LIFE INSURANCE & ANNUITIES
• The Life Insurance Industry Has Four Ways to Survive
• Income Annuity Sales Set Quarterly Record
• Insurance Agents Embrace Financial Planning
• Disease Management Reduces Hospital Admissions
• Enrollment in Self-Insured Companies Up Significantly
• AHIP Says Tax Would Raise Costs of Coverage
• Consumers Value Healthcare Affordability, but Not Willing to Make Tradeoffs
INSURANCE INDUSTRY TRENDS
• Key Insurance Industry Trends
• Older Americans Shift Retirement Strategies
• California Streamlines Agent Licensing
• High Performance Network HMOs
• EPIC Names Client Services Senior V.P.
• Fixed Indexed Annuity For 401(k) Market
• Travel Health Plans
• Off the Shelf Health Exchanges
The Life Insurance Industry Has Four Ways to Survive
To survive over the next 10 years, life insurance companies must take advantage of emerging opportunities and cope with major social, technological, environmental, economic, and political issues, according to a report by PwC.
The following factors could have a drastic effect on life and pension insurers:
• An increasing demand for retirement income and pension solutions among an aging population.
• Advances in analytics that allow insurers to design products that minimize complexity and meet consumers’ need at different life stages.
• Continued risk of government welfare cutbacks, which could shift retirement and benefit decisions back on consumers.
• Shifting economies across the globe in developed and emerging countries.
• Increasing medical advances coupled with rising medical costs, which are increasing risks for consumers and highlighting the need for well-being and other pro-active health management programs.
Life and pension companies will need to identify threats as they emerge rather than responding passively to market changes, said Jamie Yoder, PwC’s US insurance advisory practice co-leader. Insurers will need to focus on simplifying the presentation of products and features to customers and advisors while overcoming complex processes at the back end.
The report identifies these four key themes and related risks that insurers need to address:
Two-speed global growth: The life insurance market is growing in emerging economies and decreasing in the developed world, particularly in the U.S. and Europe. In the United States, life insurance assets have been decreasing steadily over the past two decades as a percentage of household financial assets. Before the 2008 financial crisis, life insurance was viewed as more of an investment than a protection product, though guarantees and protection have been viewed more favorably since that time. In addition, demographic changes, such as aging Baby Boomers, are creating a growing market for retirement planning and retirement income. Growth for insurers in the life and retirement market will come from expanding into new customer segments, such as middle markets. Growth will also come from alternative distribution channels, such as worksite and direct, by offering more comprehensive advice and developing innovative solutions. Insurers have to compete with other financial service providers to capture this market, so they must be able to reach a broader part of the market. With these new markets, insurers will need to spend more time educating consumers on the value of life insurance and pensions.
Distribution disruption and the customer revolution: There is a risk that government entities will push the responsibility for retirement planning and ancillary benefits on to consumers. Product distribution has changed rapidly as customers have become accustomed to the convenience of digital education, research, and transactions. Customers demand more information and convenience from many channels when choosing life and pension products. Customers are demanding advice about a range of financial products as opposed to a narrow set of insurance products. With the uncertainty surrounding the economy, customers expect honest advice for their life insurance planning. Consumers aren’t sure whether they need life insurance anymore. Since the product is complex, they need dedicated advisors who can tell them exactly how to spend their money at every stage of their lives.
Information advantage through big data: Leading insurers are turning to advanced analytics and external sources of data, such as social marketing, to understand customers. The challenge is using that data when developing new ways to tailor products to customers. “We will see financial service providers use ‘big data’ analytics to design products that adapt to the changing needs of the household as they move through different life stages,” said Dr. Anand Rao, principal overseeing innovation in analytics within PwC’s US insurance advisory practice. Advice will be tailored based on age, making it simpler for consumers and advisors. Automation and analytics will hide the complexity of insurance products.
Evolving business models: Advancements in technology allow new players to enter the market with lower cost business models. To compete, traditional insurers need to reinvent their operating models to reduce costs, simplify offerings, and organize around customer interactions, said Yoder. Companies will also need to streamline their procedures and reorganize their talent to focus on high-growth markets and customized solutions. For more information, visit www.pwc.com.
