4 things life insurance producers can expect in 2012
Plus, predictions about the coming-year prospects of 6 key product categories
Whoever said, “Many people look forward to the New Year for a new start on old habits,” may have got it right. While beginning a new year may be little more than a faint line in the sand, it can be useful for adjusting old business habits and assumptions in light of changing conditions and new opportunities.
While most future gazing is only slightly less successful than trying to understand teenage behavior, here are four significant signposts that deserve life insurance brokers’ attention in the year ahead.
1. More consumers will be paying attention to their future
As a recent Forbes’ report points out, “With the economy in the state of flux, consumers are being understandably conservative in using their credit cards.”
The Federal Reserve indicates that household liabilities, which rose to 135% of disposable income in 2007, have been sliding steadily and were at 119.3% most recently.
While this focus shift has retailers reeling, it may indicate that some consumers are thinking more about their future, rather than just about today. Instead of being preoccupied with spending, they are planning ahead. This is a good omen for life insurance producers because it creates an opportunity to gain prospects’ attention and to share with them strategies for making their future more financially secure.
2. Estate tax actions should be taken — and quickly.
As of Dec. 31, 2012, the $5 million per person estate, gift and generation skipping tax exemption ends and reverts to $1 million, with a 55% maximum tax rate as of Jan. 1, 2013. This means that time is of the essence. No one knows what the future holds, particularly at a time when the government has a seemingly insatiable appetite for revenue.
To give clients breathing room and greater flexibility, it may be appropriate, for example, to suggest survivorship policies. With low prices, this strategy will maintain clients’ insurability and give them time to weigh possible options.
3. Life products will be more effective in meeting expectations.
As carriers continue their focus on consumer needs, we can expect the evolution and innovation of life products to continue unabated in the coming year. Here are thoughts about six of these products:
• Term life: Look for a slight bump in term life sales, since some carriers are introducing term insurance on a UL platform. This allows insurance companies to put away lower reserves. Also, expect the rates to be fairly stable or even drop slightly in 2012.
• Guaranteed universal life: If there were ever a product with high consumer appeal, it was guaranteed UL. And why not? It gave clients the assurance they wanted, particularly as they reached retirement age. It was this way as late as 2010 and would still be today, if it were cost effective and readily available. But, as we all know, the story has changed. Even though the demand exists, some carriers are either exiting this market or pricing themselves out of it, and producers will be seeking alternative solutions for their clients.
• Whole life: It’s interesting to note that whole life sales showed 5% growth in the first quarter of 2011 and 10% in the second quarter, according to LIMRA, while term life sales continued their long decline. This upturn is certain to grab the attention of more carriers. Whatever the need, there is an appropriate solution, and this includes the use of permanent life insurance. It can be particularly valuable in providing supplemental retirement income and meeting estate and business planning needs.
• Current assumption UL: Today’s consumers want to control their destiny and with a choice of options. Current assumption UL plans offer a high degree of flexibility, including cash-value provisions. Because the cost is based on current interest and mortality rates, consumers benefit from greater product transparency. With current interest rates at an all-time low, these plans should perform well if rates increase in the future, which makes them even more attractive.
• Indexed UL: Needless to say, this product has attracted the attention of both producers and consumers. IUL has a strong appeal because it can serve as an income stream for retirement and college planning, as well as a permanent death benefit. With such flexibility, it’s easy to see why it is popular with consumers. At the same time, this is a product with a substantial number of moving parts, which make it more difficult to understand. This is why producers need to take the time to learn how to sell it before venturing into this growing market.
• Life/long-term care hybrids: While individual LTC policies have been on the market for about 20 years, sales have never taken off, mostly because of cost, policy provisions and a track record of failed products and repricing. Producers complain about the amount of time they spend with clients, only to have their efforts fail to produce sales as prospects change their minds. On the other hand, the so-called hybrid products seem to be overcoming consumer objections and worries. Although there are variations in policies, all send the message that a purchaser can have it both ways — permanent life insurance and long-term care protection. While no one policy can meet everyone’s needs, the hybrids are gaining traction as they offer a high comfort level and make LTC more affordable.
4. Expect more competition in the year ahead.
To quote the late comedian Jimmy Durante, “Everybody wants to get into the act!” That’s just the way it is with the marketing of life insurance products today. Along with life agents, the list of players includes banks, wirehouses, accountants, property & casualty agencies and online marketers, among others.
The message should be crystal clear: avoid complacency at all cost. Ignoring new products and strategies can prove dangerous. It isn’t just jumping on the product bandwagon. Producers must be competent in knowing what works and what doesn’t. Some products are flawed, while others may not be a good fit. A producer’s value rests in knowing the difference.
All this suggests that producer opportunities are enormous for the foreseeable future. And it isn’t just because the demographics are right. While it’s popular to talk about boomers, Millennials and other segments, such discussions may be overrated because they miss the point. Perhaps far more significant is the basic economic shift that has occurred. Though it began a couple of decades ago, it has been greatly exacerbated by the Great Recession. A growing segment of consumers now recognize an essential fact: they are responsible for their individual economic destiny.
They are looking for financial products that give them flexibility and the ability to decide how to tailor those products to their needs. This is a message that looms large throughout any discussion today, including this one. The life insurance industry has the tools to deliver what consumers want. However, it remains an open question as to whether we have the will and determination to meet the challenge.
By Kenneth A. Shapiro
From the Review & Outlook 2011 issue of Life Insurance Selling
Kenneth A. Shapiro is president of First American Insurance Underwriters, a national life insurance brokerage firm