For Kent Sluyter, the current state of the life insurance industry reminds him of a whitewater rafting experience he had six years ago, when he visited Alaska. “There was a time, if you go back far enough, when we were all sitting on some pretty calm water without a lot of life-saving equipment and very much enjoying the day,” Sluyter says. “There was a beautiful blue sky, you could see a great distance and you could set a course from point A to point B without having to worry about a lot of things coming along to blow you off course. Life was a little bit more calm.”
Now, of course, things are a bit different. Comparatively, Sluyter says, the industry is shooting the rapids and trying to avoid capsizing against rock-bottom interest rates, distribution challenges, regulatory uncertainty and more. The way he explains it, the white water will go on for a while, but there’s an element of energy that comes from that, too. Change is something that the industry sees as concerning in some respects, Sluyter says, but he thinks that the industry is better off to be undergoing so much change, to be thinking about the marketplace, and to be thinking about customers more. Eventually, there will be calmer waters once more, but until then, Sluyter says that the notion of shooting the rapids is helpful to keep in mind as the industry navigates its current course.
“Frankly, there are some in the industry who are saying, ‘I don’t have the right craft,’ or ‘This is not for me,’ and they’re pulling out of the white water. And that’s okay. There’s no shame in not shooting the rapids. But if you do, I think it’s a pretty energizing and exciting time for our business.”
A steward of business
Sluyter has been the CEO of individual life insurance and agency distribution at Prudential since January, after his predecessor and mentor, Jim Avery, retired. Sluyter has worked for Prudential for more than 30 years and has seen just about every aspect of the company’s operations along the way. For the last 10 years, Sluyter worked closely with Avery, studying what has made Prudential successful during that time and the formula that drives the complexity of the business.
Before that, Sluyter’s actuarial background and training, coupled with experience in operations, technology risk management and a wide spectrum of other roles across the business helped to give him a sense of how all of the pieces fit together at Prudential, uniquely preparing him for the role he plays now.
“One of the things Jim told me is that we’re just stewards of this business for a relatively short period of time,” Sluyter says. “Prudential is going to be around for a long time to come, so we have to think of doing the right thing now, knowing that the actions we take today will have implications for many years to come.”
That outlook is an especially important one given that the life business is at an inflection point in more ways than one. For an industry that did not change much for some time, there is a lot of potential right now for life insurance to become a more favored product going forward, according to Sluyter. Life insurance lost favor with the marketplace for a while, but now there is an opportunity to re-energize consumers with the purpose of the product as the industry finds ways to insure the large gaps of the population (such as the middle market) that aren’t being insured effectively.
“If I were to share my wish list of what we could be doing over the next few years, it would be to do a better job of meeting the needs of the marketplace as well as having products that are evolving and recognizing the changing marketplace,” Sluyter says. “We have to be more engaging from a consumer standpoint, as well as find more ways of making [life insurance] more relevant to a younger generation. We have to make sure that Prudential is more responsive and more aligned with what young people are looking for.”
Sluyter recalls having a conversation with an individual in his 20s and part of a generation that Sluyter himself admits is not particularly focused on life insurance at the moment. But this young man made a comment to Sluyter that there was a sense of vulnerability among his peers, a growing understanding that nobody is immortal and that life insurance isn’t just about safeguarding against health issues, it is about protecting your loved ones in case you are at the wrong place at the wrong time. “This was on the heels of the Boston bombing,” Sluyter says, “ and people were thinking, ‘Gee, that could have been me.’” That sudden awareness is still a far cry from taking action, and it is no substitute for sitting down with an advisor to move that awareness to the next level where people buy the protection they need. But it’s a start.
The same is true for reaching the middle market, which has issues of economics and distribution, but really, Sluyter says, it’s all about delivering the impetus for consumers to decide to buy life insurance. There is a blend of getting the right technology solutions in place to leverage advisors, but perhaps a more pressing issue is the complexity of life products themselves. From a consumer standpoint, life insurance products are overly complex and seem more expensive than they really are, which speaks to a need to simplify the products and perhaps more importantly, the process by which they are purchased.
