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The Future of Life Insurance

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What changes are in store for the life insurance market in 2010? Two leading experts share their outlook in Part 3 a preview to ASJ’s complete insurance market outlook, which will appear in our upcoming January 2010 national print edition.

The past year has been a difficult time for our industry. According to Fitch ratings, the top 25 companies lost $63 billion of capital. The ratio of capital required for every new dollar of premium generated is approximately 4.5 to one, or $4.50 of capital for every $1 of new premium. This loss has put a tremendous financial strain on the companies.
The result of this will be re-pricing of products, or perhaps the elimination or lowering of some product guarantees. Even with these changes, LIMRA predicts that in 2010 we will see a 10 percent growth rate in the sale of life products, especially those products that focus on guarantees and conservative investments.

Those agents and advisors who have been proactive in working with their clients through these troubling times have had a successful year, and will continue to do so. It will be important for agents to reach out to their clients in 2010 to provide guidance through these financially troubling times.

Marvin H. Feldman, president and CEO, LIFE Foundation

The financial crisis of 2008 and ’09 exposed previously unimagined vulnerabilities, greatly increasing the public’s awareness of financial risk and the need to mitigate it. Job insecurity has led many Americans to rethink their reliance on employer-sponsored benefits, such as 401(k)s and group term life insurance, to protect their retirement and their families. As Americans climb back from layoffs and investment losses, they will seek new ways to invest with some measure of insurance protection.

With assets down, risk-averse clients are at the same time concerned about the potential drag of rising inflation, taxes, and medical expenses. Our industry presents them with a way to diversify a portfolio with products that protect families but also offer growth potential, such as cash value universal life insurance and variable life insurance with long-term lapse protection.

Although the markets may seem calmer now, the industry needs to appreciate that clients won’t be returning to business as usual in 2010. The crisis has ushered in a new era of frugality that is expected to last for some time. Americans are saving again, and mainstream media ink is flowing with advice on thriftiness. Home values are still low, and debt reduction remains a priority. Savvy advisors will find opportunities to help clients in this environment. Products that offer forced savings elements, such as permanent life insurance, will appeal to many. Policy amounts may be smaller, but the need for protection has never been greater.

We are also entering a new decade of proof. Promises must be backed by proof that the company behind the guarantee is financially strong and stable. Newly vigilant consumers are reading ratings reports, prospectuses, and policy fine print. Financial advisors and agents should have their facts ready. Well-capitalized companies that demonstrate financial strength and sound risk management will continue to be at an advantage.

Promises of high-quality service also need to be proven daily. Customers increasingly differentiate companies on service. Those companies that can make life insurance easier to buy through streamlined underwriting will lead the way.

Gary Hirschkron, executive vice president, AXA Distributors LLC