Consumers need our industry, expertise and products more than ever before
This year provided little relief from the headwinds our industry faced in 2010. We continue to grapple with sustained low interest rates — the 10-year Treasury recently hit a record low in September 2011 when it fell below 1.75%, a level not seen since 1953.
Equity markets continue to be volatile, as evidenced by the peak-to-trough over the past 52 weeks when the Dow was as high as 12,876 in May and as low as 10,362 in October, a full 25% swing. Increased regulatory pressure is exerting its own strain. And the U.S. economy remains weak, leading to record levels of high unemployment.
As an industry, we face the reality of operating in an ongoing challenging environment, which is stretching out farther than we hoped. But despite the headwinds, I remain quite confident as the new year approaches that our industry will successfully navigate through this storm. I was bullish entering 2011, and I remain bullish today on our collective opportunity in the marketplace. I see great potential for both carriers and the valued advisors with whom we partner to create a better tomorrow for consumers who so desperately need our counsel and solutions.
Several key indicators support a positive outlook:
The life industry has strengthened its balance sheet over the last few years. Capital levels are much higher today than in 2008 when the crisis hit. ACLI reports that at year-end 2010, the average risk-based capital ratio of life insurance companies was 450%.
The industry has significantly de-risked its balance sheet — from both the investment/asset side of the balance sheet as well as the product/liability side — variable annuities and living benefits are probably the best examples of product de-risking. In terms of investments, certain asset classes, like residential mortgage-backed securities and commercial mortgage-backed securities, were written down during the difficult periods of 2008 and 2009 (and, therefore, asset values and resulting surplus are not overstated). In essence our industry is stronger today and better able to withstand the challenges we face.
Also, rating agencies are signaling improvements for the life/health industry. Earlier this year, AM Best reported that “after an alarming two-year period ended in 2009 — where the life/health industry experienced almost five times as many downgrades as upgrades — 2010 saw more balance in overall rating changes.” AM Best attributed this improvement to the fact that carriers continue to focus on strengthening their balance sheets and liquidity profiles.
I’m also bullish about our future because I believe that what we do is more critical than ever. Our industry’s opportunity and responsibility to bridge the coverage gap for our fellow Americans has never been more important. LIMRA’s 2010 research highlighting the large number of American families and individuals without adequate or any life insurance coverage poses a strong call to action to provide solutions, along with education and guidance, to our clients and prospects. Life insurance ownership is at an all-time low, with 35 million underinsured households — the opportunity for our industry has doubled since 2004. Half of those households, 17 million, indicate they might be ready to buy life insurance in the next year.
In the wake of the recession, consumers have shifted their priorities, concerns and objectives. As the first members of the baby boomer generation began turning 65 this past January, many are working longer, have suffered losses in their investment portfolios and home values, have adult children returning home and have parents needing care.
In fact, some “retirees” find themselves headed back to the workforce. More than ever, Americans need help to achieve their protection, savings and retirement income needs. As an increasing number recognize that they can’t do it themselves and that they need professional guidance, those of us fortunate enough to be in the financial services industry have an unprecedented opportunity to help them overcome some of these obstacles and develop a sound plan to reach their retirement goals.
The importance of advisors was well supported by the SunAmerica Retirement Re-Set Study (www.retirementreset.com), which Life Insurance Selling featured in July. We learned that more adults 55 and older today have used professional financial advisors to assist with retirement planning than 10 years ago (49% vs. 40%). Those who have used financial advisors are 72% more likely to feel very financially prepared for retirement. In addition, consumers who worked with an advisor said they were able to weather the 2008 financial storm with more confidence and security.
The economic downturn showed us that markets can change rapidly and unpredictably, and one of the macro trends we’re seeing as a result is the desire for guarantees. The Retirement Re-Set Study showed that people are now six times more likely to say their top financial goal is “saving enough to have financial peace of mind” (82%) vs. “accumulating as much wealth as possible” (13%).
Consumers are more interested than ever before in products that provide guarantees and protect them, their families and the assets that they’ve earned. They do not have the tolerance for above-average risks and significant volatility within their financial plans and strategies. Life insurance products like universal life meet their goals and objectives quite well — whether it is a guaranteed universal life strategy or an indexed universal life offering that allows consumers the opportunity to capture some of the upside of the equity markets while minimizing today’s equity market volatility.
Education, not jargon
Great products aren’t enough, as we must back up product innovation with education. To that end, savvy carriers conduct ongoing webinars for agents and sales people on their products and the benefits. It’s important for carriers to be in constant communication with distribution partners and provide a vast library of materials online, in plain English. The best sales illustrations include a wealth of information to help people understand the product features and also include specific disclosures, with compliance in mind, that help ensure the moving parts are understood (e.g., through a flat interest rates scenario vs. an increased interest rate scenario). Consumers want education, not industry jargon. We need to do our part to help them understand what they are buying.
Target the middle market
I believe there is particular opportunity within the middle market, which remains underserved and underinsured. According to LIMRA, although the middle market comprises 46% of all households, it represents 58% of the “protection gap,” which LIMRA calculated in 2010 to be the 35 million U.S. households that have no life insurance whatsoever.
Our industry needs to focus on helping middle-market consumers get the insurance they both want and need by making the purchase of life insurance easier and providing immediate coverage. We need to continue driving innovation in underwriting, particularly with respect to simplifying the underwriting process.
Recruit & train
But the question remains: who will seize the opportunity to serve these fellow Americans into the future? According to recent survey research by LIMRA, industry leaders believe the sales force will continue to shrink. As an industry, we should be compelled to bring in new talent and provide rigorous training so that they can quickly contribute to our profession.
At American General, we’ve leveraged our online tool, called “I’ve Got a Client,” which was originally designed to help our distribution partners easily match consumers’ ever-changing needs with the life, annuity, and accident & health product solutions their clients require. It has now become an invaluable tool for our distribution partners when it comes to new agent recruitment, training and development.
As we enter 2012, we expect to see more and more companies leveraging technology to serve our customers, and this includes supplying quotes via smartphones or tablets, and even offering full illustrations digitally. Ultimately we’ll see the ability to submit cases through a smartphone or tablet. In the interim, carriers will increasingly invest in technology to make it easier and more efficient for distribution partners to get their work done.
For example, at American General we are launching “quick ticket” functionality before the end of this year, where producers will simply fill out a web-based form on their client in just a few short steps and we’ll handle the rest — conducting the interview, completing the health information, scheduling exams and the necessary administrative work. The mission is to help these valued distribution partners spend more time doing what they do best — educating and serving their clients while growing their business.
By Mary Jane Fortin, M.B.A.
From the Review & Outlook 2011 issue of Life Insurance Selling
Mary Jane Fortin, M.B.A., is president and CEO of American General Life Companies, which is the marketing name for a group of affiliated domestic life insurers.