To get a deeper look into the industry, LifeHealthPro.com’s Senior Market Advisor spoke with three people on the front lines: a carrier CEO, an FMO executive and an advisor. Here’s what they had to say. 

Wendy C. Waugaman, president and CEO of American Equity Investment Life Holding Co. in West Des Moines, Iowa

On challenges facing the industry…

“In 2011 and coming into 2012, it’s been the overall economy and in particular, very low yields on fixed income securities, which are our major investments. We have to be able to invest at a rate that allows us to credit a competitive rate of interest to our policyholders. When yields on bonds are very low it means we can’t offer as attractive of rates to our policyholders.

“It’s very difficult to know given the current administration in Washington what might lead to improvement in the rate environment. All the things we hear are that this very low rate scenario is very likely to be around for the next couple of years, if not even longer, and there are very few things that might cause rates to start to rise. So it’s a long-term concern.”

Regulatory issues… 

“What has me most concerned are the things that are happening on a federal level. The insurance industry has historically been regulated by states and the state insurance departments. The state regulators are very knowledgeable and experienced in the industry. Now we see the federal government entering into regulatory issues as they relate to insurance. There’s the new federal insurance office and the new consumer protection bureau. Those things are unknown quantities. We don’t know for sure what direction the administrators of those new agencies will take and what the new regulatory system will be. So those things are of great concern.” 

On banks and broker-dealers entering the business… 

“My company is a specialist in fixed annuities and in particular, indexed annuities. Because of all the volatility in the market, our sales are increasing and we see many new entrants into the market. In particular, some of the large wirehouses and other broker-dealers are embracing our product line and beginning to look into marketing our products, which we think will help validate the concepts of the products. We aren’t terribly concerned about the competitive environment because we think there is enough growth in the potential market that there is room for new entrants. My company has filed and developed a product that’s been designed for use in the broker-dealer distribution channel so we are working on getting sales going in that new channel.” 

Threats to annuity business… 

“In the annuity business, I think we are on the cusp of a new growth era because of the guarantees, the protection versus longevity risk, income planningall those things have become a focus now in the public and so I think it will be a very good time to be in the life insurance business. The threats are more on the financial side. As rates continue to go down at some point the products cannot be offered in a profitable way and that’s potentially a threat. It’s very difficult to find high-quality investments that pay an attractive yield. It’s those macro-economic issues that are the biggest threats today.

“Top things affecting the company right now is trying to manage a spread margin on our business in a very low rate environment. It’s also new competitors entering our market. It’s a focus on asset quality and it’s a focus on maintaining very strong capital ratios at a time when capital is a very important thing in the eyes of the regulators and the rating agencies and investors in general.”

 

William E. Kauffman, Jr., CLU, ChFC, LLIF, vice president, financial products, Senior Market Sales, Inc., Omaha, Neb.

Why annuities are so popular now…

“A primary reason would be safety. The underlying product itself is an insurance product with inherent guarantees that protect the clients from something adverse happening to them. The other side of the coin is not only are you protected from risk with your money, but you know there is going to be the potential for some upside gain. Now, it could be a small amount depending upon what type of annuity that you purchase. But a lot of people are OK with that as long as their money is protected. They don’t have any loss in principal like they would in the market due to market declines or something like that.” 

Threats to the annuity business… 

“One would be regulation, some type of government intervention in the form of regulations and compliance. Not saying it could doom the annuity business, but it could certainly make it more difficult. If interest rates are depressed for a long period of time, as with any type of investment, you’ve got threats in the way of possible returns. Then you also have the financial wellbeing of the companies themselves. When you have this much pressure on companies to make a return for themselves, make a return for their clients and also be able to accept business from producers…It makes it very tough. It’s not just a matter of being able to sell something it’s the future promises that you [provide] to the consumer.”

On banks and broker-dealers entering the business…

“I don’t think any competition is bad. If they see there is something that is very popular with the public and is going to stay, then obviously they are going to want to get involved in it, too. I think there is enough room in the market for everybody to get in. You want to make sure it’s a level playing field and that everybody competes on a fair and favorable basis.” 

Lead generation strategies for agents/producers… 

“A lot of the focus with regards to direct mail or lead programs in general has to do with Medicare and Medicare Supplement types of policies. It was true 20 years ago and still true today that some of the biggest returns to direct mail programs come from that age 65 and up segment of the population. So it gives an agent the greatest opportunity to meet new clients and offer different types of coverages.”

 

Richard Schneider, general agent, Lodestar Insurance Advisors, Baltimore, Md. 

Regulatory issues…

“Anything that has to do with trying to make insurance products into investment products, [like they tried to do with 151A]. Any time the government gets intrusive it scares me. The tax advantages of annuities are in serious trouble based on the fact that this country is looking to stick their hands in any pocket they can find. Somebody goes to Congress and says, ‘You know, we have all these people with trillions of dollars in annuity money and they are not paying any current taxes on it. What are we going to do about that?’ It’s the way the government is right now. We are regulated by the federal government and the state governments. They have done so many things to create a negative outlook among the people that invest.” 

Why annuities are popular now…

“Mainly because of the stock market. Although interest rates on annuities are low, they are still better than CDs. [Clients] understand that they don’t get all the upside [of the stock market], but the risk is so minimal that it makes sense for them to have part of their money in an annuity. You talk to a stockbroker and diversification to them is having money in tech stocks, having some money in retail stocks, having some money in consumer goods. My definition of that is having money in CDs, the stock market, bonds, annuities, and having money in your mattress. That’s what diversification is to me. So annuities are an excellent investment alternative for anybody who’s investing. It’s almost inarguable.” 

Products with the most value… 

“Besides annuities, asset-based long-term care policies. I’m tired of beating my head against the wall trying to sell $15,000-a-year LTCI policies. People who have bought these long-term care products with these very high premiums were depending on portfolio income to fund the premiums and the money is not there. So I’ve decided that we’ll take this same money, whatever is there, and we’ll put it into a product that is an asset instead of a liability, either a life insurance or an annuity that has an accelerated benefit if they need to access it to pay for long-term care.” 

Changes in marketing and media mix… 

“I used to advertise a lot in newspapers. But this past summer I ran some ads on a multi-year guaranteed annuity at a very good rate. After six weeks I got three calls on it. It was in a very prominent place in the newspaper. The reason I had to stop and the reason I think the ad didn’t’ work was because the insurance commissioners require you to put a lot of disclaimers into these ads that scare the hell out of people. The newspaper thing is probably over for me now.

“I do emails to my clients on a regular basis. I still do direct mail. I don’t have a website because I deal mostly with seniors and most of my clients don’t use computers. My business is largely based on referrals. I call all of my clients at least twice a year. Every morning when I come to the office, I go to my client list and I just call them, just to talk, just to say hello. I’m not afraid to ask them for referrals. I’ve found that’s the best way to build business, plus I’ve hooked up with some lawyers and accountants. We work together as a team to help people. They refer people to me more than I refer people to them. We have a symbiotic relationship and it seems to work.”

Want more information on our 2011 Industry Survey? Click here to read Part I.