Income Annuity Sales Set Quarterly Record
The third quarter was the strongest sales quarter ever for income annuities, according to a report by The Insured Retirement Institute (IRI). Income annuity sales were up 3.8% from the second quarter and 6.7% year-over-year. Indexed annuity sales were down 1.2% in the second quarter and up 0.5% year-over-year.
Cathy Weatherford, IRI president and CEO said, “The consumer demand for income annuities has grown steadily during the past two years as consumers seek to generate a guaranteed stream of retirement income.”
Third quarter variable annuity total sales dipped 4.9% in the second quarter of 2012, according to Morningstar. However, variable annuity net sales had increased by 44.3% during the second quarter. Variable annuity total net assets reached a new all-time high of $1.62 trillion during the third quarter of 2012, up about 4% from the second quarter. Frank O’Connor, product manager, Morningstar Annuity Research Center said that the third quarter drop in gross sales may due to less exchange activity rather than a slower rate of new investment. The lion’s share of positive cash flow is concentrated in variable annuities that offer income guarantees, which reflects continued demand for these types of products among investors in or near retirement.
Total fixed annuity sales for the third quarter were down 3.1%. Year-over-year, fixed annuity sales decreased 12.8% from the third quarter of 2011. Beacon Research president Jeremy Alexander said that ncome annuity sales are growing while indexed annuities are holding their own. Income annuity payouts look more attractive than the conservative alternatives. That’s especially true for deferred income annuities, which provided most of the increase sales of income annuity. Indexed annuity premium bonuses and guaranteed lifetime withdrawal benefits also look good in the current low rate environment, he added For more information, visit www.annuitynexus.com.
Insurance Agents Embrace Financial Planning
Investment products account for a growing share of revenues for career and independent insurance agents (30% in 2012 versus 23% in 2004) as advisors focus on providing more holistic solutions. Investment products are taking a greater share from insurance products as a percentage of gross revenues for investment-focused advisors (80% in 2012 versus 75% in 2004), according to a LIMRA survey.
The study, conducted in the spring and summer of 2012, surveyed nearly 2,000 financial advisors in multiple distribution channels, including insurance companies, broker-dealers, banks and RIAs.
Advisors are reducing the number of insurance carriers with which they do business. They place about 50% of their insurance with their top carrier. They frequently switch insurance carriers, due primarily to non-competitive products, concerns about carrier stability, or poor service. This presents an opportunity for third parties to provide targeted services to independent advisors who value the support.
Financial services organizations have increased their services to affiliated advisors by 40% over the past 10 years. However, advisors who receive in-person sales support and marketing services do not value these services. Organizations need to evaluate how to tailor their services to advisors’ needs.
Having growth opportunities is the most important factor for advisors in selecting a firm; it’s twice as important as compensation.
The most productive advisors use four best practices: teaming with others, specializing in a client segment, doing retirement planning, and having knowledge of life events. The percentage of advisors teaming with others has grown since 2008, primarily as a result of their desire for growth and increased productivity. Forty-three percent of advisors specialize in a client segment, most typically by affluence or occupation. Most advisors have not given their clients formal retirement plans, but those who have are 15% more productive. Knowledge of life events also correlates with higher productivity, but many advisors fail to leverage this information.
Advisors are eager to introduce new technologies to their practices. The use of Skype/video technology will quadruple over the next four years while the use of social media will more than double.
More than half of advisors who are within 10 years of retiring or selling their practices have no succession plan. Advisor satisfaction is significantly higher for all independent channels, with affiliated advisors more likely to leave their firms within the next three years. Many experienced advisors are over 50 and have more than 25 years of experience. This is especially true of independent insurance agents and registered investment advisors (RIAs). For more information, visit LIMRA at www.limra.com.
Disease Management Reduces Hospital Admissions
Having a chronic disease management program can significantly reduce the rate of hospital admissions for patients with heart disease and diabetes, according to findings by Australia’s largest not-for-profit health insurer, the Hospitals Contributions Fund (HCF).