“We’re in an industry where we’re used to understanding the complexity of a guaranteed universal life product or something on the fairly complex end of the spectrum, so when we look at a term product, it seems simple in comparison,” Sluyter says. “The consumer’s view starts at a different place. So while we may think our term insurance products are fairly simple, I don’t think they are simple enough. That doesn’t mean there isn’t a role for complex products. For the advisor who’s in a complex situation, a complex solution may be the right product. It’s not a one-size-fits-all world.”
Prudential and Hartford
Easily the most high-profile initiative on Sluyter’s plate has been Prudential’s 2012 acquisition of The Hartford Financial Services Group’s individual life business. Prudential paid $615 million in cash for the business, getting control over the $7 billion in assets and reserves backing the policies, and taking over management of $5 billion in separate account assets. The acquisition is Prudential’s first within the United States, Sluyter says, noting that while Prudential had opportunities before to buy blocks of business in the marketplace, this was a rare opportunity for what the company felt was a real strategic opportunity.
“We felt that the 700,000 life insurance policyowners that came with this transaction were a strong block of business and had the right economics associated with it. You combine that with the capabilities that Hartford has from a distribution, product and service standpoint, we felt it was transformational for the U.S. life business to add those strategic capabilities,” Sluyter says of the acquisition. “It was really about people, capabilities and the potential to put these two organizations together with the complementary nature of distribution and product.”
Prudential is currently six months into what it sees as a 24-month process broken into three components: stabilization, integration and optimization. Sluyter says that the stabilization phase—during which time Prudential absorbed another 1,000 employees and had to maintain The Hartford brand that was still active in the marketplace—was the focus during the first quarter of this year. For the balance of the year, the primary effort will be to integrate The Hartford and Prudential into a single portfolio of products, services and operations that brings out the best of both organizations.
What tends to trail in these kinds of integrations, Sluyter says, are a lot of the back office servicing components, especially technology, which simply takes more time. That is what is pushing the whole integration process into a 24-month endeavor. But by the end of this year, the target is to have a unified distribution system and a unified portfolio of products and services. “Some may think that that’s a lot of time to do that. A year?” Sluyter says. “But the truth is, it takes a lot of heavy lifting to bring the two organizations together.”
On the distribution side, this means incorporating the Hartford’s more institutional-based focus in line with Prudential’s captive agency system and focus on brokerage general agencies as well as producer groups such as M Financial. Folding in The Hartford’s inroads with firms such as Merrill Lynch, Edward Jones and Smith Barney enables Prudential to develop a very broad and diverse distribution capability.
To that end, Prudential has been working with its strategic partners across those areas, from institutional to producer-focused operations, BGAs and captive distribution, to find a way to take advantage of a very diverse and strong set of capabilities in a way that minimizes any potential conflict between them.
“Some of the distribution needs point of sale support. Some might need product wholesaling. Some might need advanced marketing wholesaling support. There is a spectrum of capabilities we have as an organization, and figuring out how to customize those capabilities to meet the needs of each of the distribution channels has been a conversation we’ve been having,” Sluyter says, noting that the initial concerns in these conversations quickly give way to a more substantive discussion about how an integrated Prudential can help move the business models of its distribution system forward, and where they want to be in five years. “I think they’re very energized about us being willing to partner with them and customize a set of capabilities to what they think they need most right now and in terms of what capabilities they might need as they evolve their business models.”
On the product side, Sluyter notes that on July 1, Prudential is rolling out its Benefit Access Rider, which is really just the Prudential adoption of The Hartford Life Access Rider—a product that gives chronically ill policyholders the ability to access their life policy’s death benefit as a living benefit to be used either for medical or non-medical expenses. It can fund long-term care, or it can fund one last trip around the world with the family. It is a product that got a lot of notice when The Hartford first rolled it out, and Prudential was eager to make it an official part of the integrated portfolio.
