For our annual survey, life insurance executives gave their take on the industry’s opportunities and challenges. When it comes major sales opportunities, executives told us that it’s Millennials, Millennials, Millennials!
This generation (18 to 34) has surpassed Baby Boomers as the largest living generation. But it’s not just demographics; Milliennals are better savers than their parents have been. There are also multi-cultural opportunities, particularly among Asian Americans. Another growing opportunity is in the middle market.
The lines continue to blur between traditional health insurance brokers, voluntary brokers and life insurance brokers. There are opportunities for brokers to expand their books of business and increase their revenue. As for product mix, there has been a move away from variable products and a greater shift to products with less risk, such as index universal life (IUL). But term and whole life are still strong sellers. Low interest rates have created the single greatest challenge facing the industry. Also creating headaches is the Dept. of Labor’s fiduciary rule.
Has there been a significant change in product mix over the past 12 months in terms of guarantees, variable, or term?
Dave Wilken, president of Individual Life, Voya Financial: Over the past three years, we’ve shifted our focus to the sale of indexed universal life products, and we’ve been pleased to see the industry moving in the same direction. In the first quarter of 2016, IUL was the second biggest driver of individual life growth according to LIMRA. IUL now represents 56% of universal life, and 21% of all individual life premiums. I attribute that growth to Americans taking ownership of their finances and having a more sophisticated knowledge of financial products. Today’s consumer wants solutions that serve multiple purposes leading up to and through retirement. That’s exactly what cash value life insurance can do.
Andy Glaub, senior vice president and director of sales, Aflac: There is a growing desire for carriers to provide a complete portfolio of benefit offerings, which includes supplemental health, life and disability insurance. So we’ve embarked on a multi-year plan to expand our life and disability insurance portfolio. This plan begins in August with the introduction of enhanced permanent life insurance options and continues throughout 2017 with enhanced term life and disability insurance plans.
Thomas H. Harris, CLU, ChFC, FLMI, executive vice president, Distribution at Penn Mutual: Over the past several years, we have seen a greater emphasis on products that offer guarantees with cash accumulation, like whole life or indexed universal life. This is a shift from three to four years ago when there was a greater emphasis on guaranteed universal life.
Steven Johnson, vice president, Products, Colonial Life & Accident Insurance Company: Term life sales continue to lead the market. The low cost is attractive to consumers, although generally people want to make sure they understand what they’re buying and getting the right amount of coverage for the right price. Carriers continue to look for ways to design a product that will appeal to the consumer. According to Eastbridge Worksite/Voluntary Sales Report (2015), term life remains the top-selling line of worksite business, representing 22% of all worksite sales.
Kyle O’Dell, managing partner of O’Dell, Roseman, and Shipp: There has been a move away from variable products and a greater shift to products with less risk such as IUL, but the old traditional whole life continues to be a strong seller. There was a shift in the 1980s and 1990s toward “buy term and invest the difference,” but this has lost steam because of poor market returns in the 2000s when it comes to the “invest the difference” portion. But term insurance is still a very strong selling product.
Do you see growth in particular niche markets?
Steven Johnson, Colonial Life: Life insurance is needed across all markets as America’s workers in general are uninsured or under-insured. At the same time, being able to afford a comfortable retirement is a common financial -worry among consumers. This is particularly true of younger Americans who are expected to live longer while more of the retirement savings burden is pushed on to the -consumer. This represents a good opportunity to educate employees about their needs and help them match those needs with the right type and affordable amount of coverage.
Thomas H. Harris, Penn Mutual: Penn Mutual is preparing for growth in the middle market. We have invested in our business to provide simplified underwriting and accelerated underwriting programs that will allow for smaller policies to get processed much quicker. This will allow us to enter these markets where we weren’t previously.
Andy Glaub, Aflac: The market, as a whole, is increasingly looking for competitive, affordable, quality life insurance products, and they’re turning toward carriers they trust to deliver. However, the market with the most potential for growth is the Millennial generation. Millennials tend to get a bad reputation when it comes to financial planning and savings, but they are becoming increasingly more aware of its importance. In fact, a study from Bankrate.com found that 62% of Millennials are saving more than 5% of their income. Millennials are making conscious decisions about planning for their future and are interested in potential investment tools that products like permanent life insurance can offer, which is fueling the growth in this particular market. That said, our own research from the 2016 Aflac WorkForces Report shows that Millennials are much more prone to underestimating the costs of an unexpected accident or illness than other generations. While this may not relate specifically to life insurance, it’s important to educate them better and provide solutions that will help them do what they want most, which is to remain as debt-free as possible.
