While making predictions is always a questionable exercise, the road ahead for 2006 in the life insurance business may be surprisingly clear.
We can certainly expect the trends that we have seen taking shape over the past three or four years to continue. On everyone’s mind, of course, is how to sell more product. Both companies and advisors are asking the question — especially in the face of severe marketplace competition for consumer attention. Yet, the life insurance industry has some of the most beneficial solutions available today, particularly when it comes to meeting the financial challenges of retirement.
The following projections for 2006 may help you to devise a plan for your practice in the coming year.
1. The estate tax is not going away. As we all know, the IRS tax code makes 2010 the favored year to die. While this may seem somewhat ghoulish, it’s also true since that’s the only year in which unlimited exemptions will be allowed and, even better, there will be no federal estate tax. Then in 2011, we will revert to the previous system of a $1 million exemption and a maximum tax rate of 55 percent.
Even if the federal estate tax is permanently repealed, do not think for even a moment that the states will not step into the vacuum and enact legislation to enhance their own revenues. It’s safer to assume that there will be some type of estate tax well into the future. That may not be so bad, however, since — as some are pointing out — even if there is a minimal estate tax, we may also be faced with capital gains taxes on inherited assets dating back to when the deceased individual acquired them, rather than the date they get transferred to the beneficiary.
2. Web vs. face-to-face sales. Whether advisors like it or not, Web sales of term life products will grow, as Internet-savvy 20-somethings buy homes and start families. These are the consumers who trust the Web and are most comfortable with it. Because the price of housing is high, protection is essential.
But as every agent or advisor knows, what’s missing from Web sales is adequate fact-finding — making sure the customer purchases the right product for a specific need. Because Web purchases tend to be price-driven, questions can go unanswered, especially with an unfamiliar product like life insurance, where family history, for example, can make a difference.
Studies show that consumers are underinsured, and they welcome information from a competent advisor who can educate them about their realistic life insurance requirements. Nevertheless, as total Internet sales gain traction, there will be more life sales through this channel.
3. Long term care insurance will come into its own. Although consumers have been enthusiastic about LTCI, advisors generally struggle when selling this product to individuals. Often, those who need it the most can’t afford it due to either financial limitations or health reasons.
Sales growth in LTCI will come from businesses because the premiums are tax-deductible when paid by the company. To make it even more attractive, there are no discrimination requirements, so LTC insurance can be offered at the discretion of management. Advisors who are new to LTCI sales may find the process to be high maintenance and lengthy, but this hurdle can be overcome by partnering with an LTCI specialist.
4. Life product rates may increase. While some rates seem to be trending downward at present, it’s a good bet that prices on life products will be going up. Driven by continuing mergers and consolidations in the reinsurance market, there’s less competition. Additionally, we can expect some of the attractive guarantees to disappear. If you have clients who are in the decision-making process, be sure to let them know that waiting could mean they will pay higher premiums.
5. More consolidations. The creation of the Genworth family of companies and the acquisition of Travelers Life & Annuity by MetLife will have a profound impact on the life insurance landscape for years. But just as important is the acquisition of Jefferson Pilot by Lincoln National. More consolidations are surely on the way, and with them will come stepped-up performance demands on brokers.
6. Policy reviews. A major opportunity exists to serve clients by evaluating the performance of their life insurance policies. As we all know, many policies are in jeopardy because of what were, in retrospect, overly aggressive assumptions. This creates an enormous opportunity, and astute advisors should actively look for policyholders with troubled policies that need to be re-evaluated in order to meet the consumer’s needs and goals.
7. New products coming to market. While new products are always enticing, what they represent and what problems they address can be quite revealing. For example, we will undoubtedly see more survivorship policies for estate planning purposes as advisors and their clients bet that the estate tax will not go away. There is already increased interest in second-to-die policies. Look for return-of-premium policies that go to the next level with added loan features.
There will be more flexible UL products coming to the market that offer improved methods for cash accumulation, even though they may have the look and feel of existing policies. Finally, larger term policies ($250,000+ face value) will be available with simplified underwriting, and that means no medical work-ups.
8. Blurring of the distribution channels. Expect to see insurance companies using every possible distribution channel. Banks will be increasingly important distributors of insurance products, as well as other products. And more insurance companies will be getting into banking. You’ll also see Wal-Mart’s efforts to get into banking. Those watching the nascent moves by State Farm can catch a glimpse of the future. Keep your eye on mutual fund companies as well.
What all this means is that every provider of financial products will seek more ways to distribute their products to an increasingly fragmented population. Expect the channels to continue to evolve.
9. Opportunities for advisors. The youngest members of the workforce are starting to take responsibility for their personal financial security. They appear to be far more serious than the preceding generations were at that age. This trend runs through the nation’s adult population, which is embracing financial planning as a lifelong activity and not something that can be put off until a few years before retirement.
All this suggests that the advisor’s role has value in the marketplace for at least a segment of the population, and that means relationships matter. There will be greater opportunities, especially for those who take the term “advisor” seriously. Those advisors who make financial planning a priority have an opportunity to serve clients amid changing circumstances and needs.
These nine trends carry an important message for everyone in the life insurance business, regardless of whether they are advisors, brokerage firms, or insurance companies: It won’t get any easier. The many options for consumers are attractive, and the competition will be as intense as ever.
At the same time, our ability to interact with clients in both a professional and personal way remains a major asset. We have the experience to help people evaluate their options so they make the best possible decisions. In the year ahead, that’s worth remembering.
Kenneth A. Shapiro began his career with Northwestern Mutual Life and later worked for The Guardian Life Insurance Company. He is the president of First American Insurance Underwriters. First American Insurance Underwriters is a Needham, MA-based national life brokerage firm that represents top-rated insurance companies. Mr. Shapiro can be reached at 800-444-8715 or kshapiro@faiuonline.com.