by Leila Morris
The life insurance market has picked up, but continues to face challenges that began with the Great Recession in 2008, according to executives who participated in this year’s View From the Top Life Insurance survey. For example, the continued low interest rate environment continues to plague insurance sales. A bright spot is in workplace sales. With health reform, brokers and employers are showing more interest in voluntary products that can boost benefit plans. In fact, whole life sales through the workplace are growing at 6% to 7% annually.
As for popular product types, executives list a variety of new index universal life products, updated term portfolios, and even a resurgence of variable life products. While there has been a steady increase in term requests, consumers are becoming more intrigued by permanent guaranteed products. Executives have seen a boost in indexed universal life products for consumers who want better returns, but are not willing to commit to variable universal life. Also, with an increase in income tax rates more clients are asking for nonqualified deferred compensation plans, which are plans funded with corporate owned life insurance.
As for distribution, there are fewer brokers to work with because of tremendous broker consolidation. The traditional independent insurance agent is slowly being replaced by a new breed of insurance producer who relies on non-traditional training in order to compete.
How Is the Life Insurance Market Faring In Today’s Economy?
Dennis Brown, chief marketing office and co-owner of M&O Marketing: The life insurance market has picked up over the past few years. When the economy turned for the worse in 2008 and unemployment was on the rise, many lost their life insurance benefits and realized the need to replace the protection for their families. In a strong economy people become much more comfortable and the importance of life insurance just isn’t a priority.
Dave Donchey, CLU, president, Leisure Werden & Terry Agency: The market has been challenged since 2008; and what we are experiencing today is a hangover from that. The continued low interest rate environment that we have been stuck in will continue to plague insurance sales.
Todd Mason, Public Sector sales director, West Region Colonial Life & Accident Insurance Company: Worksite sales have continued to grow year over year. Based on 2013 data, the life segment has shown the most growth. Term life products continue to hold first place in the life insurance sales category for worksite, based on the latest data from Eastbridge. The life market isn’t growing as fast as the overall economy, but there are pockets of opportunity for life products sold at the workplace. Whole life sales through the workplace are growing at 6% to 7% annually. There has been a slight increase in the volume of term life insurance sold in the past five years, but the premium associated with those sales is down as rates have declined, mostly because of improvements in mortality. Another factor at play is that the vast majority of all life insurance policies are sold at the workplace. The high-volume, low-touch nature of the workplace sales channel is best suited to the sale of simpler products that are designed to meet less complex consumer needs. Life policies sold at the workplace, therefore, tend to carry significantly lower face amounts than those sold through other channels.
Has There Been A Significant Change In Product Mix Over the Past 12 Months In Terms Of Guarantees, Variable, or Term?
Dave Donchey, CLU, Leisure Werden & Terry: There have been quite a few product changes over the past year. However, this is not much different than what we have been experiencing over past few years. Most carriers have no choice but to become innovative with product design to create a balance between manufacturing products that are attractive to consumers and those that agents are anxious to sell in order to make money. This would include a variety of new index universal life products, updated term portfolios, and even a resurgence of variable life products by some carriers.
Eric Henderson, senior vice president, Individual Products and Solutions, Nationwide Financial: We’ve seen a big boost in sales of indexed UL, and that trend holds true across the industry according to LIMRA’s sales data for the first quarter of 2014. We believe that the acceptance of new products and brokers seeing value in those products for their clients in today’s market are driving the interest in indexed UL. In response, we’re focused on continued innovation in this area. Additionally, industry sales of no-lapse guarantee universal life reduced by 32% in 2013, year-over-year, according to LIMRA. Conversely, Nationwide’s sales in this product line doubled.
Thom Freismuth, a broker with Hub International: Indexed life is probably one of the more sought after products in the marketplace today. It is tied to various indices, such as the S&P 500, with a minimum floor guarantee of zero. The product caps your upside advantage at perhaps 13%, but in under no circumstances can your return go below zero.
Dennis Brown, M&O Marketing: There is a steady increase in term requests, however the public has become more intrigued in the permanent guaranteed and the industry has seen a rapid increase in demand for this product. The variable products are changing for the better, but overall people are still skeptical because of the poor performance of older versions.
Barron Dorf, senior market manager at Unum: On the voluntary side more employers are seeing the value in offering choice to their employees in the combination of group term and individual whole or universal life.
Todd Mason, Colonial Life: As health care costs increase and employers increasingly shift to a defined contribution model for their benefit plans, there’s likely to be a general upturn in term life sales as its low cost becomes increasingly attractive to consumers. As LIMRA’s 2013 Industry Predictions report points out, the market has moved back and forth over the years between placing risk on individuals and on carriers. Right now, companies are increasing product pricing while reducing the benefits on these guarantees, discontinuing sales of some products or riders, and in some cases exiting the market entirely.
