All Product Eyes Will Fix On The Economy In 2009

Buckingham agrees, noting that carriers will trim back in response to the rising cost of issuing the benefits. In fact, at the end of 2008, some carriers had already pulled back on certain living benefits, he says.

Still, Buckingham predicts that most carriers will continue to offer the features. Further, he says, changes in the market will create new opportunities and trade-offs. “It may be that simpler or better ways to handle these features will emerge.”

Atherton thinks there will also probably be a resurgence in sales of VAs with an earlier type of living benefit–the guaranteed minimum accumulation benefit. This feature can be more expensive than GMWB features, he allows, “but will reemerge because of the need for a floor on cash value.”

Fixed indexed annuities. Look for more growth and evolution here, says Buckingham. Market forces will spur this growth, he predicts, noting that volatility will facilitate new policy structures, regardless of whether the products are deemed securities or not.

Life insurance. The buying and selling of life insurance will continue in 2009, predicts Dan Mulheran, president of ING Life Distribution, Minneapolis. However, he adds, the nature of this activity will change.

For instance, some cases will be slower to place, because the clients may be hesitant, he predicts. Also, some will want to reduce premium expenses by cutting the face amount in half, or they’ll choose term insurance instead of permanent.

But sales will go on, he reiterates, because “people tend to think more about protection when things are unstable.”

Dworkin agrees. “Average premiums may be down, but I think we’ll see an increase in the numbers of policies sold.”

The year will see re-pricing of life policies for the 2001 Commissioners Standard Ordinary tables, says Rod P. Hansen, the new president of the Society of Financial Services Professionals, Newtown Square, Pa. “This will only have negligible impact on consumers,” he adds.

But because of economic uncertainty, products will be heavily scrutinized for quality and how the carriers meet their long-term promises, continues Hansen, who is regional vice president of Pacific Life, Boca Raton, Fla. Therefore, in dealing with clients, he says, distributors will want to compare, review and have more knowledge of the risk products they’re offering than ever. The operating question will be: “What’s best for the customer?”

This will happen with any insurance product where the customer exchanges health, LTC, disability and life premium for risk-bearing by the company, he says.

Here are some predictions about various life products in 2009:

Universal life. “The ULs with no-lapse guarantees will provide consumers with base protection at the lowest average premium at some ages,” says Dworkin. “These products respond to what many clients will want in 2009–protection for a lifetime at the lowest average premium.”

The no-lapse ULs typically result in no cash value, he allows. Still, “it is a permanent product,” he says, “and it will be there consistently for the insured’s lifetime.”

But some distributors are now asking for lifetime no-lapse guaranteed ULs that also offer a cash value rider, notes Mulheran. The reason: clients are saying they don’t understand why their UL policies will no longer exist at age 100, he says. “The clients say, ‘I put in all this money and I get no cash value?’”

Distributors are also seeking enhancements that will grow the internal rate of return on UL death benefits, says Mulheran. This reflects the growing interest in treating UL as an asset for the estate, he says. “It’s critical to affluent buyers,” he says, explaining that they see it as a guaranteed asset, meaning that they can be more aggressive with their other assets. Some features, like the return-of-premium rider, could enhance that value, compared to a UL with no ROP rider, he notes.

Variable universal life. Certain distributors say they can sell VUL with death benefit guarantees in 2009, says Mulheran. The year will be a good time to buy VUL because the market is down, he indicates. Also, a lot of new VULs have no-lapse guarantees, he says, so that will be very attractive to buyers in 2009.

VULs are due for a sales comeback, agrees Atherton. However, he thinks the comeback won’t happen in 2009. “The equity markets will still be under a cloud of suspicion from both planners and investors,” he explains. “And the products will probably need some modernization before they do come back.”

Survivorship life. Demand for these policies will increase, in line with emerging clarity in estate tax issues, predicts Buckingham. This will happen even if the estate tax does not change, he says, and it will start even before the estate tax issue gets resolved. The policies will use both UL and VUL chasses, but the policies won’t be cash value oriented, as such products would be too expensive, he says.

The VUL is the riskier of the two products for this need, he adds, but Buckingham says high net worth people can afford to take that risk.

Living benefit features. VUL carriers will continue to adapt these VA features for their own products, says Buckingham. They might, for instance, offer a guaranteed minimum accumulation benefit on a VUL that returns the premium after 10 or 15 years, or offer a guaranteed minimum withdrawal benefit on a VUL. “Life insurance is a longer-term purchase than an annuity purchase so we will see more evolution in this area,” he predicts.

Indexed life insurance. This will be another area of growth and evolution, says Buckingham. People who formerly were VUL buyers will be drawn to more conservative products in 2009, including indexed life, he explains, noting the indexed product represents less risk to the buyer. Insurers that have a development budget will look into becoming new players or offer new designs in this market, he predicts.

The cost of the options used to hedge indexed products is causing some retrenchment in benefits in both indexed life and indexed annuities, he allows. “But I think this will bounce back sooner in indexed life than in fixed indexed annuities.”

Term life insurance. Return-of-premium term policies, especially the 30-year plans, will do well in mid-market sales in banks, the worksite and property-casualty agencies, predicts Atherton. Dworkin predicts there may be more sales of 10-year policies too, possibly on a term-like UL chassis.

All in all, 2009 will be a challenging year, sums up Hansen. “There will be chest-pounding and snowballing over reserve issues, for instance, and appetites for risk will change. We owe it to the customer (to deal with this)–we can never lose the trust from the public,” he says.

As the year unfolds, “we will lose carriers to mergers. Products will merge and blend. We will see blocks of business sold, such as in group insurance. The insurance companies will stick close to what they’re good at, and so will advisors.”

Is this doomsday? “I hope not,” Hansen says. “But it won’t be a heyday either.”

Insurance professionals will need to be sure they do a quality job, he says. “Make sure you know what you are selling, who you are selling it to, and periodically check to be sure it’s all still correct. Remember, this is about the consumer. Do what’s right for the client, stay in touch.”

Finally, he says, approach change as something good. “Products will always change, for the business to stay healthy.”