Keeping Pace with the Times

No one knows better than the Brokerage General Agency community that our industry is changing. For many companies, that changing landscape of life insurance spells opportunity with a capital “O.” Carriers have seized the chance to differentiate themselves from their competitors by rolling out new life products to better meet the needs of today’s customers. The more progressive BGAs, in turn, are embracing these innovative new additions to their product portfolio, strengthening their position in the market, and fielding a new crew of agents, well-trained in next-generation life insurance products.

Below, we take a look at just a few examples of emerging product trends in life insurance.

Appealing to Younger Buyers

It is no secret that Americans don’t buy enough life insurance. Shortsightedness, a belief that they are too young, too healthy, or too broke to worry about it, along with a lack of understanding of the product itself only serves to make this problem worse. Frank Gencarelli, senior vice president of distribution and marketing at Legal & General America recognized the trend and jumped on it as an opportunity to grow his business.

“A lot of people who need life insurance don’t have it at all, and those that do buy it tend to buy less than they really need to replace the lost income should a tragedy befall a family and they lose the principal breadwinner,” Gencarelli said. “Right when someone is starting out with a new home, new family, early in their careers is when they probably need more life insurance than any other time in their life, absent estate planning, and that is often a time when their budget is stretched.”

It was with this in mind that Legal & General America embraced products from Banner Life and William Penn, catering specifically to the under-represented, younger market.

“Life Value Term, for example, is really aimed at helping people afford more insurance,” he said. “It has a premium that starts out lower than the typical guaranteed level premium plans and gradually increases. The rates are still guaranteed, but the premium per 1000 gradually increases over the 20 or 30 year period of the plan.”

The idea behind Life Value Term is simple: people need more life insurance when they’re young, but they also don’t have a lot of investment money to spare.

“They’ve got a mortgage they may have stretched to get, they’ve got young kids who are costing them a lot of money, and they’re not yet at their peak earning years,” Gencarelli described the perfect customer. “Life Value Term was meant to allow somebody with a good future who could afford the increase in premium to buy enough life insurance from the get-go.”

In the same vein, Gencarelli’s company also offers a unique Term Life product for the same niche market, with some creative additions to make it both more affordable and more valuable.

“We have taken the level premium term structure and made riders out of the plan, as a way for someone to be able to afford the right amount of insurance,” he said. “At the extreme, if you buy a 30 year guaranteed premium level Term, you could put a 20 year Term rider on it, a 15 year Term rider on top of that, and a 10 year Term rider on top of that, which would give you, in effect, a plan that would have decreasing amount of insurance over time.”

This type of adjustable product aligns with the needs of a family over time, noted Gencarelli, because once the children are grown, college funding is no longer a legacy issue, and as someone nears retirement, the amount required to replace lost income is lower because there are fewer working years remaining.

“By stacking coverages like that with the lower rate 10 year Term rider, 15 year Term rider, or 20 year Term rider over time, you can afford more insurance for the same initial outlay, and it helps people more easily customize the coverage to their lifespan,” he said. “We found several hundred cases in our pending business files where it looks like multiple policies were being bought by the same insured—same owner, same beneficiary— as people were stacking policies to try to match this same idea. We just made it all a nice tidy bundle with just one policy fee and with an integrated bill and statements.”

Bundled Products

While carriers like Legal & General America have found success in stacking Term Life products to meet the needs of younger purchasers, others are incorporating similar tactics to serve a much different market: the baby boomers.

“Among the newer types of products that we’ve never really seen before are linked benefit products, which are a combination of life and long term care products,” explained Doug Mishkin, president and CEO of Algren Associates, Inc., “They are based more on wealth preservation and wealth transfer for the boomers as they are reaching their 60s, and combine into one product that fills the need in that age group for both long term care and life insurance.” There are a variety of product combinations available to address both needs, from a typical life policy with a long term care rider added on, to a single premium policy with a higher long term care amount than death benefit amount.

“Basically you can buy a regular Universal Life policy, paying it annually for numerous years and just have the ability to access that death benefit early for long term care, or you can buy a product that has limited underwriting, a single pay premium, and it gives you a much bigger bang for your buck for long term care,” Mishkin said, noting that his company is selling them as an alternative to self-insuring. “A client that has a significant amount of money sitting in a CD getting one percent interest can shift that money into one of these single pay, linked benefit products and they might get, depending on their age and their health, somewhere between five and seven times the premium amount in terms of long term care benefit.”

Long term care products have been around for a number of years, but have particularly gained steam in the last 18 to 24 months, according to Mishkin. Driving the popularity of these linked benefits products is a combination of external factors that make the market ripe for the BGA willing to add them to their product mix.

“As the baby boomers approach their 60s, that long term care need is much more important to them, so the market for long term care is much bigger as they’re looking for alternative ways other than just buying a traditional long term care policy to meet that need,” he said. “Also, because of the low interest rate environment in this economy, it’s much easier to show a client why they should shift their money from a CD into one of these products. If they were getting six percent in their CD it would probably be a lot more difficult to convince clients to do that.”

Helping High Risk Clients

In addition to the wealth of new products geared toward the needs of both younger consumers and boomers, one carrier in particular saw an unmet market in serving higher risk clients. Mutual of Omaha’s Fit Underwriting Credit Program does just that, and while it is not a new life product per se, the program aims to help brokerages and agents write more policies for customers who might otherwise be difficult to fit with traditional life coverage.

Through the Fit Program, Mutual of Omaha gives BGAs a simple questionnaire compiling six medical characteristics and five lifestyle characteristics. Then, based on the feedback the agent collects from the customer, the carrier awards credits that can improve mildly substandard underwriting cases, often resulting in lower premiums and better benefits.

“This program has been around for a couple of years and has gotten some great reception in the field,” said Bill Vigliotte, senior vice president of underwriting at Mutual of Omaha. “The thing that separates it from other programs in the industry is that we publish the criteria and give it to agents to complete a Fit Test at the time of the application, so they can pretty much know ahead of time what, if any, credits are going apply.”

Further distinguishing the program from other ‘table shaving’ programs that traditionally have been used by carriers to knock off a few rate classes on Universal Life products, thus lowering the premium, is the Fit Program’s application to both UL and term insurance.

“It’s a great way to take folks who are mildly substandard up to Table 4 and see if they have some characteristics that separate them from other Table 4s, so we can apply these credits to kind of offset some or all of the rating required by their impairment and get them to a better rate class,” said Vigliotte. “It takes away what a lot of BGAs will refer to as a Table 2 nuisance rating, which just gets in the way of placing the product. We can take many of those and get them down to standard so that it becomes a much easier product for them to place for their agents.”

Ultimately the goal of the Fit Program is to better serve customers while making the BGA’s field underwriting task a little less cumbersome.

“The brokerage general agency office that is doing good field underwriting and quoting cases accurately, already knows when they submit a case to a carrier that they have some medical impairments to address,” explained Mark Rush, vice president of Mutual of Omaha. “With that in mind, they can look at the parameters of this program and right at that time they can say, ‘I think this is going to fit into Mutual of Omaha’s Fit Program, therefore I can re-quote this now based on the premise that there’s nothing uncovered during the underwriting process contrary to what you see there.’ For that reason, it can improve placement ratio as we’re able to deliver back a better rating.”

Perspectives Magazine | Brokerage Industry Insights | September/October 2011 Issue

Paula L. Yoho is a freelance writer, editor, and public relations specialist with more than 15 years of experience writing for international trade association publications, newspapers, trade magazines, and professional journals.

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