During difficult economic times, some consumers view life insurance premiums as discretionary expenditures. So, it is notable that recently new life insurance sales have declined and terminations have risen. But such tough climates provide opportunities for insurers and agents to meet mid-market needs and retain these policyholders in valuable new ways.
Here are some product concepts that may open such mid-market opportunities:
Unemployment features: Waiver of premium/charges in event of unemployment has existed for some time, but a welcome new wrinkle may be to increase death benefits by a modest percentage if the insured is unemployed at the time of death. Such increases could be implemented for a specified time period at little or no additional cost to the policy owner, and without extra underwriting.
Premium/charge waivers: For a limited time period on in-force or new business, insurers could offer expanded premium waivers on select types of coverage (e.g., spouse and child riders, or on disability income coverage for limited periods). This premium forgiveness, which could be provided under relatively more liberal triggering conditions–including unemployment, hospitalization, casualty losses or mortgage delinquency–could pay dividends to the carrier as a result of improved persistency.
Temporary price reductions: Some past programs have allowed smokers to pay non-smoker rates for a period of time. This idea could be expanded by offering new or in-force cases a one-class premium improvement for a defined period in recognition of the difficult economy. Additionally, premiums for a specific benefit type, such as accidental death benefits, could be cut for a defined period, in recognition that people have reduced their driving and fatal accidents have dropped significantly.
Grace periods: The standard life policy grace period could be extended by an additional period (such as 30 days) to give payers additional time to stay current on their contracts. Like many ideas in this article, reinsurer support may be needed for implementation. Grace period extension could be applied across the board or perhaps only to those having demonstrated payment consistency for, say, more than 3 or 4 policy years.
Liquidity improvements: On new and in-force business, insurers could offer limited time sweeteners of liquidity provisions, such as lower policy loan interest rates or more generous free partial withdrawal provisions, particularly under specified need-based conditions–e.g., coverage of education expenses, mortgage delinquency, or medical costs.
Persistency enhancements: In hard financial environments, persistency on life contracts is at greater risk. For insurers, good persistency generally improves profitability. So persistency enhancers might help. These could include rate crediting bonuses at pivotal durations, partial or total premium rebates on term insurance if the insured survives to defined durations, refunds of cost of insurance or loads on universal life, and moderation of term life renewal price increases.
Product selection: Chaotic times demand simplicity. Look for some resurgence of non-participating whole life, a product that can be administered and sold simply and which avoids National Association of Insurance Commissioners Illustration Model Regulation design complications. Further, products that perform better in increasing interest rate environments could be appealing as financial markets recover; these would include indexed universal life, current assumption UL, and modified guaranteed life, a market value-adjusted life product yet to achieve real traction in the market.
Equity product helpers: Due to equity market declines, variable life products have suffered greater sales decreases than other life product types. Now that the markets appear to be at or near a bottom, features such as upfront premium bonuses and enhanced dollar cost averaging programs (which have been effective with variable annuities) may help ease nervous insureds back into the market–and into VL. Further, restricting subaccount choices to bar allocations to more volatile funds and strengthening VL guaranteed living withdrawal benefit provisions may help reduce perception of risk.
Other concepts, such as lowering minimum face amount requirements and liberalizing term conversion provisions could also be considered.
In adopting any of the above, insurers and agents would want to use promotional letters, e-mails, and advertising to help make clients aware, in a clear, accurate way, of the value being added. At the same time, this will extend the life insurer’s hand to a hurting population in time of need while also reinvigorating sales momentum and solidifying persistency.
Timothy Pfeifer, FSA, MAAA, is president of Pfeiffer Advisory, LLC, Libertyville, Ill. His email address is [email protected]