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Life Health > Life Insurance > Life Planning Strategies

Maybe a Mutual Life Insurer Is Different: Idea File

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What You Need to Know

  • A mutual insurer is owned by its policyholders.
  • Northwestern Mutual has been a mutual for since 1857.
  • The company has long talked about the value of looking at a client’s big financial and holistic picture.

Northwestern Mutual has been a mutual insurer — meaning that it’s owned by its policyholders — since it was founded, back in 1857.

Since then, the company has survived several swings of the life insurance company structure popularity pendulum, to and from preferences for mutual insurers, publicly traded insurers, and ordinary privately held companies.

In recent years, Northwestern Mutual also has attracted attention by emphasizing a focus on holistic planning before it was hot. The company’s advisors have helped clients with overall needs analysis, life insurance, disability insurance and long-term care planning, as well as retirement planning, and its consumer surveys have focused on issues such as consumer spending and debt as well as on concerns that can be managed with insurance.

Northwestern Mutual has supported the Life Insurance Awareness Month campaigns through support of LIMRA.

John Schlifske, Northwestern Mutual’s CEO since 2010, recently answered questions about how he sees the U.S. life insurance and financial services landscape through a Life Insurance Awareness Month email interview. Here’s an edited version of the exchange.

How do the big mutual life insurers differ from other big life insurers?

As a mutual company, we solely exist for the benefit of our policyowners. That means we are focused on delivering strong results for them today while making decisions and leading the company in ways that will benefit them for years to come. Having a mutual structure allows us to maintain this pure focus on doing what is right for our policyowners and putting their interests first.

In the past five years, more than 20 of our competitors — predominantly public insurance companies — have made dramatic changes to their businesses. Some have discontinued sales of individual insurance and annuity product lines or sold off blocks of business, while others have taken steps toward consolidation, made shifts to their distribution models, and even ended their permanent life insurance offerings. In almost all cases, these decisions have been made to maximize value for the companies’ shareholders — not their policyowners.

As a specific example, we have seen companies emphasize spread-based products because they’re less capital-intensive. That’s an approach that answers to expectations from shareholders in a stock company.

But, as a mutual company, we have maintained our focus on the products that we think our policyowners need to become financially secure — including a full suite of permanent life insurance which are more capital intensive to provide. In this environment, we continue to see strong demand for these products,  which is evident in our business results. Our life insurance sales are pacing 48% ahead of last year (which was our previous all-time record).

Further, we deliver on our mutuality in a number of ways — including the way we manage Northwestern Mutual to deliver value to our policyowners. We continue to deliver exceptional financial results, including our $6.2 billion dividend payout for 2021. We also maintain the highest financial strength ratings in our industry, ensuring our policyowners know we will be here for generations to come.

How is operating as a mutual life insurer different from operating as a public company today?

In this environment, which has been marked by volatility and uncertainty, our policyowners can have the confidence that we are solely running the company for their benefit with a long-term view. This is apparent in the way we make decisions and lead the company so our policyowners are positioned to benefit in all economic seasons. For example, during the market volatility in early 2020, we were able to make significant investments when markets were down. As markets rebounded, it resulted in very strong gains for our policyowners.

That kind of long-term thinking is where mutual companies shine because we can focus on a longer time horizon instead of worrying about how it will affect our next quarterly earnings. Time and again the strategy works, and our overall financial results prove a long-term focus is significantly better. Last year we announced a record $6.2 billion dividend payout and increased both our surplus and surplus ratio, which are two key measures of our strength.

Ultimately, mutuality is more than just a legal structure — it’s how we run our business and ensure every policyowner is treated equitably over the course of generations. Everything we do is focused on driving policyowner value, and all our economic gains are for their benefit.

The other area where our long-term management approach benefits our policyowners is that we continue to invest in building the future of the company even through volatility.

Early in the pandemic, we made the decision to continue investing in technology, products, and more — maintaining a commitment to the multi-year strategy we have for the company. We were able to do this because our focus is on building for the long-term, and as a result we’re now in the midst of the rollout of a new proprietary digital financial planning tool that will benefit our advisors and our clients.

