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Building the perfect product

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This is the third in a series highlighting some special “players” in the financial services industry. The focus this month is on product manufacturers, and more specifically, the insurance companies who design and manufacture insurance and annuity products.

Those manufacturers have the very difficult task of designing products that must be competitive and offer benefits that will resonate with the consumer. These products must be easy to understand, offer substantive advantages for the consumer that will add value to their overall financial situation, and, of course, offer enough compensation to be attractive for the agent to sell. They must also be designed to be actuarially sound so that they do not implode on either the company or the consumer.

An insurance company today must also stay on the cutting edge of product design, or risk being left behind by the rapid change and evolution happening in all facets of the industry. Imagine an insurance company in the indexed annuity space that chose not to add a lifetime income benefit to their products. Just four short years ago, these living benefits did not even exist in the fixed annuity business. Today, they are one of the primary reasons why agents sell them.

Indexed universal life insurance and the combination life insurance/long term care policy are great examples of attractive products that insurance companies are designing to fill a particular need that exists.

We all know of the many challenges that the baby boomer generation will pose to our country. From health care to long term care, Medicare and Social Security, as well as their own financial planning and goal of not outliving their money, the issues are endless. We have already seen insurance companies innovate in a way never before seen in the industry. Despite their large size, most insurance companies have shown the flexibility needed to adapt their policies and products to the realities of today’s consumer and today’s economy. I have tremendous confidence that insurance companies will continue to push the envelope in the areas of product design and overall innovation.

The reality is we reside in an industry with thousands of distributors and far fewer manufacturers. These manufacturers have and must continue to carry the weight of the industry on their shoulders as everything the distributors do and sell flows from the decisions and actions of the insurance companies. They set the pace and define the parameters of the industry and in doing so they must have a firm pulse on literally hundreds of variables (such as pricing, demographics, consumer demand, etc.).

Faced with the greatest demographic bulge ever, one that requires product change and innovation, the insurance companies have so far stepped up to the challenge. They are designing custom products to meet specific financial needs in areas such as long term care and income planning.

Just the like the independent financial advisor, insurance companies must do hundreds of things just right to be successful. I say “bravo” to the insurance companies for doing so many things right and building products that not only benefit them and the agents selling them but also have a meaningful impact on the financial affairs of thousands of happy consumers.