Additional Hartford products are expected to be fully integrated by the end of the year. One of them is Founder’s Plus, which is a hybrid Universal Life product with a fixed account. “It’s been getting quite a bit of traction in The Hartford system. It really is an alternative to Guaranteed Universal Life,” Sluyter says. “We’re looking for products and ways to diversify our portfolio, and certainly GUL is the largest seller at the moment, but we’d like to diversify a little bit more and Founder’s Plus enables that. It brings in an element of accumulation into the portfolio. It’s for the client that wants to give a little equity upside and doesn’t need the lifetime guarantees that GUL has.”
A turbulent, challenging time
As enthusiastic as Sluyter is about The Hartford acquisition, the context of that sale speaks to a wider and more troubled backdrop for the industry. The Hartford sold off its life business under activist shareholder pressure, something critics of the stock-based insurer model point out as a potential vulnerability. Sluyter respectfully disagrees and hesitates to extrapolate what happened at the Hartford to a wider reality regarding stock companies.
In Sluyter’s view, the Hartford had a very strong, very capable life insurance business. It was selling off assets that had function and purpose, and there was a real value to that franchise. To him, The Hartford just chose to focus their business on other places, such as the P&C business, that were more core to them, and it was to Prudential’s benefit that The Hartford was exiting the business.
“It’s a turbulent, challenging time for the life insurance business, so we see others pulling back or questioning their presence in the life insurance space because it may not be core to their real business model,” Sluyter says. “For Prudential, life insurance is core, both from a U.S./domestic standpoint as well as international. It is a large part of the business we’re in. ” The environment is dynamic and turbulent, yes, but from Prudential’s point of view, what that really meant in terms of The Hartford was it reduced the number of bidders on that property, which to some extent, was helpful to Prudential.
Of separate and potentially greater interest, though, is government regulation. In May, the Treasury Department’s Financial Stability Oversight Council officially named Prudential as one of the first non-bank companies to its list of systemically important financial institutions (SIFIs). SIFI designation carries with it a host of considerations, from more direct federal oversight of operations to reserving requirements. Like a lot of federal lawmaking in recent years, though, the systematically important financial institution (SIFI) designation does not come with a clear instruction manual to Prudential for how its daily operations must change. While Prudential weighs whether or not it will call a hearing on its designation, Sluyter is holding internal conversations about how the designation might require the company to manage itself differently.
“From a practical standpoint, I think it focuses this company on being able to understand its risks across the entire organization and how to interface with regulators and others with respect to presenting that risk profile,” Sluyter says. “I’m not really sure at this point, as we sit here, what kind of impact it’ll have from a capital, reporting and stress-testing standpoint. But from a support standpoint, we’re undoubtedly expecting a fair amount of resources to be devoted to demonstrating the right information that we have to provide.”
Challenges like finishing The Hartford integration and Washington oversight are all part of a larger picture for Sluyter, who takes this moment in his career to reflect on how far he has come, and how much farther he expects to help steward Prudential’s life business. He has definitely reached that point where life insurance has ceased to be something he does, and has become something he is. “There are events I could point to in my career that, all of a sudden, you look back and think, ‘Gee, that 30 years went fast,’” he says.
Sluyter can’t think of a more exciting time than now to be in life insurance, in terms of the opportunities present for the industry to go forward and take advantage of the power of the products it sells. He sees an opportunity to reinvigorate the interest and understanding of life insurance and what it can do for people; with an emphasis that life insurance is for the living. And that makes the industry’s various challenges ones that he looks forward to facing. It comes back to the whitewater rafting analogy.
The first time you go into the rapids, he says, it can be pretty scary. But it’s alright to be on the edge of the raft because if you know what you’re doing, the water isn’t that frightening. Then, the rapids become fun to navigate, because there is no way to go but forward. You can’t retreat. You can’t fight it. And then the risk becomes part of the fun.
“I do take comfort in having an experienced guide, though,” Sluyter says, smiling. “That never hurts. There is something to be said for experience.”
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