The My Health Guardian program helps people with chronic diseases self-manage their conditions. Published in the peer-reviewed journal, Population Health Management, the program’s affect on hospital admissions is reported in a first-of-its-kind study in Australia.
The study compared more than 5,000 My Health Guardian participants suffering from chronic heart disease and diabetes with a statistically comparable group of more than 23,000 non-participating HCF members with the same two conditions. Disease management participants with heart disease had 7.2% lower readmission rates after 12 months and 12% lower after 18 months. Disease management participants with Diabetes had 7.8% lower admission rates after 12 months and 13.4% lower rates after 18 months.
Dr. James Pope, M.D. F.A.C.C. of Healthways said, “These results suggest comprehensive chronic care programs could by adopted by other countries that are experiencing rising prevalence of chronic disease along with the significant accompanying increase in medical expenditures and decrease in quality of life.” For more information, visit www.healthways.com.
Enrollment in Self-Insured Companies Up Significantly
More than 97 million people are covered by administrative services only (ASO) agreements with health insurance companies (as of June 2012), compared to 84 million who are covered by commercial fully insured risk arrangements, according to a study by Mark Farrah Associates.
ASO enrollment increased nearly 5% from June 2011 to June 2012. Enrollment in commercial fully insured products declined 0.4% during the same period. Driving these trends are health care reform, the economy, and the fact that ASO options that have become more readily available for small to mid-size employers. However, defined contribution health plans may affect the overall outlook for Third Party Administrator (TPA) and ASO business.
Health insurance carriers and their subsidiaries provide most of the administrative services for enrollment covered under TPA agreements for health benefits. ASO business is expected to continue to rise through 2013. But, this may change in 2014, if a large number of employers pursue defined contribution health plan options, if the costs of reinsurance and stop-loss coverage rise, or if state and local government regulations change regarding self-insured business. For more information, visit www.markfarrah.com.
AHIP Says Tax Would Raise Costs of Coverage
The new health insurance tax included in the Affordable Care Act (ACA) will increase the cost of health care coverage for consumers and employers in every state, according to a new state-by-state analysis conducted by Oliver Wyman for America’s Health Insurance Plans (AHIP).
The ACA imposes a new sales tax on health insurance that starts at $8 billion in 2014, increases to $14.3 billion in 2018, and will continue to increase each year. The Joint Committee on Taxation estimates that the health insurance tax will exceed $100 billion over the next ten years. “With full implementation of the ACA a year away, the focus needs to be on making coverage more affordable, Taxing health insurance will have the opposite effect by making it more expensive.” said AHIP President and CEO Karen Ignagni. Ignagni noted that the health insurance tax will increase costs for individuals and families purchasing coverage on their own, small businesses, Medicare Advantage beneficiaries, and Medicaid managed care programs. AHIP supports legislation (H.R. 1370, S.1880) that would repeal the tax.
The new Oliver Wyman analysis builds upon its 2011 report, “Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans,” which provides national estimates on the impact of this tax on health insurance premiums. The previous report found that the health insurance tax alone “will increase premiums in the insured market on average by 1.9% to 2.3% in 2014,” and by 2023 “will increase premiums 2.8% to 3.7%.”
The latest report, “Annual Tax on Insurers Allocated by State,” provides per-person and cumulative estimates of the impact this tax will have on individual market consumers, employers, and Medicare Advantage beneficiaries in all 50 states, as well as the impact on state Medicaid managed care programs. The charts below list the top five states with the highest per-person cost impact in each market segment. Families purchasing coverage in the individual market will be hit the hardest in New York while those getting coverage from a small employer will be most impacted in West Virginia. Medicare Advantage beneficiaries in New Jersey and the Medicaid managed care program in Washington, DC top those lists.
According to the Joint Committee on Taxation: “For those insurance premiums that are subject to the fee, we estimate that the premiums, including the tax liability, would be between 2.0 and 2.5 percent greater than they otherwise would be.”
