In the 2000s, insurers, advisors and planners seem to have increased their use of the “value-addeds” in offerings to current and potential customers.
Now, the Iowa Department has come out with Bulletin 08-15, advising that it will disapprove personal lines product filings with added items that “do not appear to be related to the insurance products.”
The difference between related and not related value-addeds is important. The industry needs to listen up.
First, an overview of the add-on trend. In my opening sentence, I said industry professionals “seem” to have increased their use of value-addeds. I used the word “seem” because the comment is based on my observations, not on empiric research.
Specifically, I have a huge file on such offerings. It was built up over the years but especially after the mid-2000s economic recovery took hold.
From 2003 to 2007, it seemed the insurance developers and practitioners could not get enough of value-addeds.
These are not insurance products, mind you. They are cost-free “go-withs.” They’re designed to enhance the product or advisory experience but not to indemnify for financial loss. Think of condiments offered with food products–”some ketchup to go with your fries, sir?”
The Iowa Department apparently noticed this growth of add-ons too. As it says in its new bulletin, “the Division has observed a trend whereby companies are including items other than insurance in new filings of insurance contracts.”
Iowa limited its comments to personal lines–because the department said “certain reductions of premium or commission are allowed in the sale of commercial insurance.” But my own files show that the add-on trend occurred in both group and individual product lines. It also occurred in insurance practices of various types.
o Individual and group life and health products often come with wellness programs. (A new MetLife survey confirms this; it says about 57% of larger employers are providing wellness programs, up from 49% in 2006.)
o Some health products offer discounts on gym memberships, and many vision plans offer discounts on new eyeglasses or contacts purchased from selected vendors.
o Some life products include access to free or low-cost medical screenings. Some offer vital record storage services or referrals to same.
o Many long term care insurance policies come with various advice or caregiver support services.
o A few contracts have offered identity theft services.
o Some advisory firms offer customers “free” financial planning aids or assistance, newsletters, year-end calendars, invites to special sports events or holiday socials, and/or tickets to plays or other entertainment events.
o Most insurers and advisors offer client education seminars on various financial topics.
Most of these value-addeds are insurance-aligned. That is, they somehow fit with the product or service being offered. In the process, they boost branding and differentiate firms from the competition. They also warm the cockles of the customer’s heart; after all, who isn’t happy with getting that extra roll in the baker’s dozen?
But other value-addeds appear to be a type of rebate or unrelated inducement to buy. The Iowa Bulletin cites examples: “unrelated products, memberships or services provided solely upon purchase or renewal of an insurance policy.”
Most of the value-addeds I see do not, in my opinion, fall into the latter category. Still, it’s not always clear.
For instance, offering a discount for a gym membership seems a good fit with a health policy but not with an annuity. But what if this discount is offered along with a critical illness policy? Or what if an agency offers a discount for membership at a local gym to customers who have purchased a long term care policy from the firm?
There are so many add-ons in policies today, and so many practitioners who provide value-addeds of their own, that sorting this out may not always be easy.
Still, just as it pays to look twice before crossing a busy street, it pays to examine not only the products being offered but also the extras that come with them.
This applies to advisory services too. Offering a retirement income planning class to wealthy prospects during an all-expenses-paid vacation at a resort may put a firm in the regulatory crosshairs, but offering the same class at a local meeting room would likely be deemed appropriate.
A good measuring stick to use is to be sure the extras align closely with the specific product or service being offered.