|
From Resource, June 2007
Copyright by LOMA
Opportunities
for the Industry
The recent Life Insurance
Conference and the Retirement Industry Conference explored key issues facing our
industry today. The wave of baby boomers nearing retirement presents big
opportunities, said speakers at both conferences.
By Ron Clark
Our industry has a good future
due to opportunities presented by demographic changes and the looming retirement
of the massive baby boom generation, according to speakers at the recent Life
Insurance Conference and the Retirement Industry Conference, held back to back
in
Atlanta. The Life Conference was
jointly sponsored by LOMA, LIMRA, the ACLI and the SOA. The Retirement
Industry Conference was sponsored by LOMA, LIMRA and SOA.
Opening
the Life Insurance Conference, Mark Thresher, president and COO of Nationwide
Financial Services, discussed the lifelong need for guaranteed income. He quoted
management guru Peter Ducker, who said “The fear of dying too soon made life
insurance the largest financial service of the 19th century. But providing
financial protection against the new risk of not dying soon enough may well
become the 21st century’s leading financial industry.”
Some
in our industry ask if we should focus on life insurance or on annuitization and
income needs. The answer, Thresher said, is both. Income protection is a
lifelong need. “Americans need to
prepare for both risks—dying too young or living too long.”
Thresher
said our industry is “positioned for real growth opportunities as we start
serving the need of protecting people as they outlive their income.” Our
industry can offer guarantees as it provides this, he emphasized, “which many
of our financial service competitors cannot do as well.”
However, he added that the industry needs to educate its advisors and
consumers “that protection and lifetime income needs are really a lifelong
need, and not something you think about as you near retirement.”
There
are perils on both ends of the spectrum, Thresher said. He presented statistics
that show the chances of a 30-year-old man dying by age 50 are 54.5 out of 1000.
On the other hand, the chances of a 30-year-old man living to age 80 are much
more likely—448.7 out of 1000. For
a 30-year-old woman, the chances she will die by age 50 are 31.2 out of 1000 but
the chances she will live to age 80 are 599 out of 1000.
Thresher
referred to gaps in the education of consumers, especially in the middle market.
There is recognition by the middle market that they need insurance, but for many
reasons they are not being sold insurance. Thresher said mass customized
solutions, supported by low-cost distribution, are required to profitably serve
this market. He suggested these methods:
*Technology-based
platform solutions
*Mass
produced, multi-component prepackaged solutions
*Direct
vs. investment professional based distribution
*Workplace
distribution for lifetime income solutions
*Scale
advantages through simpler products and transparent pricing.
How real is the need for
lifetime income? Thresher said a recent study done by The Boston College Center
for Retirement Research found that 43 percent of American households are at risk
of being unable to maintain their pre-retirement income.
Actually if you take away some optimistic assumptions such as using a
reverse mortgage, “over 60 percent are not prepared.”
“We
continue to be committed to education and helping advisers and consumers
understand what their protection needs are first of all, and also their income
needs… I’m very optimistic about life insurance being able to help people
with the risks we’ve talked about here.”
Distribution
Jessica Bibliowicz, chairman
and CEO of National Financial Partners, discussed
distribution. The industry has faced challenges from the reduction in
career agents and retirement of skilled producers, but organizations such as NFP
have taken on some of the
distribution load, she said. There has been “enormous growth” of independent
distribution over the past 10 years, as many insurers separate manufacturing and
distribution, she said. Bibliowicz discussed the growth of her firm, which was
founded in 1999 and went public in 2003. Today, NFP has more than $1 billion in
revenue, and is composed of over 175 owned firms and 320 member firms. They deal
in three strong business lines: wealth transfer and insurance; corporate and
executive benefits; and financial planning/investment services.
There
are a lot of opportunities for such firms, she said, due to compelling
demographics. There is a large transfer of wealth, baby boomers are retiring,
and there is a growth in high net-worth individuals and entrepreneurial
businesses.
W.
Weldon Wheeler, COO of North American life and health for Swiss Re, discussed
reinsurance. Cession rates are
falling, he said. However the industry is changing—there is a new focus on
other lines of business such as retirement, longevity, annuities and even
long-term care. Reinsurers used to run from long-term care, but now they are
looking for solutions that make sense, he said.
Wheeler said he sees globalization of the life insurance industry
continuing, because it reduces geographical volatility.
Middle
Market
Life insurers should strive to
reach the middle income market, according to Tim Hill of Milliman.
Hill said although 68 percent of
U.S.
adults have some life insurance, 33 percent have only group insurance through
work. He discussed one study which found only 64 percent of the prime needs
segment has some life insurance. He estimated that 21 million middle income
households need what our industry is selling.
Hill said the challenges of
selling to the middle income market on the consumer side include
confusion over the type of policy to buy, the view that it is not a
financial priority or is too costly, and uncertainty over the amount of
coverage.
On the
distribution side, the traditional agent model offers too low a commission and
insurers may find the cost of distribution and underwriting too high, he said.
Products that may be good for
the middle market include term insurance, which had a five percent sales
increase in 2006, Hill said. Rates have been generally level. Regarding whole
life, there is still a significant amount of non-par whole life sold, and it is
potentially well suited for the middle market where some savings is desired, he
said. Return of premium term is
growing, and may be approaching 10 percent of the term market. It may appeal to
the middle market, and it has a simple sales story—the consumer sees “I get
all this life insurance and then I get my money back.”
Alternative
distribution for the middle market can be accomplished through employer
sponsored health fairs or physical and financial health fairs, which could
include taking a blood sample, Hill said. Tax preparation firms could also help
with distribution, as they have financial information on clients and could
create an estimated insurance need.
Retirement
Security
As traditional pension plans
fade and Social Security faces problems, our industry can play a major role in
providing retirement security for Americans, according to speakers at the
Retirement Industry Conference.
Opening
the conference were Corey Sherman and Fred Munzenmaier, managing partners of
Strategic Planning Associates, who discussed changes in the pension system and
the Social Security issue. In their
view, the insurance industry can play an important and critical role in
retirement planning.
Sherman
discussed the rise and decline of defined benefit plans, and said in facing the
future, the traditional three-legged stool of retirement
income—Social Security, pension plans and private savings—is shakier
than ever.
Munzenmaier
discussed Social Security, and warned the longer we wait to fix the problems,
the more difficult it will be to fix them. He suggested that the solution is to
invest Social Security funds in real investments. With an eight percent return,
which is a historical capital market return, the Social
Security fund could be $8 trillion by
2040, he said. If the investments returned another half percent, the fund could
be $10 trillion.
He
said his firm’s clients earn even more on investments over longer periods of
time. If Social Security did the same, it might even enable the system to reduce
taxes or increase benefits, he suggested.
To fix
the private pension system, Munzenmaier recommends that government stop solving
non-existent problems “in the name of political correctness.” He urged
elimination of “maximum man-made complexity” of regulation. Other
suggestions include scrapping outmoded actuarial models, fixing issues with the
PBGC, helping facilitate employee contributions, and eliminating lump sum
benefit options.
Corey
Sherman, managing partner of Strategic Planning Associates, discussed how the
insurance industry can play a role in providing retirement solutions. He
discussed the growth of defined contribution plans, which have many advantages.
They accumulate funds, and are great for those who change jobs often.
However,
DC plans do not provide income for life. People heading to retirement
want assurances, and insurers seem best positioned to provide that, with
portfolios of fixed and variable
annuities,
Sherman
said. “You’re the ones who can take these defined contribution balances and
turn them back into what pensions were designed to do in the first
place—provide income for life,”
Sherman
said.
Boomer
Marketing
With the impending retirement
of the massive baby boom generation, many financial services companies want to
know how to market to them. Matt Thornhill, director of the Boomer Project, told
how this can be done. For years,
marketers have focused on the 18-49 age demographic. But with a baby boomer
turning 50 every seven seconds, it’s time marketers recalibrated. “One out
of every three adults over 21 in the
U.S.
is a baby boomer,” he said.
Boomers
have had a huge impact on every industry they have touched through their life,
he said. They will have a huge impact on financial services and health care,
among others, as they age.
It’s important to understand
that boomers see themselves as younger than they are (14 or 15 years younger
than they are) and they feel they
have a lot of good, active years left.
Boomers at age 60 think they
are in the middle of middle age. “If your marketing message treats the boomer
at 60 as old, you’re missing the boat.”
Marketers
must understand and focus on life stage, not ages. Today, you have boomers with
interests all over the map; they could be parents, grandparents or empty
nesters. They could be
starting a new career or planning their retirement.
Companies need to understand life stage marketing, which “is already
catching on for financial services.”
Several
speakers discussed annuitization as a financial solution for consumers facing
retirement. Insurers can convert
defined contribution assets or other assets into income for life through
annuitization and this will offer a longer payout than systematic withdrawals,
according to an actuarial analysis presented at the conference.
2008
Conferences
The 2008 Life Insurance
Conference will take place April 7–9
at
Caesars
Palace
in
Las Vegas
,
Nevada
. The 2008 Retirement Industry Conference will take place April 9–11 at the
same location. Program information
will be available on the LOMA website, www.loma.org, in late fall 2007.
|