In a November 30, 2009 letter, the Congressional Budget Office stated, “New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices. Both of those fees would be largely passed through to consumers in the form of higher premiums for private coverage.” For more information, visit www.AHIP.org/Affordability.
Consumers Value Healthcare Affordability, but Not Willing to Make Tradeoffs
Seventy-two percent of U.S. consumers who plan to join insurance exchanges say affordability is the top driver of their healthcare decisions, but only 30% are willing to change doctors or healthcare settings to reduce costs, according to a survey by Accenture.
As the post-reform marketplace expands to 51 million individually insured consumers, health insurers will need to differentiate their services and engage new customers, which could be challenging considering that consumers want for lower healthcare costs with few tradeoffs.
While healthcare consumers seek low out-of-pocket healthcare costs, fewer than 20% of those surveyed understand the cost of their care in advance or feel they should track and budget healthcare expenses.
Only 43% of consumers are willing to change to generic prescriptions (43 percent); 41% are willing to use a nurse practitioner instead of a doctor for routine visits, and 23% are willing to change their primary care doctor.
Although 81% want guidance to improve their health, 40% don’t identify going to the doctor for regular checkups as a priority. Only one out of the four consumers trust insurers to provide guidance on improving their health. For more information, visit www.accenture.com.
Key Insurance Industry Trends
At study by Research and Markets reveals that the total written premium value of the life insurance industry fell 0.7% from 2007 to 2011. The uncertain economic environment and high unemployment lowered the demand for group life insurance products.
Gross written premium for term life declined 6.1%. In addition, life insurers faced earnings losses due to low investment returns. According to the Federal Reserve, life and annuity insurers have been the largest investors in the capital market in the US since 1930. They are highly exposed to bond financing and real estate investments. Consequently, the investment income of life insurers declined sharply in 2009 as a result of the collapse of the financial market and the subprime mortgage crisis. Also, the volatile stock market reduced the demand for products, including annuity and superannuation products.
According to the report, The Affordable Care Act is likely to have positive effects on the private health insurance category as individuals and employers must get health insurance products in order to avoid penalties. According to the US Census Bureau in 2010, over 49.9 million people in America do not have access to health insurance products. The rapidly aging population is expected to consume more private health insurance products due to end-stage renal diseases, according to the report. For more information, visit researchandmarkets.com.
Older Americans Shift Retirement Strategies
While the U.S. economy has accelerated in the past year, Americans 55 and older — many of whom saw their retirements stung by the financial crisis – are changing their lifestyle plans, work/leisure expectations and investing strategies, according to a study by AIG Life and Retirement in collaboration with Age Wave.
Seventy-two percent of those surveyed said the recent economic uncertainty has given them a financial wake-up call. And 80% of those 55 and older are more cautious in their approach to investing. They are far more likely to seek financial peace of mind as a key goal over potentially higher, but riskier returns.
“Americans are rebounding from a difficult period and showing their resilience by turning toward greater expense control and more responsible retirement planning. Many people are adapting a new retirement mindset and are choosing to work a bit longer, thereby helping to make retirement more affordable. They are resetting their sights on a revised, more achievable path to retirement,” said Ken Dychtwald, CEO of Age Wave.
This year’s survey found that more than four times as many people chose saving enough to have financial peace of mind (61%) as a top financial priority compared to accumulating as much wealth as possible (14%). Eight times as many people (32%) plan to look into ways to protect existing assets than those who plan to invest more aggressively to make up for lost time (4%) in response to the recent economic and financial market uncertainty. And 54% expressed concern about their personal financial situation, saying they felt less financially secure than they did a year ago. Wintrob said, “While the stock market and economy have somewhat rebounded, the confidence that many Americans once had has diminished. People are now looking for stable, lower-risk strategies that will provide the income and security they need in retirement.”
“People are far more likely to recognize the need to scale back some of their retirement expectations while stepping up their saving and responsible financial planning, said Dychtwald. For more information, visit www.agewave.com.
