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What's New in
Cybertalk?
by Jean Gora
February 2001
Note: CyberTalk is a column that
appears monthly in LOMA's Resource, the magazine for insurance and financial
services management. To see more contents of the magazine and to see how to
subscribe, click on RESOURCE MAGAZINE.
The Money Suite Company Moves
VUL Online
Attempting to defy current wisdom that complex
life insurance products cannot be sold successfully online, the Money Suite
Company has created a variable universal life insurance product for sale via the
Web. And not only that—it has also created a Web site through which the
product can be sold, plus it offers back-end fulfillment, customer service, and
reinsurance (the latter available through a reinsurance partner).
The Money Suite Company offers this turnkey
service, marketed under the name realTIME>life™, to partner insurance
companies and banks, which can customize the product according to their own
pricing and ROE requirements. Partner organizations obtain the insurance
licenses for the product and offer it through a co-branded version of the
realTIME>life™ Web site. The Money Suite Company, based in Missoula, MT,
operates through a licensed insurance agency and registered NASD broker-dealer.
An Important Departure
The Money Suite Company’s approach to the Internet represents an important
departure from the approaches taken by some other Internet insurance players.
This departure is the greatest in the areas of product design and pricing and
reinsurance. To some degree, it also exists in the area of underwriting:
Product design and pricing. The
Money Suite Company offers a Web interface and shopping capability that is
similar in some respects to what InsWeb and other third-party Internet insurance
malls supply. However, it also offers the entire product design (apart from
specific pricing). In other words, it creates the product features that can be
priced (and the systems infrastructure to support them); the partner selects the
prices for those features. Mall providers such as InsWeb tend not to involve
themselves in product design. Instead, they provide vehicles through which
partners can distribute products of their own design. The Money Suite Company
relied on advice from Milliman & Robertson to establish the product design
for realTIME>life™.
Reinsurance. Most third-party
Internet insurance mall providers do not incorporate a reinsurance facility into
their service offering. If an insurer that distributes policies through their
malls wants to cede the risk associated with those policies to a reinsurer, it
selects the reinsurer; the Internet insurance mall provider does not. The
involvement of a reinsurer in realTIME>life™ allows the Money Suite’s
bank or insurance partners to distribute the UL product without retaining any
risk at all. This feature may be particularly appealing to banks that want to
establish licensed insurance company affiliates on paper but do not want to run
their insurance businesses themselves.
Underwriting. Underwriting for
realTIME>life™ is partially automated and directly tied into back-end
fulfillment. This practice overcomes the problem encountered by some Internet
insurance mall providers, who found that they could generate prospects for their
partner insurance companies, but the partners would then fail to pursue the
prospects aggressively. By managing the underwriting process itself and by
employing its own staff of registered representatives, the Money Suite can
retain more direct control over the issuance process and make it more efficient.
In cases where the licensed insurer cedes all of
the risk associated with realTIME>life™ policies to the reinsurer, the
reinsurer in effect makes the underwriting decision. Thus, even if the
underwriting on all realTIME>life™ policies is not fully automated, it is
centralized, which boosts efficiency. Insurance mall providers such as InsWeb
appear to be trying to automate and centralize the underwriting process as much
as they can. The challenge for automated underwriting, of course, remains the
need for medical exams of prospects for high-face-amount policies. Medical exams
take time, and time costs sales. The Money Suite plans to offer up to $200,000
in coverage to certain individuals without any medical tests.
Making Alliances
The Money Suite Company believes that 116,000 realTIME>life™ policies
can be sold per year. To sell that number of policies, the Money Suite’s
partners would have to sell to .5 percent of the 23,253,000 U.S. online
shoppers. These sales would equal 1 percent of the total number of individual
life policies sold in 1998.
No information is available on how Money Suite
Company prices its services to its bank and insurance partners. In all
probability, the more partners it signs up, the more revenue it can generate.
Thus, the more partners the Money Suite signs up, the less UL revenue each of
them is likely to be able to generate. To sign up a lot of partners, it will
have to offer them very attractive terms. Can it afford to offer attractive
terms? Possibly. Standardization of product design, automated underwriting, and
pre-packaged reinsurance may allow it to do so. The Money Suite’s operation
resembles that of a franchise operation. Just as all McDonald’s restaurants
offer Big Macs, all of the Money Suite’s partners effectively offer the same
UL policies. Standardization of policies across partners creates a block of
policies that can be underwritten and reinsured efficiently.
Building a Mall?
At present, there is no public realTIME>life™ Internet site; hence,
there is no realTIME>life™ Internet mall. The Money Suite is currently
pursuing alliances with portals. This activity suggests that it plans at some
point to establish a realTIME>life™ mall. Malls exist to facilitate
shopping for goods and services offered by multiple providers. A realTIME>life™
mall would presumably offer UL products of all of the Money Suite’s partners.
Such an arrangement would have both advantages and disadvantages for potential
partners. On the one hand, it would enable them to generate more traffic and,
therefore, more potential buyers. On the other hand, it would place them in
direct competition with one another. One does not find four McDonald’s
restaurants offering big Macs at the same intersection. Franchising works best
when each franchisee has its own territory, and the territories do not overlap.
If banks become the Money Suite’s main
partners, they may not need the kind of visibility that an alliance with a
portal gives a site. The reason? They may already have a large group of home
banking customers, and they may view these customers as the best prospects for
realTIME>life™ products. These banks can provide direct links from their
home banking operations to the co-branded realTIME>life™ sites.
How realTIME>life™ Works
Here is some more information regarding realTIME>life™ from the Money
Suite Company’s promotional material.
The realTIME>life™ product is structured to
enable customers to build their own policies online, tailoring their coverage to
fit their needs. Thus, they can buy death benefit coverage only or death benefit
plus capital accumulation. As they age, they can change the policy according to
their needs. They can change investments, borrow or withdraw funds, and change
coverage. To encourage purchases by people who do not want to think about their
impending mortality, the Money Suite Company offers compelling content with
direct links to needs analysis software, and from the needs analysis software to
the quotation engine.
The realTIME>life™ service includes needs
analysis software that identifies the amount of coverage or cash value
accumulation needed in a given year and then finds the right policy and premium
amount to fund this goal. The service center supporting the product uses
customer relationship management tools to provide customers with access to
registered representatives as needed.
The software behind the Money Suite service
includes a patented universal life insurance product comparison engine. The Ryan
Evalulife Systems, Inc. applied for the patent in 1994 and received it in 1997.
The Money Suite Company’s president, Ronald Ryan, was one of the two inventors
of the patented engine. At least nine other patents issued to other
organizations (including the Chubb Corporation) refer to the Evalulife patent.
Because of the low costs associated with the
product, the Money Suite claims that a 40-year-old preferred male nonsmoker can
generate more than enough accumulated value on a $250,000 policy with a $3,000
annual premium to break even by the 5th policy year. By the 30th
policy year, it should have generated more than $340,000 in accumulated value.
Insurers that distribute VUL products through traditional channels will have
difficulty matching these returns.
Extensive Life Insurance Experience
Executives with extensive life insurance experience play key roles in the
Money Suite Company. Richard L, Painchaud, senior vice president and chief
marketing officer, was previously Metlife’s vice president for interactive
commerce. R. Wayne Steen, the Money Suite’s director of customer service, was
previously director of member relations at USAA Life. Kirk Oborn, its director
of product development, was BMA’s director of product marketing. Ronald Ryan,
the president, was a co-founder of Evergreen Benefits, an affinity marketing
company.
The Money Suite is clearly still in the early
phases of marketing realTIME>life™. It has not yet announced any insurance
or bank distribution partners.
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