by Kate Kinkade
The landscape of life products continues to change as carriers re-price or withdraw their guaranteed life insurance products and develop new alternatives. It is possible that the life insurance market will be in a unique position for a while with no one product leading – an environment of true choice. This market will demand the service of an actual insurance professional to help consumers understand and choose products that meet their needs.
Guaranteed life products have dominated the market for years, essentially commoditizing life insurance. These products can be compared easily on a spreadsheet so that the least expensive or the best underwriting offer wins the day. Over a year ago, carriers started to increase pricing on products when new reserving rules went into effect, but many held on to competitive pricing in the face of reserve challenges and only started to re-price this year.
Recently, one major carrier, Sun Life, withdrew its guaranteed product with no notice; it was pulled off the market in one day. Axa took similar measures last year. It is interesting that some carriers still maintain low guaranteed pricing while others have decided that they can’t afford to take one more application. Low fixed investment returns have increased pressure on this pricing, which makes the remaining competitive products all the more attractive or concerning.
With higher prices for guarantees, agents are looking at other products to fill long term life insurance needs. Carriers are looking for new product designs to attract today’s buyers.
Before no-lapse products came out, current assumption products were the most popular. Carriers are revisiting those products aggressively, but finding several challenges. First, the low interest rate environment makes the projected premium high. Add to that the need to endow the policy at maturity in order to retain the full death benefit and now the policy has to be funded to build cash value, not just maintain the cost of insurance. The alternative is to have the death benefit extended at maturity instead of the cash value, allowing the policy to be funded to remain in force, not to endow. The cost of the death benefit extension will increase the cost of insurance, but not as much as endowing the policy. Agents must understand the choices that the carriers are making and clients will be deciding among the products.
In many cases, variable products look better than current assumption products, and carriers are offering various choices in guarantees to get clients over their short-term concerns about the market. Long term care riders on life insurance have been available for some time and are attracting more buyers. Indexed products have been gaining popularity for some time and more are coming on the market. Indexed products defy simple comparison; the structure demands a real comparison of features rather than simple comparison of pricing.
To add another level of complexity, many carriers offer an accumulation version and a death benefit version of these products. And there are still 20-year and 30-year term products for a shorter-term “permanent” need.
Carriers are trying to figure out which products will be the most popular in the future and where the pricing tolerance lies. Does a LTC rider provide enough value to allow more profitable pricing on the underlying life product? Does the upside of variable allow for more profitable pricing on the secondary guarantee? Is there a way to price current assumption products competitively in this market? Is there a new bell or whistle out there? Is indexed the product of the future?
While carriers are playing product roulette, agents are selling life insurance. Some continue to focus on the remaining competitive no-lapse products and haven’t started looking at the broader choices. I would submit that is a mistake. We are entering a market where our skills are extremely valuable. Clients need our planning expertise to help them understand their risks and how to offset them. They also need our product expertise to find the products that fit their profile. They need someone to help them analyze choices. Is there a risk in purchasing a low cost guaranteed product that puts reserving pressure on the carrier? Will the client need flexibility in the future and therefore need cash values? Can the client offset their long-term care risk with their life insurance policy? Are they interested in market returns but not volatility?
I would submit that the agent who asks these questions and discusses related product choices brings much more value to the consumer than the agent who puts four guaranteed products on a spreadsheet to show the cheapest premium. These questions are only one part of understanding the client’s financial and family situation; the agent who is concerned about the client has no competition. Today, that concern can be reflected in product choice as well as how the client plan is structured. It’s a good time for a good agent. q