Tom Freston, the spiky-haired media mogul who helped create MTV (Music Television) and served as its president for 17 years, was quoted recently as saying, “Innovation is taking two things that already exist and putting them together in a new way.” He likely wasn’t referring to innovation in the life insurance industry, but he might as well have been.
Our industry has witnessed significant innovation of late in the form of hybrid products — particularly, life insurance coupled with built-in or available chronic illness accelerated benefit riders. Given recent product sales trends, the aging U.S. population, and the mounting costs of health care and other expenses, continued innovation in development and distribution of combination products seems essential to provide solutions for client needs. Smartly structured, affordable hybrid products may help our industry to remain relevant but also to flourish at a time when consumer wallets are strapped.
Ongoing innovation to meet the needs of American consumers and Main Street small business owners while supporting bottom-line business goals requires commitments of time and talent by both carriers and distribution partners alike to identify client needs, the gaps that exist in meeting them, and new or enhanced product features that can help fill the voids. As insurance professionals, our willingness to invest the hours and other resources necessary to understand what consumers need and how innovative, new solutions can help resolve them has the potential to impact our success and the success of our industry. But most important of all, this investment in innovation can positively impact our clients’ financial well-being.
The call for continued innovation isn’t unique to the life insurance and financial services realm; indeed it resonates across virtually all business sectors. As LIMRA President and CEO Bob Kerzner indicated last fall at the group’s annual conference, we in the life insurance arena can collectively take a message from global brands in other industries.
He said, “Think about the phone industry. Who would have thought 25 years ago that land lines would become nearly obsolete, that revenue from long-distance calls would decline sharply as people used their cell phones to call family and friends? The entire business model of that industry was changing. Could companies position themselves to become relevant in that world? Many thought, ‘AT&T is dead.’ In 1980, all of their business came from long-distance calls and land lines, but AT&T reinvented itself. Today, wireless service represents 54 percent of their revenue, and their total revenue is more than five times what it was 30 years ago.”
Kerzner, who also pointed to innovation at Disney, Coca-Cola and Domino’s, asked the conference attendees to consider whether we as an industry “can find new products that consumers want and that companies believe they can make a profit on.” He added, “We’re really beginning to see companies in our industry think differently, trying new things, looking at their business in a different way….”
That trend is reflected, I believe, in recent innovations in chronic illness accelerated benefit riders on universal life (UL) insurance. Consumer demographics, carrier and distribution partner initiatives to educate clients on the likelihood of needing care, the prohibitive expense of long-term care insurance (LTCi) coverage, and contraction in the LTCi market have all helped to drive the proliferation of chronic illness accelerated benefit riders on life insurance contracts.
What’s more, hybrid products have apparently struck a chord with consumers. Per a LIMRA news release, sales of individual life combination products grew 10 percent in 2012 – the fourth consecutive year of double-digit growth. Total new premium for life combination products reached $2.4 billion in 2012, representing 11 percent of total individual life insurance new premium. More than 86,000 combination policies were sold in 2012, an increase of 19 percent compared with the results for 2011.