What’s new?Interested in reading more about the latest developments in annuities, life insurance, LTCI and marketing? We’ve assembled a newsy look at the regulatory changes, price increases and boomer-focused changes affecting the products you offer in 2011 … and the ways you sell them.
ANNUITY TRENDS: Annuities rock the house
by David Port
The more the annuity world changes, the more it seems to stay the same. Only a couple years ago, recalls John McCarthy of Morningstar, the mantra, “Simplify!” resonated throughout the annuities marketplace, a direct response by advisors and their clients to how complicated annuity contracts and their features were becoming.
Some insurers reacted by issuing stripped-down annuity products with minimal bells, whistles and moving parts. Here in 2011, however, the drive by insurers to carve out new niches and broaden their sales horizons is once again forcing the pendulum to swing in the other direction. “Insurers are innovating,” says McCarthy, annuity product manager at Morningstar, “and what that does sometimes is make their products more complex — counter to what people have been saying about wanting simpler products.”
The emergence of creative and sometimes complex new products twists, particularly in the area of living benefit guarantees, represents one of a handful of key trends that annuity market observers say bear watching. Here’s a look at what they see unfolding:
Narrowing field, narrowing focus. In the variable annuity space especially, the recent financial market upheaval, coupled with the demands of hedging risk associated with highly popular living benefits riders, has forced insurers to reassess their strategic positioning. “Some firms, like Genworth and ING, decided to get out [of the VA market]. Some firms are narrowing their focus to certain channels, and some are still very competitive in all the different channels,” says McCarthy.
Fortifying options for fee-only advisors. Fee-only advisors represent one niche insurers are targeting with new annuity products. After a strong influx of new no-load/L-share VA contracts in 2010, the number of offerings aimed at RIAs and other fee-based advisors approaches 30, according to McCarthy’s research, with companies such as Nationwide and John Hancock leading the push. And he expects the surge to continue in 2011. To date, he notes, the VA products insurers have repurposed for the fee-only market tend to come with fewer subaccount investment options and fewer optional benefits.
More RMD-friendly options for annuities inside qualified plans. Speaking of niches, insurers such as MetLife are making a concerted push to provide features tailored to people with VAs inside their qualified retirement plans. According to McCarthy, more than 60 percent of active VA contracts reside within a qualified account, making them subject to required minimum distribution rules. Yet research by his team at Morningstar shows that just 5 percent of all GMIBs are RMD-friendly. MetLife is among those aiming to fill the void with GMIB Plus III, an RMD-friendly guaranteed minimum income benefit with a base that steps up by the greater of 5 percent or the RMD amount. Withdrawals reduce the benefit base dollar-for-dollar up to the greater of 5 percent or the RMD amount.
A lively market for living benefits. Much of the innovation with annuities is occurring in the area of optional guarantees, particularly with the most popular type of living benefit, the guaranteed minimum withdrawal benefit (GMWB). About 85 percent of VA purchasers buy some kind of living benefit, so carriers are catering to them with new twists on these riders. For example, Allianz has a new lifetime GMWB whose guaranteed withdrawal percentage is based not on age, but on the rate of a 10-year treasury note. A lifetime GMWB unveiled recently by Ohio National offers an 8 percent simple-interest step-up. Jackson National’s Lifeguard Freedom Flex GMWB allows investors to choose a step-up amount between 5 percent and 8 percent for ten years, with the fee adjusted accordingly.
1035 that contract. Outdated (read: overpriced and/or underpowered) annuity contracts abound, says David Schlossberg, RFC, senior partner at Assured Concepts Group in East Dundee, Ill. “We’re moving people out of obsolete variable annuities and fixed annuities — older contracts they bought 10 or more years ago — in favor or better products with options like living benefits that they couldn’t get before. It’s usually a pretty straightforward process, because these people are already comfortable with the annuity mindset.”
Unbundling the lifetime GMWB. In what may be a harbinger of things to come with defined contribution retirement plans, AllianceBernstein late last year launched Secure Retirement Strategies (SRS), a target-date solution that provides guaranteed lifetime retirement income to participants in large DC plans. What’s unique about the guarantee is that it’s backed by not one but three insurers: AXA Equitable Life Insurance, Lincoln Financial Group and Nationwide Financial. “Single-insurer products are available today, but based on our conversations with large plan sponsors, multiple insurers are a ‘must have’ for their guaranteed retirement income offerings,” explains Thomas J. Fontaine, who heads AllianceBernstein Defined Contribution Investments.
With SRS, the target-date fund automatically invests in a guaranteed lifetime withdrawal benefit. Unlike a traditional fixed annuity, this insurance provides a guaranteed lifetime income stream while giving participants full access to their account balance. Like an indexed annuity, the amount of lifetime income may increase in good markets but will not decrease in poor markets.