Do You See Growth In Particular Niche Markets?
Todd Mason, Colonial Life: Life insurance is needed across all markets as working Americans in general are uninsured or underinsured. A 2013 LIMRA study reported 50% of U.S. adults don’t have enough life insurance, and 30% have no life insurance at all. This tends to be especially true of younger workers who may not yet have families and mortgages, so they don’t see the need as strongly as older workers. But as Gen Y begins to take over the workplace in the coming years, this represents a good opportunity to educate employees about their needs and help them match those needs with the right type and amount of coverage. The Hispanic population is growing also, so to be effective in this market there’s a growing need for benefit counselors who not only speak their language, but also understand their culture.
Thom Freismuth, Hub International: We are seeing growth in the corporate owned life insurance since these products are used to fund nonqualified deferred compensation plans.
Barron Dorf, senior market manager at Unum: The voluntary market has grown substantially as more employers are looking to offer more benefit choices to employees and round out core benefits that, in many cases, have been cut back for many employees.
Dave Donchey, CLU, Leisure Werden & Terry: We have seen an increase in indexed universal life sales catering to the consumer who is looking for better returns on their investments, but is not willing to commit to variable universal life. The challenge is getting more agents to invest the time needed to understand how these products work and how to sell them responsibly to their customers.
Dennis Brown, M&O Marketing: We are seeing the biggest growth in retirement and college planning. Assumption/cash assumption products and IULs, in particular, are on the rise.
Eric Henderson, Nationwide Financial: Clients, especially Baby Boomers, need help planning for their impending long-term care needs. According to the Dept. of Health and Human Services, 70% of people over 65 will need some type of long-term care. Our own research indicates that Boomers drastically underestimate how much long-term care cost, and only 8% have purchased any type of long-term care insurance. We’re focused on providing advisors and brokers with innovative solutions to help clients fill their long-term care funding gap.
What Is Happening With Your Distribution Systems? If You Have An Agency Force, Is It Growing, Are You Hiring, And Is There More Attrition Than Usual?
Dennis Brown, M&O Marketing: M&O Marketing is an independent marketing organization, however we are receiving more requests from captive agents. Considering most agents are allowed to broker business outside their own carrier the new attractive products on the market are encouraging them to call us for case design.
Todd Mason, Colonial Life: Colonial Life’s career agency distribution system is strong and growing. It was at a record high last year and we plan to continue building it this year. There is a tremendous opportunity in worksite benefits for people who care about helping others, who want to be their own boss and who want to set their own level of earnings and success. Especially since the recession, a lot of people are seeing the value in being able to determine their own future. Our agency sales organization works directly with employers and through brokers to serve their clients.
Barron Dorf, senior market manager at Unum: There has been tremendous broker consolidation so there are fewer brokers to work with. However, the size of the agencies today are much larger than in years past with extensive resources and expertise like executive planning and voluntary benefits. These dedicated resources can help the carriers focused on life insurance to grow market-share.
Eric Henderson, Nationwide Financial: We are hiring new primary agents for our exclusive agency channel although we have largely maintained the size of this distribution force. We’re also developing a growing number of strong relationships within the independent agent channel. Our relationships with non-affiliated distribution channels, including brokerage general agents, regional and national brokerages, wirehouses and banks, continue to yield positive results. Our application volume has increased 65% since 2011; we exceeded sales targets more than 152% last year; and we are well above plan this year. Non-affiliated channel sales are driving those numbers.
Dave Donchey, CLU, Leisure Werden & Terry: There is a common thread in which the traditional independent insurance agent is slowly being replaced by a new breed of insurance producer who has to rely on nontraditional training in order to compete. There are fewer career oriented carriers providing high levels of training, which means that people who sell life insurance today do so by first focusing on some other non-life insurance product. This new environment means that more of the training responsibilities fall on the general agent than in years past.
What Kind Of Growth Do You See In Life Insurance Sales As An Employee-Paid or Employer-Paid Benefit?
Dave Donchey, CLU, Leisure Werden & Terry: I am not sure that we are seeing or will see tremendous growth in of these areas. With today’s economy, employees are not highly motivated to buy employer sponsored benefit plans that they have to pay for. At the same time, employers are being squeezed financially to continue to fund benefits for their employees. The exception may be employers who are paying for key person life insurance coverage and buy/sell life insurance coverage to protect their businesses.