All of this has a material and positive effect on how we build trust with our policyowners. This is an important measure for us that we track regularly, and it’s particularly important in a time of fear and uncertainty.

And I am proud of the fact that, according to our research, our brand trust has grown faster than the rest of the industry, especially during the onset of pandemic. We know that when things are swirling in the external environment, consumers want to have their money with a company that is built to last for generations.

How much do consumers who aren’t already mutual life insurance policyholders seem to understand the life insurance dividend concept?

All of Northwestern Mutual’s economic gains go to our policyowners and dividends are one of the most important ways that we share our success. It’s as simple as that.

We consistently work on educating clients and potential clients on the benefits of dividends and how they can use them: to increase the cash value or the death benefit of their policy, reduce the cost of premiums, or fund immediate needs as cash. Our industry-leading dividend is a hallmark of Northwestern Mutual — and we have paid a dividend every year since 1872, through tough times including two world wars, the Great Depression, numerous recessions, and yes — even a previous global pandemic.

From an education perspective, we know that our financial representatives are key to helping people understand dividends and what they mean to policyowners. In addition to these critical conversations, we provide educational resources for many financial products and services on our website, such as “How We Determine Dividends”, which includes a snapshot calculating the dividend payable using actual values from a previously issued policy.

Do you think being a policyholder-company owner at a mutual insurer has any effect on how the policyholders themselves think about life insurance, or financial services in general?

Yes, when we look at our policyowners, we know that they overwhelmingly choose to stay with us year-after-year. Our persistency rate (policyowners who stay with the firm) leads the industry at 96.7%.

We see this as a reflection of the value that they find in Northwestern Mutual — and a recognition of the role that our financial advisors can play in helping clients achieve their financial goals. We have also seen record growth in the number of new clients, along with record growth of our field force of financial advisors.

In addition to this growth, we have seen that many policyowners choose to build deeper relationships with us that help them achieve financial security including through wealth management — and we have seen very rapid growth of our wealth management business.

When engaging with clients, we make it crystal clear that our number one goal is to help them build financial security — and to do that through an approach that helps them both protect and prosper through a financial plan that includes both insurance and investments.

Why has Northwestern Mutual emphasized the idea of integrating insurance with investments, through holistic financial planning?

It really starts with understanding what our clients want to achieve, from buying a house to sending a child off to college, to saving for their own retirement. To accomplish their goals, we believe people need to have options in their financial plan that can connect investments for growth, life insurance for protection and guaranteed growth, and annuities for guaranteed retirement income.

These approaches to both protect and prosper reinforce each other in a way that’s been proven to result in higher financial outcomes than they could ever achieve alone.

We have done the research on how this protect-and-prosper approach benefits clients, and we can prove it delivers better outcomes. For example, take a 35-year-old couple whose portfolio includes investments plus whole life insurance and an annuity product, versus a model of buying term insurance and investing the difference.

After 30 years of following this plan, the couple will have 5% larger overall portfolio values, 16% higher retirement income and 27% higher legacy value at age 95 — showing that our approach delivers better outcomes.

What could disrupt things between now and the end of 2022?

Certainly, we’re continuing to watch the broader economic environment, including the impact of low interest rates on our business and customers.

But beyond this, we’re also highly focused on evolving consumer expectations and how we need to continue to invest in our client experience to meet these demands and the disruption we’re seeing in that space. Many companies are simplifying the process of buying insurance, reducing the hurdles to go through underwriting, and helping clients see the value of the product. This includes accelerated underwriting and a digitally enabled purchase experience.

We’re investing hundreds of millions of dollars to deliver an integrated, end-to-end, seamless experience for clients, advisors, and our home office. The experience revolves around our financial representatives who work with our clients, while ensuring that our clients have access to state-of-the-art technology to give them the always-on access people demand. Plus, we will bring this experience to life in a way that clients understand how they can holistically protect and prosper with Northwestern Mutual. We don’t believe this exists in the industry currently, and we’re excited to be the first to create it.


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