the past few years, stand-alone LTC sales have been largely disappointing (though not at all carriers)–not yet a trend? Also, a number of carriers are fixing to enter the very new hybrid market (LTC on life or annuity chassis)–a trend in the making or a fad?
One more example: Universal life insurance has drawn conflicting views over its fad-or-trend status through virtually all of its 30+ years. Even today, as carriers add lifetime no-lapse guarantee options to their ULs, the squabble continues. Whole life advocates think these ULs should go away before the guarantees develop holes, while UL proponents see the designs as “the” solution for long-term permanent protection.
Industry-wide agreement on trend or fad is unlikely, but knowing one’s own position on this is essential, as it influences product selection, presentation, and more.
If it’s a fad, advisors may look for buy-up, exchange and conversion options to facilitate upgrades later on. They may want to position it with clients as a “short-term fix.” Or they may want to ignore it, despite strong incentives, because it’s not a match for the firm’s goals and objectives.
If it’s a trend, advisors will likely want to obtain and assess the growth and performance history, competitiveness, and flexibility capabilities. They may decide to position it as part of the long-term solution. And they may decide to spend time, effort and money to bone up on the trend.
Corporate officers need to know the differences, too, so they can make informed decisions about where and how to allocate budgets pertaining to the developments.
So, how does one decide whether it’s a trend or a fad? Here are a few measures:
Sales volume. If it’s a trend, look for sales that grow gradually over several years. (An example would be the sales trajectory of variable annuities and, later, fixed index annuities.) But fad products draw sales too–typically spectacular sales in the early days–so examine the sales path carefully.
Number of carriers. A widely held rule of thumb is a product needs to be offered by about 40 insurance carriers to make for a viable, trend-building market. The reasoning is that more carriers mean more activity, competition, buzz and expansion. A fad, by comparison, may have few carriers and no new carrier entries over several years. But these distinctions are not carved in stone–e.g., for a high-end product (like group variable universal life when it was new), carrier count is less important than carrier depth and strength.
National distribution. This helps signal an insurance trend, whereas fads may be more localized. But given the industry’s state-by-state product approval process, those delineations are fuzzy. As a result, many trend-hunters look to see if New York’s tough-minded regulators have approved the product; if so, that could signal a trend. Alternatively, since the Interstate Insurance Product Regulation Compact now has 30 member states, pass-through here may be the signal they need.
Performance. When it’s a trend, several years of sales and other performance statistics will be available. When it’s a fad, such stats are skimpy–other than glowing reports of phenomenal sales. A new bonus feature might be more fad than trend, for instance (though some bonus products do morph into trends).
Final thought: Both trends and fads have their place. Responding to fads can help with customer acquisition. Responding to trends can help build staying power. But ignoring which is which can make for misdirected sales and marketing decisions, and perhaps some unhappy customers.