Life insurers should look beyond today’s rocky financial environment.
Gary Bhojwani, president of Allianz Life Insurance Company of America, Golden Valley, Minn., and Catherine Smith, chief executive officer for U.S. insurance at ING, Amsterdam, gave that assessment here during a life insurance industry executive conference.
The conference, the 19th in an annual series, was co-sponsored by Dewey & LeBoeuf L.L.P., New York; Ernst & Young L.L.P., New York; and Summit Business Media L.L.C., New York, the parent of National Underwriter.
Bhojwani noted that the current volatility in the investment market is a 3 in 10 million to a 1 in 1 trillion event, 5 to 7 standard deviations from the norm.
In the last 60 to 90 days, the investment banks that usually fixed crises appear to have caused the crisis before disappearing, Bhojwani said.
Despite the current turmoil, there will be tremendous opportunity over the next 5 years to change the lives of consumers in need of life insurance products, Bhojwani said. For example, he said, by 2020, the number of Americans in retirement will grow by 30%.
A total of $25 trillion in retirement money is getting ready to move, Bhojwani said.
Both Bhojwani and Smith said the value that life insurers provide in uncertain times is the certainty offered by products such as life insurance that offer a high degree of safety.
But Bhojwani said business leaders still need incentives to think in terms of 5-year to 10-year time horizons, rather than seeing the world from a quarter-to-quarter perspective.
The quarter-to-quarter approach creates “stupid thresholds that result in stupid behavior,” Bhojwani said.
Other challenges include companies’ lack of understanding of the complex financial instruments they are using and the fact that there is “way too much comfort with debt at the citizen level, the government level and corporate level,” Bhojwani said.
ING’s Smith discussed insurers’ chance to help 68 million Americans who are either underinsured or do not have insurance at all.
In times of economic crisis, with lost jobs and diminished incomes, this chance to provide certainty is particularly important, Smith said.
One way to help underserved consumers is to reach out to the middle market, but that is difficult, both because the number of advisors is shrinking and because the cost of doing business is causing advisors to focus on higher-income prospects, Smith said.
The monthly premium for a healthy 30-year-old who buys $250,000 in term coverage may be just $10 per month, Smith said, observing that it is hard for an agent to live on commissions from selling such an inexpensive policy.
Another obstacle is the lack of advisors from diverse ethnic backgrounds who can reach prospects in their communities, Smith said.
By 2042, white Americans will make up less than half of the U.S. population, and members of “minority groups” will be in the majority in communities such as Denver and Las Vegas within 2 years, Smith said.
Meanwhile, only 30% of Hispanics have life insurance, even though they express a strong desire to protect their families, Smith said.
One solution, Smith said, is to help agents make better use of their time, by encouraging consumers to use the Web for research and then talk to live agents when they are ready to buy coverage.
A second solution is selling through banks, Smith said.
Smith predicted that the bank channel will continue to offer great opportunities for growth even as banks consolidate.