Barron Dorf, senior market manager at Unum: The growth we are seeing is on the voluntary side for the following reasons:
• Brokers are looking to diversify their revenue by selling more ancillary products like life insurance
• Employers are looking to attract and retain key employees by offering a stronger package of ancillary products with more choices like term life and permanent life.
• Brokers are providing more services to employers like benefit administration and employee communication during a very confusing time with health care reform.
• Fewer individual agents are marketing to the middle income and hourly workforce outside of the workplace these days. The kitchen table life insurance sale for middle income America is no longer.
Mark J. Hanna, CLU, ChFC, REBC, RHU, chairman of Hanna Global Solutions in Concord. Calif: We focus almost entirely on employer sponsored life insurance plans. This includes not just the traditional group-term (and excess group-term) plans, but a range of employer sponsored welfare benefit plans that offer permanent life insurance solutions whether universal, variable, or index. Permanent and individual term plans have tremendous appeal as part of a robust benefit platform that may also include Internal Revenue Code ß162 or bonus plans and payroll deduction. I believe that delivering life insurance solutions, through an employer/employee relationship, is the most efficient way to serve the vast majority of prospective life insurance consumers. Our sales volume continues to grow each year as employers learn that they can diversify their benefit offerings using non-traditional life insurance solutions.
Todd Mason, Colonial Life: The shift toward employees taking more responsibility for benefit decision-making and purchasing will continue. In today’s economic environment, employers aren’t looking to increase their costs. Even for employers who continue to offer some employer-paid life insurance, the amount usually is far less than what a typical employee’s family would need. That’s why voluntary life insurance is so important. It gives employees access to the additional coverage they need at more affordable rates and an easy underwriting process — plus in some cases, the opportunity to talk to someone face to face so they understand their needs and what they’re buying.
Dennis Brown, M&O Marketing: The most growth we are seeing is in the executive life insurance area, but it’s a slow growth. Business-continuation plan requests are slightly climbing in our business as well.
Are You More Or Less Active With Alternative Distribution Systems (Banks, Stockbrokers, Direct)?
Dennis Brown, M&O Marketing: We rarely deal with banks or other alternative distribution systems at this point.
Eric Henderson, Nationwide Financial: We remain very active with banks and wirehouses and value their business and partnership. Brokerage general agents are also important partners for Nationwide on the life side.
Barron Dorf, senior market manager at Unum: We are less active as there is plenty of change and opportunity in the employer and executive market right now.
Dave Donchey, CLU, Leisure Werden & Terry: To this point, we have not been involved in alternative distribution systems. However, we are partnering in creating a consumer facing website tool that insurance producers within alternate distribution systems can use to brand themselves and give clients an opportunity to request life insurance quotes and apply online. We feel that, by offering this tool, we will be better able to interact with and be successful within some of these alternative distribution systems.
What Recent Events Have Affected The Way You Do Business?
Thom Freismuth, Hub International: Increases in income tax rates have caused the growth in the request for nonqualified deferred compensation plans. These plans are funded with corporate owned life insurance.
Dennis Brown, M&O Marketing: AG38 had a big effect on which carriers’ products were requested considering a majority of our business deals are guaranteed UL products. Agents had sticker-shock when new pricing was put into effect. The time it took to recover from the slow-down in guaranteed sales was longer than anticipated by some of the carriers.
Barron Dorf, senior market manager at Unum: Health care reform has caused brokers and employers to take a closer look at employee benefits, which has enhanced the desire to offer voluntary products to fill necessary gaps and help fund communication and enrollment needs.
Dave Donchey, CLU, Leisure Werden & Terry: The most significant recent event that has affected the way we do business is our adoption at a powerful CRM and marketing program that has allowed us to expand our marketing capabilities and communicate with our customers much more effectively than ever before. We are now looking to take advantage of technology to get better data on our customers in order to target market to them more appropriately. We are already seeing good results.
Todd Mason, Colonial Life: Health care reform is on everyone’s mind, but it really hasn’t changed the way we do business. Voluntary benefits are mostly exempt from the health care reform law, and they still offer a great way for brokers to help clients have a more competitive, customizable benefit package with no effect on the bottom line. This is true for all employers, even those sending employees to exchanges for major medical coverage; they can still make their benefits stand out from similar employers by offering voluntary benefits to their employees. And no matter which route the employer takes, there’s still a tremendous need to help people understand their needs, coverage gaps, and which options best meet those needs. So one-to-one benefit education and counseling is going to be more important than ever as health care reform is implemented.
What State Or Federal Legislative Issues Are You Concerned About?
