Printer Friendly

The 2010 industry outlook: experts speak out on the future of your business.


The market outlook for fixed annuities (FAs) will continue to be very strong throughout 2010. The year 2009 has seen a strong sales performance in all fixed annuity products: book value, market value, indexed, and income. The first three quarters of 2009 showed book value and market value-adjusted FAs were growing 50 percent over 2008, while indexed product sales grew 20 percent over 2008.

Income annuities will begin to increase as new product designs add important features such as return of premium and long term care. NAFA spoke at a recent symposium for income annuities, and there is a growing interest outside the independent distribution and banking channels to learn more about utilizing guaranteed income products for customers concerned with outliving their income or not having enough time to recover from another market drop. It seems that other channels are just now discovering what independent producers have known all along.

Despite the uncertainty created by the SEC's Rule I5IA, consumers recognize the benefits of indexed annuities as a result of producers' efforts to educate and inform interested clients. NAFA sees that energy continuing throughout 20I0. Additionally, suitability and disclosure enhancements will continue to evolve as states, the NAIC, and individual carriers incorporate new standards. Research continues to show that the overwhelming majority of fixed annuities are purchased by middleclass Americans--and eight out of 10 have annual income of less than $100,000. Given the uncertain economic outlook, more people will continue to look for safety and protection from market fluctuation and uncertainty--and only one product meets those goals while also providing guaranteed income, minimum interest, and liquidity features for emergencies: the fixed annuity


After several years of watching riders evolve, with many becoming more complicated, the industry is making a return to simplicity--benefiting the consumer through simplified terms that help deliver a maximum benefit to the investor Simplicity helps agents regain the trust and confidence of clients which, over time, may lead to increased sales.

Many of the Insured Retirement Institute's members have already begun to enhance their suite of optional benefits, with several carriers introducing new living benefit riders. For example, in many cases, when clients elect an optional benefit rider they may only invest in selected or certain allocation choices. With some products, clients can customize their own asset allocation mix, within limits, using the different options. This kind of customization is gaining traction, and will likely continue to evolve.

Product development is also expanding. In specific, one carrier's new product represents a complete departure in design and cost. By removing some of the complexities and simplifying the product, they have the opportunity to expand the reach of variable annuity distribution to many of those who have been previously hesitant to include an annuity as part of their retirement portfolio. And, through that simplicity and, ultimately, trust, products such as this help give annuities a good name again.

In today's environment, and with the many notable evolutions taking place within the industry, the value of a guarantee has never been greater. With the dramatic declines in the financial markets, the value of insured investment strategies has never been more apparent, helping investors achieve a financially secure retirement.



I recently spoke with a financial planner about the fiduciary responsibility of educating clients about the risks and consequences of disability and the fundamental importance of planning for a potentially income-limiting disability. For nearly every American worker, income is the most valuable asset--the engine that makes all other financial security possible--so overlooking disability protection can be a potentially devastating financial blunder After all, about one in three American workers will miss work for three months or longer during their careers because of an illness or injury--roughly one in seven for at least five years. The planner asked, "But what if my client has a health problem and cannot qualify for coverage?" I replied, "Now is the time to educate clients about disability, and waiting will only increase the likelihood that they will suffer an unprotected loss of income or have difficulty later on qualifying for coverage."

During the recent economic roller coaster; the importance of security and financial protection, which are a direct result of a person's ability to earn an income, has dramatically increased for most Americans. I expect that trend to continue. Skyrocketing foreclosures and personal bankruptcies are in the news; more than half are caused by disabilities. After helplessly watching their savings, their jobs, and even their own businesses evaporate, people are trying to figure out how to recover while protecting themselves from future financial calamities.

Business stressors, some driven by health care costs, are causing benefits decisions and costs to be shifted to individuals. This will continue in 2010. With responsibility for important benefit decisions and more financial skin in the game, individuals increasingly require credible, objective information about the risks they face so they can decide what protection they need. They seek council from a variety of sources: the Internet, friends, coworkers, family members, insurers, and advisors, as well as Twitter Facebook, LinkedIn, and the like.

One positive development is increased participation in wellness programs, and preventive behaviors are likely to continue to increase, spurred by education efforts, the health care debate, and workers realizing they can improve their health, protect their incomes, and reduce their costs by choosing a healthier lifestyle. Disability planning is increasingly the foundation for any sound financial plan.


There have been a lot of product changes and healthy competition by all remaining DI carriers, of which there are roughly I5 or so.

So far, they have increased issue and participation amounts and reconfigured certain options, such as the cost of living adjustment option (by offering a COLA that doesn't kick in until four years have passed, like an elimination period), different choices of the own-occupation definition of total disability, choices between having a pure own-occupation definition versus having coverage for a mental nervous disability that can be for the full benefit period (not in all states), longer benefit periods, coverage for catastrophic disabilities, and the like.

Now is a good opportunity to visit with your client and review current coverage--but be careful when doing so, since they may lose their incontestability protection and be faced with new health issues that may have exclusions.



