Kicking off the Insured Retirement Institute’s second annual conference on Monday, Dennis Glass, CEO of Lincoln National Corp., made the case for life insurance and annuities in general.
He said the industry now has “the best management teams in place in America,” competing no longer on “price and benefits” as was the case in the past, but instead competing “smartly.”
That management strength and change in focus is crucial, he said, since the industry “plays a critical role in the American economy,” and to consumers, “we provide safety, guaranteed incomes and peace of mind.”
Speaking to an IRI audience that included representatives from the asset management industry and heavy hitters from the independent broker-dealer industry such as CEO Larry Roth of Cetera Financial Group and President Robert Moore of LPL, Glass focused his remarks on the life insurance industry, which he said serves 75 million Americans with insurance and annuities. While 20% of Americans’ long-term savings are in insurance products, he noted that 30% of Americans still have no life insurance; only 13% have defined benefit plans, and for those with defined contribution plans, the average employee has saved less than $50,000.
“We have a big problem with retirement; the retirement readiness gap is large,” he says, but it presents “a great opportunity for the industry to resolve the gap.”
Citing data from McKinsey & Co., Glass said that “demographics are a big tailwind for our industry,” noting that the industry “sells into two age cohorts” today. The first is the 45- to 65-year-old group, whose numbers will grow only 4% over the next decade, while their wealth is expected to grow 42% in 10 years. The second cohort, the 65-plus age group, will grow significantly by the year 2030.
Consumer demand has changed since the financial crisis, he said, from “investing in mutual funds” to grow assets to looking instead for guarantees in investing. That’s where the life and annuities industry can step up, but Glass said there are headwinds as well for the industry.
The first big headwind is no longer state regulators, but the federal government which is now layering on “secondary regulation; the first time the insurance industry has had to face that,” he said, mentioning the Federal insurance office and the “too big to fail” regulatory approach.
The Dodd-Frank Act’s Collins amendment in particular, he said, “is being interpreted” by regulators in a way that instead of measuring an insurance company by “insurance metrics,” they’re using bank metrics. Such an approach “doesn’t make sense,” he said, and “would be a spectacularly bad result for the insurance industry.” Then there are the SIFI-designated insurance companies — “AIG, Met, likely Pru” — which face extra capital requirements.
Finally, he criticized Rep. Dave Camp (R-Mich.), the outgoing chairman of the House Ways and Means Committee, who “rewrote the tax law” so that while keeping policyholders’ tax benefits, he “crushed the life insurance industry” with incremental taxes.
“We have to fight it,” Glass said. “David Camp believes our industry only serves wealthy people. We have to counter that perception to retain our tax benefits.”
Turning to his own company, he said Lincoln Financial has rebuilt its balance sheet, which is now “stronger than ever,” but that the “drop in interest rates” has hit the industry hard. Despite that, he pledged that there would be “no significant product price increases from Lincoln to consumers” — if anything, he said, prices could be lower.
Looking to the future, Glass said the distribution of life and annuity products over the Internet “won’t be happening in the near future,” though he said an “Amazon-style shopping experience may be helpful in reaching the middle market and the Hispanic and African-American communities, which we don’t serve well.”
Big data may change the industry as well, he said, joking that it “will allow us to see how much alcohol you buy” over time, but “can make underwriting less intrusive to the consumer,” though the industry still hasn’t achieved success with automated underwriting.
Voicing a theme that prior and subsequent speakers at the IRI conference reiterated, he said that when it comes to annuities, “We need to reduce the complexity of these products to help consumers” understand them and be more receptive to them.
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