Don’t Put All your Sales Eggs in One Annuity Product Basket. Diversify with Next-Generation Life Products.

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During the last year, I returned to the U.S. life insurance industry after working in Australia and Asia since early 2008. What I discovered upon my return was a vastly changed landscape that is continuing to rapidly evolve. In my conversations with many in the industry, the majority of independent distribution organizations and individual producers are seeing their annuity business revenues flat or decline, their costs increasing and the operating needs of their businesses becoming more and more complex.

These pressures have not been uniformly felt within the industry, but as 2012 progresses, the impact is being recognized by more and more business entities.

A struggling U.S. economy, global uncertainty, historically low levels of interest rates, new and proposed regulatory reforms, equity market volatility, and an aging producer base are all working their collective magic to reduce long-term consumer demand for fixed annuity products, the industry’s ability to serve customers, and the value annuity products and services provide.

The Need for Change in Producer Behaviours

The key question I have sought answered, as I have visited independent annuity marketing organizations, addressed producer meetings, and spoken with individual financial professionals over the past year is whether producers have changed their behaviours to address the new market realities. The answer has been a rather resounding “No!” In my travels, only a minority of producers have taken actions to change their businesses to address the world we work in today. Most do not believe major change is needed yet.

My message to these audiences has been massive, fundamental industry change is underway and producers need to urgently reconsider what products and services they offer in their businesses. Most have greeted me with a “let’s see” what develops attitude.

Major Detours Ahead

The annuity product, service, and carrier road we have been travelling over the past decade has major detours ahead. Further product changes, more significant commission reductions, expanded regulatory requirements, the likelihood of further carrier consolidation, and badly needed technology investments are just around the bend. Yet, when you speak with the majority of independent producers, they’re not making the necessary modifications to their business models to address these upcoming changes.

Overall, I believe that many independent producers are stuck in a comfort zone where they offer their customers a very limited set of services and products focused almost solely on fixed annuity products. While these products still have a lot to offer, in the new reality, this limited product set needs to be expanded to meet the changing environment. I believe the time has come to go back to the future and begin to sell the key benefits our industry’s life insurance products and services have to offer. I believe independent marketing organizations and their producers need to look to add life insurance products to their solution set for customers.

Significant Delays Being Experienced in Processing Annuity Business

As a result of mandated regulatory change, heightened market conduct scrutiny, and economic realities, it is now taking as long as or longer for many annuity products to be issued after submission to the carriers than the next generation of life insurance products. The major culprits for the annuity processing delays experienced in the market are state product training requirements, newly mandated suitability guidelines, lack of consistency in interpreting compliance requirements by carriers and basic errors in the completion of necessary paperwork.

If you look at the life insurance side of our industry, you will find that many carriers have re-engineered their processes to make the submission, underwriting, and issuance of life insurance products much easier and effective. It’s so effective in fact, the total elapsed times have been reduced substantially and substantially more policies are being issued. For many carriers, the elapsed times are substantially less than for many annuity products.

Consumer Benefits Need to be Re-emphasized in Selling

If we take a look at the benefits life insurance offers, we can clearly see reasonable rates of return, tax deferred accumulation, tax-free death benefits, legacy building for future generations and the new hybrid benefits. The new hybrid benefits the industry because life insurance products now offer chronic care, long-term care, critical illness, and a variety of accelerated death benefit riders that make these products more and more attractive. Overall, the benefits offered are rich and plentiful to meet individual consumer needs.

The Next Generation Life Insurance Product Set

From a consumer standpoint, the ownership of individual life insurance policies has hit 50-year lows per LIMRA. As a result, consumer need for life protection is at its highest level in decades.

Independent marketing organizations and their producers should assess the broadening product landscape of next generation life insurance products, including single premium life, indexed universal life, final expense coverage, mainstay quality term insurance, and the growing segment of hybrid policies that have introduced to the market. If an organization has not considered life insurance products in the recent past, they may be pleasantly surprised with the quality, content, and simplified underwriting processes of many of today’s products.

My Advice

From everything I have seen in my travels this past year, significant industry change is happening and independent distribution organizations and their producers need to embrace the new environment and the opportunities it brings. The time to diversify their product offerings is now. Next generation life insurance products should be added to the product set offered to customers to meet their evolving needs. Making this change will better meet consumer needs and strengthen producer businesses so that they can withstand the operating and financial pressures from the detours ahead.

 

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