While it is premature to speculate on how exactly health insurance reform will affect agents who sell individual medical (IM) insurance, I am certain that 20I0 will be a year of change and opportunity. The continuing decline in employment-based health insurance--which, according to the most-recent data, provides health plans to less than 60 percent of the population--will bring more buyers into the IM market. Government subsidies also could significantly increase the number of qualified purchasers. For many, affordability will continue to be challenging.

With the health insurance marketplace in a state of flux, agents who can quickly adapt will be in the best position to succeed. They should be able to offer their customers a wide range of products to accommodate changes in their financial status or other life-changing events. As new markets emerge and others begin to dissipate, agents will need to rethink where and how to target the demographic segments with the best growth potential. To be flexible and aggressive, they should take advantage of technological tools and information resources that can help them manage and grow their businesses.

No matter what happens with reform initiatives or the economy, the key to selling health insurance never changes--agents who take the time to understand their clients' needs and build and nurture strong personal relationships will always do extremely well.


Major health care reform is very likely in 20I0, and we are extremely busy working with Democrats and Republicans on making sure health care reform efforts are done the right way. We will be working with legislators on advocating against the need for a public plan option, an employer mandate, and an ineffective individual mandate.

Beginning in 2008, during the presidential elections, we were all promised that there would be meaningful health care reform enacted to reduce the cost of care, increase access to care, promote healthier lifestyles, and insure more Americans by making coverage more affordable. As the months have gone by, the discussion has changed from "health care reform" to "health insurance reform," and in my opinion, most of the reforms do nothing to address the key issues of reducing costs and making coverage more affordable.

Comprehensive solutions should focus on wellness and prevention, reducing cost-shifting both from the uninsured and the government, and helping those who need help the most. We need to build on the strengths of the current system as we work to guarantee access to coverage for all Americans.



The past year has been a difficult time for our industry. According to Fitch ratings, the top 25 companies lost $63 billion of capital. The ratio of capital required for every new dollar of premium generated is approximately 4.5 to one, or $4.50 of capital for every $1 of new premium. This loss has put a tremendous financial strain on the companies.

The result of this will be re-pricing of products, or perhaps the elimination or lowering of some product guarantees. Even with these changes, LIMRA predicts that in 2010 we will see a I0 percent growth rate in the sale of life products, especially those products that focus on guarantees and conservative investments.

Those agents and advisors who have been proactive in working with their clients through these troubling times have had a successful year, and will continue to do so. It will be important for agents to reach out to their clients in 20I0 to provide guidance through these financially troubling times.


The financial crisis of 2008 and '09 exposed previously unimagined vulnerabilities, greatly increasing the public's awareness of financial risk and the need to mitigate it. Job insecurity has led many Americans to rethink their reliance on employer-sponsored benefits, such as 40I(k)s and group term life insurance, to protect their retirement and their families. As Americans climb back from layoffs and investment losses, they will seek new ways to invest with some measure of insurance protection.

With assets down, risk-averse clients are at the same time concerned about the potential drag of rising inflation, taxes, and medical expenses. Our industry presents them with a way to diversify a portfolio with products that protect families but also offer growth potential, such as cash value universal life insurance and variable life insurance with long-term lapse protection.

Although the markets may seem calmer now, the industry needs to appreciate that clients won't be returning to business as usual in 20I0. The crisis has ushered in a new era of frugality that is expected to last for some time. Americans are saving again, and mainstream media ink is flowing with advice on thriftiness. Home values are still low, and debt reduction remains a priority. Savvy advisors will find opportunities to help clients in this environment. Products that offer forced savings elements, such as permanent life insurance, will appeal to many. Policy amounts may be smaller, but the need for protection has never been greater.

We are also entering a new decade of proof. Promises must be backed by proof that the company behind the guarantee is financially strong and stable. Newly vigilant consumers are reading ratings reports, prospectuses, and policy fine print. Financial advisors and agents should have their facts ready. Well-capitalized companies that demonstrate financial strength and sound risk management will continue to be at an advantage.

Promises of high-quality service also need to be proven daily. Customers increasingly differentiate companies on service. Those companies that can make life insurance easier to buy through streamlined underwriting will lead the way.



At least three solid indicators promise a positive forecast for life settlements in 20I0:

* Liquidity: In this still-challenging economy, consumers continue to seek liquidity solutions; the secondary market for life insurance can provide that through life and viatical settlements. At a time when businesses and individuals are more interested than ever in leveraging assets they already have, they are learning that life insurance is not the illiquid asset they previously imagined. Among other things, life settlements are conducted without regard to policyholder credit ratings, which adds appeal for some financially hamstrung clients.

* Consumer education: Consumers today have more knowledge than ever of life settlements, given an unprecedented amount of media attention surrounding the settlement industry in 2009. Agents can more easily discuss the secondary market for life insurance with clients thanks to more than a year of intense media attention surrounding life settlements. Although some of this attention was positive (the 20th anniversary of the mainstream settlement industry) and some of it was negative (concerns that Wall Street may be too quick to embrace securitization of settlements) the take-away message for agents is that their clients know more than ever before about this option.