Indexed annuity returns, revisited. New fodder for the fixed index annuity sales pitch comes in the form of a recent analysis by the Wharton Business School. Study authors claim the analysis represents the “first empirical exploration of fixed indexed annuity returns based upon actual contracts that were sold and actual interest that was credited.” Their admittedly modest conclusion: “at least some index annuities have produced returns which have been truly competitive with certificates of deposit, fixed rate annuities, taxable bond funds, and even equities at times.”
Are traditional fixed annuities poised for an upswing? Recent increases in the spread between the yield on five-year CDs and the average effective yield offered by fixed annuities guaranteed for five years suggest a surge in fixed annuity sales may be in the offing. “The rate spread between fixed annuities and like CDs is becoming meaningful,” says Scott Stathis, managing director of Kehrer-LIMRA, which tracks the annuity market. “We are all now waiting to see when the inevitable corollary sales increase will come.”
Overcoming an awareness deficit. The greatest challenge in marketing variable annuities is neither countering negative press coverage nor negative perceptions of insurance company solvency issues, according to results from a survey conducted by the Insured Retirement Institute in partnership with Cerulli Associates. Rather, it’s attracting new advisors and communicating complex benefit riders to advisors and investors. “Without these new advisors, sales in the annuity industry will remain stagnant,” study authors say.
Finding fruitful channels. Insurers named bank broker-dealers (46 percent) and independent channels (39 percent) as the top two channels for annuity sales, followed by wirehouses (22 percent), then regional broker-dealers (14 percent), according to IRI/Cerulli. Registered investment advisors (RIAs) ranked the lowest at 6 percent. “Bank channels traditionally have clients that are conservative in nature, presenting as an ideal environment to propose the option of an annuity,” say study authors, while in the independent channel, “the middle market clientele and commission pricing commonly seen in this channel (create) an environment for annuities to thrive in.”
David Port is a Denver-based freelance writer and a frequent contributor to SMA. He owns and operates his own writing and editing business, Southpaw Print/Net Communications.
LIFE INSURANCE TRENDS: The evolution of life insurance
by Joe Karsner
When I started selling life insurance 30 years ago, the product was mainly used as originally intended–a vehicle to make sure a family was cared for in the event something happened to the policyholder. Final expenses would be covered, the surviving spouse would have a source of income, the children would have money for college, and that was about it.
Since then, life insurance has evolved tremendously and its uses have multiplied. Life insurance companies have started realizing that baby boomers have different needs than their parents did, and are creating products and features to adapt. Life insurance has a new appeal to this generation as it’s able to provide safety and security, as well as, many other boomer-specific benefits. It has resurged in popularity, and will continue to do so, beyond its original intended use, as it’s now being used as a tool to accomplish other financial goals as well.
The boomer generation looks at life insurance much differently than their parents did, and even more so in recent years. After the 9/11 attacks, and again in 2008 with the market downturn, boomers sought safety of their money and opted for strategies that worked to protect their life savings. Life insurance became a popular tool after each of these historical events, and is now utilized to create wealth, replace wealth lost in the market, replace savings held in CDs, protect a business, repay taxes from a Roth conversion, leave a greater inheritance, tax-free, to loved ones, pay for long-term care, create cash flow and disposable income, provide an income source in retirement, and more.
With just pennies on the dollar, life insurance is allowing people to get more, with less. This is really appealing to a generation of not-so-good savers, but very good spenders, and to those who still want to leave a legacy or money for an intended purpose. Boomers who are learning of the many uses of life insurance are now jumping at the opportunity to use their savings differently. Rather than letting it sit and wait to pay for its intended purpose, they’re opting to tap into their savings now, use some of that money to buy life insurance to leave an inheritance for their family, pay taxes, whatever their purpose, and spend and enjoy the rest now, while they can.
Life insurance is a boomer’s best-case scenario: a savings replacement tool. They get to buy new money with old money to spend more now AND give more later. It’s the perfect solution for this generation, and this is why the future of life insurance is so bright. However, before you tell your boomer clients to cash in their life savings to buy life insurance (and have them running for the hills), you must be prepared to refute the long-standing reputation of the traditional life insurance policy.
In order to capitalize on the opportunities with life insurance as an advisor, and before suggesting one of these solutions or plugging into the process to use life insurance as a tool, it’s important to know WHAT a client wants for their money before you suggest HOW to invest it. Money intended as an inheritance will be treated differently than money intended to keep liquid in case of emergencies, and so on. Insurance companies are truly catering to the many different needs, and will likely continue to do so in the coming decades as new needs arise. Advisors need to stay current on these emerging products, features and benefits.