Dave Wilken, Voya Financial: Since 2007, Voya has had a strong presence in the multi-cultural market. Since 2013, we have almost doubled our sales to multicultural consumers. Particularly among Asian Americans, there is an opportunity for even more growth moving forward. According to Voya research, Asian Americans are more likely to contribute to their workplace savings plan, more likely to have six months of living expenses in savings, and also manage debt better than the majority of Americans. In our experience, this group also gravitates toward cash-accumulation products. They see more value in a policy that provides death benefit protection, along with the ability to grow supplemental income for retirement. While they have many strong financial habits, only 22% of Asian Americans work with a financial professional. They are also the least likely to have calculated how much they need to continue their lifestyle in retirement. So, we’ve made great inroads in serving Asian Americans, but there’s still an opportunity to expand life insurance ownership within this group.
Kyle O’Dell, O’Dell, Roseman, and Shipp: I see a divide in the marketplace. Families that are fortunate enough to have large portfolios and strong cash flow tend to use permanent life insurance vehicles such as whole life or index universal life. Families that aren’t quite as fortunate to have the same assets or cash flow tend to buy term insurance. It’s the difference between owning and renting, similar to a house. In the long run, the families that purchase permanent insurance are happy that they did because they will always have the life insurance coverage for their spouse if they pass away. The families that purchased term insurance usually become concerned about losing the coverage at the end of the term because they can no longer afford the increase in premiums.
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?
Andy Glaub, Aflac: Aflac’s distribution system is multi-pronged. There are the 70,000 plus independent agents who are licensed to sell our products, which have always provided a competitive edge for Aflac. However, in today’s environment the broker community is a vital part of our sales model, particularly in selling our group products. Aflac began selling products under Aflac Group insurance in 2010 to a great deal of success and brokers have become a significant part of the sales model. We continue to recruit new brokers and associates every day.
Dave Wilken, Voya Financial: Our products are sold by a select group of external distribution partners who share our commitment to helping Americans achieve their financial goals. Last year, we made the decision to narrow this distribution network in support of a refined strategy focused on strong relationships, personal attention and dedicated resources. This approach has been largely successful and has differentiated us from our competition, particularly among multi-cultural agents who are more open to brand loyalty than other groups.
Kyle O’Dell, O’Dell, Roseman, and Shipp: A recent study by Ernst & Young reveals that the total financial advisor population has decreased by 4.3% in the past decade, and the average advisor is over 50, so we will continue to see the numbers drop. We have had to learn to adapt to our changing world and communicate with clients and potential clients via social media and different forms. We are continuing to grow as we have had success meeting and sometimes exceeding our client’s expectations. We have also been fortunate to add advisors to our company because we have had success in helping them grow their client base and become well-rounded advisors.
Thomas H. Harris, Penn Mutual: We have two distributions channels – our career agency system and independence financial network – and both are growing. Our independent channel is growing thanks to our work with producer groups such as FFR, NFM, and Lion Street. Our largest independent region, the Pacific region, is headquartered in Irvine. Our career agency system is also growing with the number of full time advisors and the addition of five new agencies since December 2014. They’re located in areas where we hadn’t had a presence before, which includes San Francisco, Boca Raton, FL, Birmingham, Ala., Nashville, Tenn. and Kansas City, Mo. This is allowing us to reach new advisors and new policyholders. The opening of our San Francisco office was the first time we had an agency in California in over 20 years. Half of the advisors we hired last year were Millennials and last year was our second highest recruiting year. In fact, the disruption with other carrier’s distribution systems has created opportunities for Penn Mutual.
Steven Johnson, Colonial Life: At Colonial Life, our strong agency distribution has kept us among the leaders of the voluntary industry. The year 2015 continued the strong trend in terms of new recruits joining our team and sales generated by this group of agents. There is tremendous opportunity in the worksite industry for people who genuinely care about protecting America’s workers. Our agency sales organization members build their business by working directly with employers as well as partnering with brokers.
Speaking of life insurance customers, are there certain niches or age groups that brokers should place more of a focus on?
Dave Wilken, Voya Financial: Life insurance products can help people at every age and life stage, but in different ways. As the Baby Boomer generation transitions out of the workplace, indexed universal life will help them protect and preserve their wealth in retirement; we look forward to continuing to serve that market. From a sales standpoint, we have a particular focus on Generation X, given that they will still be in the workforce and saving for retirement for another 20 years. For this demographic, we’re focused on promoting the wealth-building and protection properties of indexed universal life. It’s one of very few products that has the ability to protect, accumulate, and distribute wealth, which makes it attractive to consumers of all ages.