Thom Freismuth, Hub International: Certainly, if the government were to curtail or eliminate the tax-free buildup of cash values life insurance, it would have a significant effect on the marketplace. If legislature were to eliminate the marital deduction or the $5 million+ estate tax-free amounts, it would cause need for more life insurance.
Dave Donchey, CLU, Leisure Werden & Terry: Like most general agencies, we have been concerned about the fewer number of traditional estate planning cases we are seeing, given the lifetime exemption and the tax law roller coaster that estate planning has endured in recent years. If nothing changes, we will rely less on these traditional large premium sales and more on alternative large case strategies to help support our business.
Todd Mason, Colonial Life: The low interest rate phenomenon is the single greatest challenge facing the industry. These low rates will continue to put pressure on financial service companies and the interest-sensitive financial products they issue, including life insurance. All life insurance products are affected to varying degrees, but long-term contracts that rely heavily on earned interest, such as whole life and universal life, are especially affected. All life insurers will be challenged to make product adjustments in order to manage lower investment income and profitability in the environment.
Speaking of Life Insurance Customers, Are There Certain Niches or Age Groups That Brokers Should More Of A Focus On?
Eric Henderson, Nationwide Financial: We feel that the middle market presents a growth opportunity for brokers. The tendency to focus on high net-worth clients in the financial services industry has left a large portion of the market underserved. Life insurance plays a crucial role in protecting the futures of all families as their primary source of income replacement. There is substantial opportunity for brokers who help people understand how affordable that protection is. Our research shows that 98% of consumers who are married, partnered, or have dependents lack enough insurance to replace their income. Of those surveyed, the average person will earn approximately $1.5 million before they retire and holds about $300,000 in life insurance coverage, leaving them about $1.2 million short of replacing their income with life insurance. However, they are also willing to pay enough for life insurance to reduce this income replacement gap. Consumers surveyed said they are willing to pay $99 per month on average to ensure that their family can maintain its standard of living indefinitely following the death of a breadwinner. Advisors and insurance agents may be able to motivate clients by helping them understand the implications of their income replacement gap. We know that consumers don’t respond well to scare tactics, but they may be relieved to learn that the solution is not as scary as they may expect. Even if they don’t feel compelled to buy enough life insurance to replace all of their income, most consumers can afford enough to put a significant dent in their income replacement gap. That’s at least a step in the right direction.
Thom Freismuth, Hub International: The younger working family member who no longer has an agent calling on them to sell them life insurance still has a need for the product, so that is one of the reasons that voluntary life insurance options through the employer have increased. Historically many insurance carriers marketed directly to them, which is a thing of the past. The other area is the more affluent high income earners who would like to defer some of their income into corporate on life insurance policies to fund non qualified deferred compensation plans.
Dave Donchey, CLU, Leisure Werden & Terry: The debate continues between a producer who trying to grow clientele while trying to make a living. Older, wealthier people provide for more lucrative sales, but will have less longevity as a client. Younger, less affluent clients will provide for easier and less lucrative sales, but will present greater income potential down the line. The best game plan is to achieve a balance between the two, but know that sales to older and more affluent people will keep the producer in the game.
What Are Some Of The Common Characteristics Of Your Most Successful Life Insurance Producers?
Barron Dorf, senior market manager at Unum: An individual producer typically understands all the tax laws and uses life insurance as an investment vehicle for planning purposes. Employee benefit producers really understand the voluntary business and buying trends of different age groups, income brackets, and industries.
Eric Henderson, Nationwide Financial: Common traits of successful life insurance producers include a lifelong commitment to learning and a focus on client needs. For example, good producers will observe a trend, such as the lack of consumer understanding about the true cost of long-term care in retirement, and then position themselves with clients as someone who can help them chart a path to address this challenge.
Dave Donchey, CLU, Leisure Werden & Terry: The two common characteristics of our most successful life insurance producers would be first, the ability to network with the right people to gain the benefit of the greatest number of people from which to prospect on a favorable introduction basis. This would include key centers of influence. Second, each top producer has an overwhelming desire for their next case and leaves no stone unturned in pursuing it. They believe in their product and almost make it their life’s mission to provide it to others.
Todd Mason, Colonial Life: We strongly believe in the value of one-to-one, personal benefit counseling sessions to help employees understand their needs and options to create an effective financial safety net for themselves and their families. So our most successful life insurance producers are those who are not only experts in product knowledge, but who also excel at this customized counseling approach. They create trust and credibility, as well as long-term relationships. They’ll be back in the same account next year and the year after, talking to the same employees, whose needs are likely to change. q
Leila Morris is senior editor of California Broker Magazine.