You Can Get a Decent Rate of Growth If…

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Will Annuity Agents Branch Out to Sell Single Premium Whole Life?

It is no mystery what most clients want from the financial experts in their life. They want those experts to recommend places where their money can grow over time without taking undue risk.

What is interesting is how the product choices and the client conversations have changed over time within the insurance and annuity industry as a result of the declining interest rate environment. Declining interest rates have led to product innovations, which have caused agents to branch out of their comfort zone and sell something new.

Back in the early 1990s, agents sold fixed annuities because that is what was available and because the interest rates were attractive. A typical fixed annuity would have an interest rate of 8% or higher. Oh, how times have changed. Per the graph on this page, see how the 10-year Treasury note interest rate has fallen steadily over the last two decades, from about 8% to now less than 2%.

Each step along the way down has caused insurance companies to add an “if” to the statement “I can get you a decent rate of growth,” and agents have responded by offering new and different products to their clients.

10-Year Treasury Note Rate

To view a larger version, click on the image.

WHERE WE HAVE BEEN

If the market does well
In the mid-1990s, as the 10-year Treasury note interest rate lowered to around 6%, the industry invented the fixed indexed annuity. At the time, a fixed indexed annuity could provide for potential double-digit interest credits if the associated market index (typically the S&P 500) increased substantially.

Thus, the conversation between agents and clients became, “I can get you an attractive rate of growth if the market does well.” Fixed indexed annuities have been popular ever since, even as their cap and participation rates have been dropping, but they first became popular in a higher interest rate environment than today.

If you take the money over time
In the mid-2000s, as the 10-year Treasury note interest rate lowered to around 4%, the industry added income riders, also known as guaranteed lifetime withdrawal benefits, to fixed indexed annuities. Income riders provided for rollup rates during the deferral period that could be 8% or higher, along with attractive payout rates.

Thus, the conversation became, “I can get you an attractive rate of growth if you take the money over time, as a guaranteed stream of payments over your lifetime.” Income riders have been popular ever since, even as their rollup and payout rates have been dropping, but again, they first became popular in a higher interest rate environment than today.

If you need long term care
Since the late 2000s, as the 10-year Treasury note interest rate lowered to around 3%, sales of annuities and life insurance products that provide a substantial long term care benefit have started booming. LIMRA reports that 2011 was the third consecutive year of double-digit sales growth for these products.1

Thus, the conversation has become, “I can get you an attractive rate of growth if you end up needing long term care.” These products will probably continue to be popular, even as carriers have recently been cutting back on the benefit rates as interest rates have continued to decline.

WHERE WE MIGHT BE GOING

If you leave the money to your loved ones
Now, as the 10-year Treasury note interest rate has lowered to less than 2%, what will be the next hot product sales trend? Robert Burskey, CEO of Annuix, believes it will be single premium whole life. He believes that the conversation will become, “I can get you an attractive rate of growth if you leave the money to your loved ones.”

He might be right. The Wall Street Journal recently ran an article talking about how a growing number of financial advisors are pointing to “death puts” as a solution for older investors.2

While most annuity agents do not tend to sell much life insurance, the industry’s history of devising new solutions to the declining interest rate environment suggests that agents will learn, especially since today’s single premium whole life policies are often designed with the annuity agent in mind.

Today’s annuity-agent-friendly single premium whole life

A key factor in the single premium whole life sale, of course, is the death benefit. Mr. Burskey says, “I ask my clients what they intend to do with their money, and there’s usually some money that most likely will go to their kids. So I ask, ‘Would you like to provide for a considerably higher amount of money to go to your kids, and have it go to them completely free of income taxes?’ This usually piques their interest.”

If you ask annuity agents why they don’t sell life insurance, the answer is usually the underwriting, thus some carriers have worked hard to make the underwriting as quick and easy as possible. According to Mr. Burskey, he works with a carrier that uses technology to provide an underwriting decision within five minutes of submission. There is no medical examination and no phone call between the client and an underwriter.

Agents can fill out the application on-line with the client and have an underwriting decision within five minutes. This allows the agent to easily transition to another sales concept if the client is ineligible for life insurance. The carrier accomplishes this speedy turnaround by having an on-line application process and automated data feeds from the Medical Information Bureau, a prescription database, and other sources.

Another attractive benefit of some single premium whole life policies is their cash values. Some provide cash values that are very competitive with annuities, and some even provide a guaranteed return of the full premium paid at any time. “Knowing that they can get their money back at any time takes away a lot of client concerns and makes single premium whole life as easy, if not easier to sell than an annuity,” says Mr. Burskey.

A consistent need, changing client conversations
The end result is that what your clients expect tends to remain the same. They want to put their money in a place where it will grow over time without taking undue risk.

What has changed is the answer. The answer used to be, “I can get you an attractive rate of interest (in a fixed annuity) regardless of what happens.”

Lowering interest rates have added an “if” to the equation, and the expanding availability of products that deliver growth on the if’s has allowed insurance agents to deliver value to their clients, regardless of the level of interest rates.

It is entirely possible that the latest trend, as a result of the lowest interest rates in history, may be for agents to sell more single premium whole life.

1 http://www.limra.com/newscenter/newsarchive/archivedetails.aspx?prid=244

2 http://www.smartmoney.com/retirement/planning/yieldhungry-retirees-turn-to-death-puts-1335897275431/?mg=com-sm


Chris Conklin is Genworth’s Senior Vice President of Product Development, where he is leading the design and pricing of all new product development in the company’s life insurance, annuity, and long-term care product lines. Chris is a Fellow of the Society of Actuaries and holds a Master of Business Administration degree from Loyola University Maryland. He is also a licensed insurance agent and has sold insurance products. Chris is a licensed insurance agent, but he is also a Fellow of the Society of Actuaries and holds a Master of Business Administration degree. With over 20 years of industry experience in both carriers and marketing organizations, he was formerly Vice President of Product Development for a large multi-line insurance carrier. Chris has been widely published in many industry publications.

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