Steven Johnson, Colonial Life: Employers across all markets continue to be interested in life insurance as a benefit for their employees. They see it as a must have to attract and retain those top performers.
Andy Glaub, Aflac: Millennials, Millennials, Millennials. Today, Millennials represent about one-third of the country’s population and will account for 75% of the workforce by 2025.They are a somewhat untapped group that will only continue to grow in the workplace, opening the door for brokers looking to expand their sales.
Thomas H. Harris, Penn Mutual: We’re hiring a lot of Millennials; they will make up a big part of our business going forward, so I think naturally, that is a great market. They are typically aspire to be better savers than other generations so educating them about life insurance products that can offer more than just a death benefit, but also a potential cash value component is a big push for us and could be very attractive to them. We are preparing to increase the number of policies we write and make the process quicker and more efficient to work with younger generations. This will make it attractive for advisors who might not have otherwise thought of working with Millennials.
Kyle O’Dell, O’Dell, Roseman, and Shipp: Everyone! As a society, one of the biggest problems we have besides not saving enough money, is that almost the entire population is remaining under-insured. My grandparent’s generation “the greatest generation” used to work until age 55, retire, then pass away from 65 to 75. They had pensions and Social Security so they didn’t need to have $1 million saved. Many of them purchased whole life Insurance so that, when they passed away, their spouse would have a little something extra to offset the loss of a pension or a portion of Social Security. It was much simpler back then. We have seen fewer and fewer people purchase life insurance because they don’t want to pay for it. They don’t think they will die until they are in their 80s, 90s or even longer, and they are correct. They don’t want to pay for something for the next 40 or 50 years. But this leaves a void in their financial assets for their spouse or kids. Life insurance is one of the greatest assets because it has living benefits and passes on to heir’s tax free. I would recommend that families purchase a permanent policy, but if they can’t afford a permanent policy, purchase term insurance that they can convert to a permanent policy in the future. This will protect their insurability and they may even get credit for some of their term premiums toward their cash value inside their permanent policy.
What kind of growth do you see in life insurance sales as an employee-paid or employer-paid benefit?
Steven Johnson, Colonial Life: The shift toward employees taking more responsibility for benefit decision-making and purchasing will continue. With benefit packages, 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. The good news is that employers continue to see the need and importance of offering life insurance as a valuable benefit for employees.
Kyle O’Dell, O’Dell, Roseman, and Shipp: I don’t see much in this area. I see fewer and fewer companies offering this benefit, unfortunately. Most employees that do have some type of coverage from their employer only have one to two times their salary. It’s becoming more difficult for companies to offer this type of benefit.
Andy Glaub, Aflac: Research consistently tells us that Americans are under-insured when it comes to life insurance products, creating tremendous opportunity in this line of business to provide a complete portfolio to consumers regardless of who’s paying. While employers will continue to look for life insurance solutions that maximize their benefit spend and employees will continue to look for affordable options that will be with them through the long haul, the ability for brokers to provide life insurance products that satisfy the needs of both groups will be paramount no matter which way the market sways.
Thomas H. Harris, Penn Mutual: While this is not a focus for our business, I would think that you’re more likely to see growth in employee-paid life insurance as a benefit. More companies are offering à la carte benefits to employees that they can pay for, as opposed to the company.
What, if any, state or federal legislative issues are you concerned about?
Thomas H. Harris, Penn Mutual: We are preparing to make changes based on the new Department of Labor’s fiduciary rule. These changes will support the way our advisors do business – allowing them to continue providing valuable advice to their clients while keeping them fully compliant with the new rule.
Dave Wilken, Voya Financial: We’re obviously keeping a close eye on the DOL Fiduciary rule, as it’s going to impact the way many broker/dealers and financial advisors do business. There will be a lot of watching and waiting in the coming months. The financial services industry has seen tremendous economic and regulatory change over the past 10 years. Our mission remains the same; we will continue to help our clients achieve their long-term goals. Consumers may see a narrowing of product offerings from providers and advisors, but they can remain confident that the same organizations that have supported them in the past will continue to do so, with an even keener eye towards education and transparency.
