A modest proposal for a change in the term insurance sales process,
and an appeal to the vendors who provide term quoting tools.
Guaranteed level premium term insurance has been a remarkably resilient product form –
a market leader in the industry for more than 25 years. Yet, we’ve reduced the selling
process to a commodity spreadsheet exercise where the only value offered the consumer
by brokers and general agents is to search for the lowest price. In many cases, the
experience leaves the client underinsured or with coverage that virtually expires before
the need does. Yet, one simple step can be taken to more fully engage the client,
helping him or her understand the compromise he or she is making when cost is a family
budget issue. History In the 1970s and for much of the 1980s the dominant form of
term insurance was guaranteed premium select and ultimate annual renewable term
insurance (or its graded premium whole life equivalent). Rampant replacement activity
in the ‘80s caused primary carriers and reinsurance companies to retreat from this
product form. Attempts at innovation ensued, and ultimately guaranteed level premium
5 and 10 year plans gained traction (the first major player I recall was Midland Mutual,
followed quickly by Federal Kemper and First Colony Life). The consumer appeal of
knowing that the price was guaranteed and would not increase was huge, and in
time (a long time – sometimes our industry is slow to see the obvious) level premium
plans were available for every period from 10-30 years. General agents kept a
relatively small stable of companies offering term insurance, choosing them
based on competitiveness, compensation, service, underwriting and the strength
of their relationship. Brokers relied on their general agent to direct their
cases to the right carrier.
It was inevitable that someone would realize that a multi-company tool to
compare term prices would meet with high demand, and spreadsheet software
began to emerge from third party vendors in the 1990s. Armed with comparisons
across a dozen companies, brokers began to demand that their client be placed
with the carrier with the lowest price. I believe transparency in term prices
is a good thing; all else being equal, the lowest price should win. But
spreadsheet selling has some serious shortcomings, including:
• The dilution of other valuable aspects of the product and company –
service, financial strength, underwriting, compensation model, convertibility
options, special benefits offered at no cost by the company
• It serves as a barrier to product innovation (the spreadsheets’
comparison capabilities drive product design).
• Yielding to the temptation of jumping to the spreadsheet
as the first step in the sales process, brokers ignore the
critical step of quantifying the need, and unconsciously or consciously,
compromise the amount of life insurance needed or the duration of
coverage needed when faced with a “budget”.
I’d like to focus on the last point. A modest change to the way we sell could
increase the value of our advice to consumers immeasurably, and quite possibly
lead to increases sales.
A modest proposal
How often do budgetary constraints drive a sale? Is it more common to hear
“Present me with the face amount you think I need for the period I need, then
we’ll compare and make a choice”, or “I only can afford a premium of $900/year,
so present the best plan in that ballpark”? I suspect the latter.
And we fiddle with the spreadsheet until we have some output to present.
And that output is usually a comparison of premiums across a constant face amount
for a constant term period. And in doing this, we’ve neglected to tell the client
how much they need, and we’ve made some decisions for the clients that they’re
quite capable of making themselves.
• We first quantify a client’s need (we can do this now – the Life Insurance
Foundation for Education’s Human Life Value calculator identifies an individual’s
total lifetime value to their family, and it’s so simple you can do it in less
time than it takes to microwave a bag of popcorn.
• Using the stated budgeted amount, we present an array of term plans across a
variety of term periods and designs, solving for the face amount purchased by
the budgeted premium as the initial premium for each plan. This “face solve”
capability is absent from the currently offered quoting engines and is the
“appeal” in the subtitle of this article.
• Then, sitting with the client, we can cover the need, and review the shortcomings
each choice would represent to the ideal plan. The client can choose where to
compromise – face amount or plan design – or choose to increase their budget!
The full article by Frank T. Gencarelli
Senior Vice President, Distribution and Marketing Legal & General America
Available in the August 2010 issue of Broker World