Panel: Low Rates Batter UL But Value Still Strong
November 27, 2011 by Linda Koco
By Linda Koco
PHOENIX – Carriers that offer universal life policies with secondary guarantees (ULSG) have responded to the low-interest rate environment by shortening the length of their guarantees, exiting the market altogether, or raising rates, said John Deremo, of Protective Life, during a panel here.
Now the industry needs to bring value to the market in other ways, he said in a “state of the industry” workshop at the 30th annual meeting of National Association for Independent Life Brokerage Agencies (NAILBA).
The financial crisis, the low-interest rate environment and government intervention on interest rates are all combining to put strain on ULSG products, Deremo said.
A major concern is how carriers will reinvest money in the underlying ULSG product portfolios as the older coupons that support the products come due.
The trends will continue
Deremo said he thinks the trends identified above will continue during the low-interest environment but that the products still have a lot of value to customers.
However, the industry needs to do something else, too, he said. His suggestion was to take a “forward position” with the government on the impact of interest rates on life insurance.
To illustrate, he said his company’s CEO was in Washington on Thursday with representatives of two other life carriers. Their purpose was to educate people there, including Federal Reserve Chairman Ben Bernanke, on the effect of low interest rates on the insurance industry.
“That’s something that insurance industry to needs to do right now—more advocacy on the Hill,” Deremo said.
He also suggested that carriers add marketing value by innovating and differentiating in a way the focuses on consumer needs. “We are already doing this, with long-term care riders and streaming death benefits — things that will add some spice to the guarantees and that relate to specific consumer needs.”
If rates stay at 2 percent, look for life carriers to change the cost of insurance rates, said Butch Britton, ING. Also look for another round of price increases in ULSG products. Term life insurance with long-term guarantees will be affected, too, he added.
Carriers are responding to the environment in another way as well, Britton said. More of them are offering indexed insurance products. “This is the fastest growing segment of the market, by leaps and bounds.”
The reason the indexed products work is that they are not completely tied to the interest rate, Britton said. “But remember, we still invest in bonds in order to buy the options on indexed products.”
He predicted that the indexed product market will be here as long as interest rates stay where they are.
An indexed product trend Britton is seeing right now is carriers putting an indexed universal life policy together with a secondary guarantee. The first wave of the products won’t build much cash accumulation, but he said the next wave will provide more consumer value by offering attractive guarantees and attractive cash value accumulation.
“That will provide more flexibility and I think the consumers will want that,” he said. The market for indexed products is both mid-market and high end, he added, with premium financing common in high-net-worth cases.
Mix all those things together, and the growth potential is “off the charts,”
Trey Renolds, of BRAMCO, commented that distributors can “sit around and think about the stuff we can’t control or they can take the approach that this is the best opportunity possible for us to innovate from a value perspective.”
The products that are out there should still be valuable to consumers, he said. “But we need to change the conversation with the agent.” Instead of talking about requests for new products, he suggested, consider nudging agents to talk about the consumer. “Then look at how to position existing products from the consumer (value) perspective.”
Role of hybrid products
“Do hybrid products fit in this market?” asked panel facilitator Gene Koster, DCG Consulting.
Reynolds answered that consumers want flexibility and choice, and a life policy they can also use for long-term care and other types of coverage. This creates the value they are looking for, he said.
Hybrid products also open up opportunities to introduce new distribution channels to the business via producers who might prefer to sell benefits such as long care rather than life insurance, Reynolds indicated.
That can lead to sales of other products, he pointed out.
Tom Gray, of Netstreet Brokerage, said his firm has committed to selling hybrid products that link to long-term care benefits. “That way, we can offer them guaranteed death benefit, guaranteed cash value and guaranteed long term care coverage.” This works with property/casualty agents who are selling to business owners and looking for protection in savings, Gray said.
“We may only sell one of four products with linked benefits, but we may also sell two of four that are standalone products. It’s opening doors.”
“Adding value is giving people what they want,” summed up Frank Gencarelli, of Legal and General America. What people want is guarantees, he continued, and that is so whether carriers are innovating with income benefits, long-term care benefits or death benefits.
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