What Do Indexed Life Sales Really Mean?!
December 4, 2017 by Sheryl J. Moore
(or, Reviewing the Reliability and Validity of Target Premium as a Measure of Indexed Life Sales)
Recently, someone who likes to call themselves an “expert” on indexed life began proselytizing around why they were “outraged” about a specific company being ranked #1 in indexed life sales by Wink’s Sales & Market Report.
This individual feels that the #1 selling company of indexed life, as reported by my firm, did not have “good” products. This “expert” even goes as far as to say that Wink’s sales results are “misleading” because they feel that our metric of sales is “not a good indicator for the ‘quality’ of the policy.” Well, I could go on and on about what one should really look for when searching for a product expert (hint: it’s not rainbow-colored newsletters), but let’s address something a little less subjective: the matter of Wink’s sales metric for indexed life.
Admittedly, it gets tiring being compared to our competitors that use a different measure for indexed life insurance sales. So, I appreciate the opportunity to set the record straight on this matter. Wink’s Sales & Market Report is a sales survey conducted quarterly, which has measured sales of indexed life insurance products for 20 years; longer than any other market research firm.
But what DO those sales really mean?!?
Essential Considerations in Sales Reporting
First, know that there are several considerations when it comes to reporting sales of life insurance products:
Objectivity– Is the data reported without being distorted by personal feelings, prejudices, or interpretations?
Validity- How well do the results of the research measure what they are intended to measure?
Reliability- Is there consistency in the reporting methods, over time?
What Measurement to Use for UL Sales
Measuring sales of term life insurance and whole life insurance (even indexed whole life) is easy; market research firms report on the amount of premium paid. The premiums paid on these products are structured, and inflexible, which makes the metric used for measuring these sales simple, and closed to interpretation.
But how do you measure sales of flexible premium adjustable life insurance; otherwise known as ‘universal life’ (UL)? Universal life is an unbundled life insurance product, which provides flexibility in the amount of premium that is paid, subject to certain minimums and maximums (typically there is a wide range of variability between the two). Given this, how does one measure universal life insurance sales? Perhaps:
Total premium- all premiums paid;
Target premium- the amount of premium that is fully-commissionable to the salesperson;
Excess premium- the amount of premium paid in excess of the target premium;
The Amount of Premium Paid Can Vary Greatly on ULs
Before addressing the question of which measurement to use for UL sales, one must also be aware of the fact that universal life products are designed for many different types of markets. Wink divides these UL products into seven different ‘primary pricing objectives:’
Advanced Sales Solutions: providing a solution that addresses a specific need, often tax-related;
Cash Accumulation: accumulating cash values;
Death Benefit: providing the most life insurance per dollar spent;
Final Expense: providing insurance to cover final expenses, such as burial incidentals, funeral costs, etc.;
Guaranteed Death Benefit: providing a death benefit that is guaranteed for a specified time period;
No Lapse Guarantee: providing a death benefit that is guaranteed to the insured’s age 100, or longer; and
Wealth Transfer: providing a vehicle for transferring assets to beneficiaries upon death.
As you can imagine, the premiums paid on these different types of pricing objectives can have a large swing between them.
In consideration of our primary pricing objectives, let’s review an example. A prospect looking to buy UL for “death benefit” protection is paying a much-lesser premium than someone purchasing a UL for “cash accumulation.” The death benefit purchaser is looking for the equivalent of “term to 100,” or the least amount of premium possible for their life insurance needs. On the other hand, the cash accumulation purchaser typically pays the maximum non-MEC (modified endowment contract) premium, with as little life insurance coverage as possible, so as to maximize the growth of the policy’s cash values.
As you can see, this makes reporting sales based on the entire UL premium problematic; it results in companies specializing in low-premium UL designs being put at a disadvantage against companies specializing in cash accumulation UL when it comes to sales rankings. The companies selling the death benefit ULs have to sell WAY more product, just to compete with the companies selling cash accumulation products, in terms of a total premium considerations.
Other Metrics Set Companies at a Disadvantage
Some market research firms use a sales reporting metric for UL products that take excess premiums into consideration. This too sets companies at a disadvantage, particularly if their products are focused on the death benefit, final expense, guaranteed death benefit, and no lapse guarantee pricing objectives. On the other hand, this puts companies targeting the cash accumulation pricing objective at an advantage.
And did you know that 67.9% of traditional UL sales are priced for objectives that typically have competitive premiums/little cash accumulation? On the other hand, 80.9% of indexed UL sales are priced for maximizing cash accumulation. So, market research firms using sales reporting metric that includes excess premiums are actually setting traditional UL products at a disadvantage, as compared to indexed UL when it comes to sales reporting. To compare the two product lines with this data is an apples-to-oranges comparison; a problem with the data’s validity.
Summing It Up
Member-driven market research firms can be influenced by the metrics that they report; as they are driven by the companies that support them. While working in a home office, I was a member of such an organization, and our membership dues were a function of our company’s assets. In short, this model can result in larger companies having influence over a member-driven firm’s activities. It brings the matter of data objectivity into question.
Wink, Inc. is an independent market research firm. As a result, Wink reports data that is not swayed by the companies providing said data. Wink has leveled the UL playing field by reliably reporting sales of “target premium” as the measure of sales for the past two decades. As the CEO of Wink, I feel that this is the only fair way to report sales of all universal life products. This is because no one knows at what level a UL product will be funded throughout the life of the policy. However, if there is one universal truth when it comes to funding any type of UL, it is that the agent is going to strive to ensure that the prospect funds the policy at target, at the very minimum. Why? The agent wants to maximize the amount of commission that they are paid; plain and simple.
Now that being said, there are two functions to commissions on UL products; the target premium and the payout. Some companies have high target premiums with lower payouts; others have lower target premiums at higher payouts. This is the case with all types of universal life insurance products. Does our metric put some companies at a disadvantage in this regard? Without a doubt. If you are a company that does not like how your sales are represented in our report given this, I suggest that you keep our metrics in mind with your future UL product development. Ultimately, however, when it comes to reporting sales on flexible premium adjustable life insurance, you simply cannot make everyone happy.
This brings me back to our “expert.” In a public forum, he goes as far as to say that Wink’s sales results are “misleading” because he feels that our metric of sales is “not a good indicator for the ‘quality’ of the policy.”
Newsflash: sales rankings are a quantitative measure, not a qualitative measure.
In short, sales are not a representation of which product is “good.” Sales are merely sales; a measurement that represents how effectively a company is in motivating the purchase of their products. AND, I would hope that it is obvious to my followers that it is the responsibility of the salesperson to determine which product is “best” for their clients. You cannot merely “plug a product in-place” for all clients because of its sales rankings. This is lazy, irresponsible, and careless. Although it is helpful to be aware of which companies are sales leaders, one needs to evaluate each case individually, and determine which company/product best-fits each prospect’s needs.
As a 20-year veteran of competitive intelligence, one of the primary tenants that I use to run my business is that I treat all insurance companies equally. I try to conduct business fairly in all of my dealings. When I worked in the home office, I frequently subscribed to vendor systems that would allow insurance companies to take advantage of their offerings, without contributing to said systems. I will not do this. I never have; I never will. I do not provide preferential treatment to any company, regardless of how much money they pay me, nor due to my relationship with them. Neither myself, Wink, or Moore Marketing Intelligence sells or endorses any company or product. We just happen to be big fans of life insurance and annuities, period. sjm