Kyle O’Dell, O’Dell, Roseman, and Shipp: I see the new DOL ruling as a rule with good intentions, but the actual wording of the rule will cause problems within our industry. It will be more difficult for new advisors to come into the industry and have success, therefore the advisors within our industry will continue to get older. They will retire or leave the industry without any new, younger advisors coming into the industry. The consumer, who the rule was meant to help, will ultimately get hurt. This industry is already tough enough to have success without having the added regulations.
Steven Johnson, Colonial Life: Low interest rates are the single greatest challenge facing the industry. These low rates will continue to put pressure on financial services 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 impacted. All life insurers will be challenged to make product adjustments in order to manage lower investment income and profitability in the current environment.
What are some of the common characteristics of your most successful life insurance producers?
Thomas H. Harris, Penn Mutual: I think the most successful advisors are those who listen well and are great at building relationships. They’re someone you want to spend time with and are trustworthy. They also do a great job of making people think about situations they might not think about otherwise, like what would happen to their family or business if they were to die. They’re good at painting a picture for their clients and dealing with emotional subjects. This connection helps their clients to take action and make beneficial decisions for their loved ones and their businesses.
Kyle O’Dell, O’Dell, Roseman, and Shipp: The largest producers in our industry tend to have a very specific niche market that they work in such as the ultra-high net worth, or they work with several estate planning attorneys and CPAs that refer new business their way.
Andy Glaub, Aflac: Success in this industry comes from being consultative. To be a successful life insurance producer, you have to know whom you’re talking to and recognize that everyone’s needs vary. The needs of the client you are meeting now can be vastly different from the needs of the client you sat with 10 minutes before. Our most successful life insurance producers take time to listen to their customers’ needs and respond with the most appropriate option.
Steven Johnson, 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 likely will change. We’ve developed a certification process so brokers, employers, and employees can be assured they’re working with the best in the business when it comes to individual benefits counseling.
Dave Wilken, Voya Financial: The most successful producers have changed their approach in response to economic realities. In the past, many people had a pension, Social Security payments and their savings to last them through retirement. But that has changed dramatically. Most private sector employers have moved from a pension to a 401K. The future of Social Security is a matter of public debate, but either way, payments may not be enough to cover basic living expenses. The Federal Reserve Bank of New York reports that student loan debt now exceeds credit card debt and auto loans. A recent Fed study also reported that many Americans would need to borrow or sell something to cover a $400 financial emergency. Not having enough money for retirement and not having enough money to cover serious medical costs are two topics that consistently rank highest on Americans’ list of financial concerns. Agents and advisors who understand the life-long value of life insurance are able to articulate to their clients how products like indexed universal life can address these concerns and help them grow, protect and enjoy their retirement savings.
Are you seeing more health insurance brokers getting into life insurance sales? If so, do you have any advice for them?
Thomas H. Harris, Penn Mutual: We’re seeing more P&C and CPA firms partnering with life insurance advisors to bring additional value to their practices. Health insurance brokers could also follow the same path by partnering with a life insurance expert. Just as health insurance is complex, so is life insurance so it’s best to work with someone who has the expertise instead of going it alone. By teaming with an expert, you’ll provide greater value to your clients.
Steven Johnson, Colonial Life: Education and communication are at the heart of helping America’s workers get the right coverage for their needs. To do this effectively, it’s important for health insurance brokers to partner with a benefit provider with not only a broad portfolio of life insurance options, but also the expertise and resources to provide strong benefit communication as part of the package.
Andy Glaub, Aflac: The lines continue to blur between traditional health insurance brokers, voluntary brokers and life insurance brokers. There are opportunities for brokers in each of the spaces to expand their book of business and increase their revenue. We will continue to see crossover, and we, as a company, have to be prepared to respond to all of our brokers’ needs by providing expertise, industry insights, best practices, and customized communication and education to help drive their practice regardless of the product they’re selling.
Kyle O’Dell, O’Dell, Roseman, and Shipp: I have seen many people from the health insurance area try to break into selling life insurance and they tend to struggle. The biggest challenge I see is that they are used to quoting rates and selling over the phone, or at a coffee shop, or at the client’s home expecting them to purchase a policy. Our industry is built upon trust and a relationship with the client, which takes time. Adding life insurance in as a product for your clients is a completely different business model for those in the health insurance field. They struggle with the transition. To have success with life insurance, you have to change a number of things. Advisors who sell a lot of life insurance meet with the client several times in their office. Selling life insurance is usually a two- to three-meeting process in order to fully explain all the types of policies and how they work so that you can help the client make an informed decision. H
Leila Morris is senior editor of California Broker Magazine.