California Streamlines Agent Licensing
The California Department of Insurance (CDI) announced a new process to submit license applications to CDI for insurance agents, brokers, adjusters, and bail agents. Applicants must pass the qualifying license examination before they submit the required application. Applicants only pay the license application fee ($128 for most licenses) if they pass the examination.
The change applies to California residents who apply for any insurance agent or broker license in which an examination is required (life, accident and health, property, casualty, personal lines, limited lines automobile, and life limited to funeral and burial expenses). It also applies to all insurance adjuster and bail agent applicants. In the past, people were required to submit a license application and include the license fee. They were then required to schedule their qualifying examination and submit a separate $37 fee. As a result, some people who did not pass the examination paid a license application fee for a license they were never eligible to obtain because they failed to pass the exam.
Additionally, because the department is required to retain license applications for one year, the department was tracking hundreds of pending license applications needlessly. In early 2011, the department launched new options for license applicants to schedule examinations. Applicants can schedule their examinations online or on the telephone and take their examinations at any one of 18 sites located statewide. Previously, there were only four sites. All of these examination sites include an onsite LifeScan fingerprint technician and most offer Saturday and evening appointments. The additional sites located throughout the state save applicants time and travel expense.
High Performance Network HMOs
UnitedHealthcare is expanding its SignatureValue Alliance health plan to Northern California. It features high-performance care provider networks committed to delivering effective, evidence-based and cost-efficient care. It is available to Northern California businesses with 51 employees or more. The plan offers lower premiums with a wide range of traditional and deductible HMO plans.
The Alliance care provider network includes four large physician groups in Northern California, which has 27 hospitals and nearly 12,600 physicians and specialists. Participating Alliance physician groups are: Sutter Health, Brown & Toland Physicians, Affinity Medical Group, and DCHS Medical Foundation.Participating medical groups were included based on technological sophistication, clinical performance, and quality measures as well as an ability to deliver health care cost savings. High-performance networks, which include physicians rated on quality and efficiency measures, are becoming increasingly popular as a way to improve outcomes and manage costs.
UnitedHealthcare’s SignatureValue Alliance was launched in Southern California and Fresno County earlier this year. Now, the new health plan is available in 15 additional Northern California and North San Joaquin Valley counties, including: Alameda, Contra Costa, Marin, Merced, Placer, Sacramento, San Francisco, San Joaquin, San Mateo, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus and Yolo.
EPIC Names Client Services Senior V.P
Hali Nielson has been named senior vice president private client services at the Irvine office of Edgewood Partners Insurance Center (EPIC), a retail property, and casualty and employee benefits insurance brokerage. Nielson will design, implement, and manage personal
Fixed Indexed Annuity For 401(k) Market
National Life Group, launched SecurePlus Value and Income Plan (VIP) for the 401(k) market. The fixed indexed annuity is designed to complement traditional investment choices in a 401(k) plan. It may be ideal for employees who are approaching retirement and want the guarantees that fixed indexed annuities can provide. SecurePlus VIP does not displace the other traditional investment selections offered in any 401(k) retirement plan. For more information, visit www.nationalifegroup.com.
Travel Health Plans
GeoBlue introduced health insurance plans and services for individual expatriates and short-term international leisure and business travelers. GeoBlue products are available online at www.geobluetravelinsurance.com and through selected insurance brokers. The products are distributed and serviced by Worldwide Insurance Services, an independent licensee of the Blue Cross Blue Shield Association. GeoBlue products are made available in cooperation with local Blue Cross and Blue Shield companies. GeoBlue individual health plans offer mobile technology to help expatriates and traveler’s access trusted doctors and hospitals in over 180 countries around the globe as well as the full resources of BlueCard Network of doctors and hospitals in the U.S. For more information, visit http://www.geobluetravelinsurance.com.
Off the Shelf Health Exchanges
Connecture is offering an off-the-shelf product suite that enables states to create and operate consumer-friendly health insurance exchanges. The new module includes all of the capabilities states need to quickly qualify licensed health plans, offer them in public exchanges, and manage their use. For more information, visit this link.