Up until the 1970s banks largely ran the financial services industry. Then we saw brokerage firms and their mutual funds become all the rage through the early 2000s. Now, with the retiring boomers, it is the insurance industry that will continue to rise and lead. Life insurance and annuities can do many things that banks and mutual funds cannot. The need for guaranteed income is far greater than a high-yielding return on money, at least for retirees, all 78 million of them.
As the insurance industry leads boomers to find financial safety and security, the popularity of the traditional life insurance product will continue to grow. My recommendations: do yourself and your clients the favor of mastering the many uses of life insurance.
Joe Karsner has more than 30 years experience in the life insurance industry and has been a Life and Qualifying Member of the MDRT for 27 years, and has qualified for the Top of the Table for the last 14. A member of the Strategic Coach Program for 15 years, Joe now consults and coaches advisors on selling life insurance to their clients. He can be reached at Jkarsner5@hotmail.com or (410)-507-9717.
LTCI TRENDS: LTCI combats whopping rate increase
By Ed McCarthy
The LTCI market and products continue to evolve. We asked several experienced LTCI producers and industry experts for their insights on the key trends advisors need to monitor.
The widely publicized rate-increase requests by major LTC insurers such as John Hancock and Genworth generated extensive publicity. From a business perspective, the requested rate increases make sense; from consumers’ perspective, the regulators’ responses are also sensible. “The carriers are trying to manage their profitability, which they certainly have the right to do,” says Lane Kent, LTCP, president of Univita Insurance Administration Services in Eden Prairie, Minn. “And the states are trying to look out for their consumers, which is their obligation as well.”
Nonetheless, the increase-requests can cause consternation among prospective buyers and insureds. Scott Olson, president of LTCShop.com in Redlands, Calif. says that consumers often draw false conclusions from the media coverage. “They’re getting the impression that X, Y, Z Insurance Company raised rates two years ago and they’re raising rates again or somebody who bought a policy last year is getting a whopping rate increase this year,” he says. “Consumers don’t understand how the rate increases are working. They don’t realize that most of the rate increases are on policies that were purchased 10 years ago. They don’t realize that a vast amount of long term care policyholders have never had a rate increase. They don’t realize that the rate increases are applied to specific policy series and they don’t even realize that rates can be kept level with minor adjustments in premiums or benefits.”
Avoiding policy increases is desirable for both producers and insureds, but the lack of non-cancellable policies makes that difficult. As an alternative to traditional-payment policies, in the right circumstances Olson shows clients policies with single payments or short-duration payments, five- or 10 years, for example, which are guaranteed not to have rate increases.
It’s also worthwhile to show clients that some insurers have not raised or proposed raising rates. Kent cites the experiences of New York Life and Northwestern Mutual as examples. Although these companies’ premiums were initially higher than most of their competitors, says Kent, those higher-price strategies have been proven sound. “They got into the (LTCI) market because they recognized that long term care insurance could fill an important need with their current customers and their target market, so to speak,” he says. “With that mindset those companies always viewed the product as something that needed to be sustainable and profitable in the long run. Because they’re not stock companies, they have the ability to manage their assets and the return on their investments with a long tail, which is what this product requires because the claims are so far out into the future from when you sell the policy. And, so, those two companies are paying dividends.”
Tougher underwriting standards
Art Stein, CFP with SPC Financial Inc. in Rockville, Md. has been selling LTCI for about 18 years. One trend that he’s noticed is stricter underwriting standards. He cites the case of an applicant who had a past history of asthma but had been symptom-free for years. If she had applied for coverage 10 or even five years ago she would have received preferred pricing, Stein believes, but instead she was given a standard health rating.
This doesn’t mean that only clients with pristine health histories shouldn’t apply for LTCI, Stein emphasizes. But it does make it more important to get preliminary indications of what to expect from underwriting because insurer’ practices vary. “If I have a client with any kind of problem, I will check with the insurance companies without using the client’s name,” says Stein. “I’ll send them (through a general agent) the basic health information I have and say who’s going to give this client the best deal based upon what we know? And, on an informal basis, without any guarantee but also without any recordkeeping related to the specific client’s name, they will come back and say it looks OK for us or it doesn’t look OK for us.”
Expanding distribution channels
Due to its complexity, LTCI is often seen as a product for specialists. Consequently, says Kent, distribution was built around national marketing organizations that specialize in LTCI. Although insurers attempted to get life agents and other financial services producers to sell the products, the distribution pattern remained relatively fixed. That’s changing, though, Kent maintains. “The carriers that are sort of ascending to the top right now are finally getting some meaningful penetration from career agents,” he says. “Carriers like Northwestern Mutual and New York Life, just in the last couple of years, are making impressive strides in getting some of their more seasoned and expert life insurance agents to devote some time and energy to selling long term care insurance. (With) group products, I think one of the trends is there is a little more success in getting some of the big employee benefit shops to represent long term care product as a normal part of their process when they are consulting with their large employers. I believe that trend is going to continue.”