* Balancing supply and demand: Even with more policies in the market than the secondary market for life settlements can currently absorb (a temporary liquidity setback as experienced by all the world's markets), consumers still receive four to six times the policy's cash value in most settlements. Individuals age 65 and over have a total of approximately $500 billion of life insurance in force, and one-quarter of that--perhaps $125 billion in face value--is ripe for life settlements. As of now, there are not enough funds in the market to absorb that demand; even so, Wall Street, international funds, and other institutional investor forces will continue to bring money into the secondary market for life insurance, and this will fuel a robust industry in 20I0 and beyond.

All told, life settlements continue to be a very appropriate option for qualified clients who need them.


The capital markets are showing signs of stabilization, but the effect of the recent financial crisis continues to have a restrictive effect on the availability of capital in the settlement marketplace. Purchasers learned that even assets that are not directly correlated with the financial markets can be affected by sharp economic downturns. As a result, financial institutions are focusing more on returns that are not directly tied to the traditional stock bond, and real estate markets, and yet still have high credit quality These are key characteristics of life settlements.

While we have experienced increased activity and capital funding for certain types of policies in the fourth quarter of 2009, we believe that the first quarter of 2010 will bring additional upticks to the market and rising interest in securitization of this asset class. Higher life expectancies and less variability in life expectancy underwriting guidelines--both of which occurred in late 2008--have fostered greater confidence by allowing buyers to account for longevity risk more uniformly in asset evaluations. No additional major life expectancy underwriting changes are expected in the immediate future.

More regulatory attention is now being paid to the life settlement industry, and this will likely continue in the year to come. Many states have enacted regulations based upon two key industry model acts. We believe that many of these regulations are fair and balanced and regulate settlements while preserving consumer rights. A handful of states, however have passed regulations that significantly curtail the consumers' right to access this marketplace. It is widely expected that states will continue to enact fair and balanced regulations. In addition, the federal government began a series of hearings and research efforts to help them better understand the life settlement industry particularly in regard to the securities aspects and the impact of securitization of settlements on the financial system. We expect this trend will also continue into 20I0.



The LTCI industry has been bruised and bloodied in the last year, following several years of stagnant or negative growth. To reverse those double-digit sales declines, let's look at some of the unique opportunities ahead in 20I0. Agents who bring themselves up to speed on the Pension Protection Act (effective Jan. I, 2010) will be rewarded, because a Section I035 exchange is always an easier sale than asking a client to write a check against current income. Get up to speed with linked benefit products (a long term care benefit attached to either an annuity or a life insurance policy); these are poised to take off.

In light of Congress' concern about rate increases, and the perennial resurfacing of a C.L.A.S.S.-type program, it's clear that agents must align themselves with a GA or BGA who will feed them relevant information and provide sales ideas, materials, and support as the selling environment changes. LTCI agents are in a unique position to partner with other agents and advisors who do not want to complete the increasingly burdensome training requirements now required in many states to sell LTCI. Some carriers will allow commission splits with agents not partnership or LTCI certified, making marketing to referral sources easier and smarter than ever.

Lastly, as issue ages drop and employers grapple with caregiving issues, health insurance agents/benefit brokers are increasingly being asked about LTCI. Agents who understand and are visible in this world will do well.


Optimism is a wonderful sentiment. "Yes, we can," was a powerful enough motto to win the presidential campaign--but not enough to effect major and immediate change on the American landscape.

Long term care insurance faces much the same dilemma. On the surface, the industry and its producers have every reason to be optimistic that significant sales growth is imminent, as LTCI becomes the best option left standing in the face of underfunded government programs. But, optimism must be tempered with economic reality.

In 20I0, we may begin to see some pockets of significant opportunity for those focused enough to capitalize on them. Specifically I see several opportunities. The change in tax law affecting linked LTCI products (annuities) will garner some media attention. Also watch for the entry of larger annuity companies that don't market traditional LTCI.

I also suspect we will see a growth in the number of LTCI specialists. Brokers who find it too cumbersome to learn the ins and outs of long term care products and health underwriting will find it increasingly advantageous to partner up rather than lose sales to the growing presence of the Internet.

The wild card is the Long Term Care Partnership, which remains the single greatest opportunity for producers to expand their sales to middle-income Americans. While more states are likely to offer partnership LTCI policies in 20I0, the marketing needed to achieve the desired market penetration is still nebulous. Until consumers fully understand the benefits of partnership LTCI, it's unlikely sales will grow significantly as a result.

We will continue to focus on addressing consumer misperceptions that LTCI is expensive. Those who focus on a message of affordability will likely be successful in capitalizing on the new economic realities shaping purchasing patterns.

COPYRIGHT 2010 Summit Business Media
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2010 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Agent's Sales Journal
Article Type:Industry overview
Date:Jan 1, 2010
Previous Article:The changing face of your advocates: industry associations are in place to lobby on your behalf, support the industry, and give you the resources you...
Next Article:Web site resources.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters |