VUL Persistency Opportunities: Is The Industry In Denial?
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New clients are buying complicated variable universal life insurance contracts in ever-increasing numbers.
For instance, preliminary industry reports from LIMRA International, Windsor, Conn., tell us that 34% of all 2000 premiums paid for new life insurance products were directed to VUL. This is up from 6% in 1990.
By comparison, annualized new premium market share for other products in 2000 was as follows: traditional whole life, 24% (down from 54% in 1990); term life, 22% (up from 13% in 1990); and universal life, 17% (down from 26% in 1990). (See chart.)
These figures clearly demonstrate the enormous popularity VUL has gained in the past decade. However, as VUL policies age, many may suffer from persistency problems, unless carriers make major changes to address this problem.
Here is why VUL is at risk: these complex VUL contracts are designed to stay in force to age 100 and beyond. To meet that objective, they need regular attention and, like an automobile, adequate fuel (read, premium reserves).
When a proud car buyer is handed the keys to a luxury automobile, he or she also receives a maintenance manual and a service schedule. But, in most cases today, the VUL buyer receives few post-sale service options. I am talking about information systems that will help the client and agent manage such benefits as surrender to basis and loans for supplemental retirement income. A lapse could trigger phantom income.
There are a number of things that could be done to improve the post-sales situation, and thereby reduce the risk of lapse. For instance:
Compensate the producer for post-sales service work. Right now, the commission structure for a life agent is front-end loaded. Servicing old policyholders pays little or no compensation. Modification of the VUL commission schedule should include a trail for assets under management. This would benefit the client, the agent and the carrier over the long term.