Increased benefits payments
Amidst flat levels of policy sales and uncertainty over premiums, the American Association for Long-Term Care Insurance (AALTCI) recently reported some positive news: the 10 leading long-term care insurance companies paid more than $10.8 million in daily claim benefits to a combined 135,000 people in 2010. In 2007, the same entities participating in the study paid $7.0 million dollars in daily benefits. The current level is a 53 percent increase over the daily value of claims paid by the same entities in 2007, according to the study’s findings. The study examined claims-paying data for leading insurers that provide coverage to 5.76 million individuals. According to the Association’s 2010 LTC Insurance Sourcebook, some 31.0 percent of new individual claims are for homecare services, 30.5 percent for assisted living and 38.5 percent for skilled nursing home care.
Ed McCarthy has worked as a freelance writer and author since 1991. His specialty is explaining complex financial topics in understandable language. Before becoming a writer, he worked as a financial advisor and he is still licensed as a Certified Financial Planner.
MARKETING TRENDS: Marketing to the masses
by Amanda McGrory
Each year, it’s a good idea to examine your marketing plan to see how you can improve your strategy. As new marketing trends emerge and the economy fluctuates, a stagnant marketing plan isn’t the answer. Take a look at how you can incorporate some of these new trends into your marketing plan in 2011.
When it comes to finding new clients, referrals are one of the best ways to get your foot in the door, and the focus on referrals continues to grow, particularly in today’s market, says Joanne Black, founder of No More Cold Calling and author of “No More Cold Calling: The Breakthrough System That Will Leave Your Competition in the Dust.” With the economic turmoil and looming health care legislation, many prospects are in need of a good advisor who can help them navigate these confusing times.
“The bottom line is referrals have always been important, but they became more important in the downturn, and now that people have seen the light about how referrals work, they’re not going back,” Black says.
Referrals are especially effective because you already have the prospect’s trust, Black explains. Unlike a cold call, you have already been introduced to the prospect. The referral knows you have already done great work, which automatically makes you a credible resource.
Of course, finding referrals sources is often a challenge for many advisors, Black says, but try turning to the clients you are closest to first. As an advisor, you have routine meetings to review your clients’ finances, so take those opportunities to ask them who else you can help. You’ll be surprised to see how those great relationships pay off, Black says.
“There are some relationships that just stand out,” Black says. “You connected in a certain way, and those are the ones you want to start with. People are just delighted to help.”
In today’s market, more networking groups are available than ever before, and they are an effective way to boost your marketing efforts, especially for lead generation, says Adrian Miller, founder of Adrian Miller Sales Training.
“Networking is a proven methodology for generating leads,” Miller says. “There are a tremendous amount of choices out there now for different types of groups to participate in, so you can be a recipient of contacts and introductions because it’s such a large percentage of how people get business.”
But just showing up to networking events isn’t enough, Miller adds. Sure, you might be introduced to new prospects, but you still have to nurture the relationship, which includes timely follow ups. What you get out of networking depends on what your effort.
You can also start your own marketing group, Miller says. Try inviting only 10 or 15 credible professionals who can meet on a regular basis and continue to grow from there. In fact, Miller started her own networking group, which has grown to include approximately 200 professionals, with plans to eventually reach 500 participants.
As more financial firms are allowing advisors to use social media, expect the various platforms to grow in 2011, says Maribeth Kuzmeski, founder of Red Zone Marketing LLC. Many financial firms previously banned social media from its advisors because of compliance regulations, which required all conversations be tracked. However, by turning off the comment feature, there are no conversations to track.
“It allows it to be a static page, which allows it to be a push, not a pull,” Kuzmeski says. “It does take away some of the positive nature of social media, which is you can have these conversations, but you can still put information out there. It’s still a great exposure tool.”
LinkedIn is an especially popular social media tool for advisors, Kuzmeski says. Unlike other platforms, LinkedIn was specifically developed for professionals and provides high search engine rankings. Kuzmeski finds a LinkedIn profile sometimes even ranks above an individual’s website.
For the most part, LinkedIn is compliance friendly as long as advisors do not accept recommendations, Kuzmeski says, though some financial firms also ban group participation.
“LinkedIn is the most beneficial of all the tools, from an exposure standpoint, and it’s a great product,” Kuzmeski says. “You can put your picture up there, information about your background, where you went to school. It’s just like posting a credible resume online.”
Amanda McGrory is the online editor for Senior Market Advisor, Benefits Selling and Life Insurance Selling magazines.