Trend Or Fad?

If it's a fad, advisors may look for buy-up, exchange and conversion options to facilitate upgrades later on. They may want to position it with clients as a "short-term fix." Or they may want to ignore it, despite strong incentives, because it's not a match for the firm's goals and objectives.

If it's a trend, advisors will likely want to obtain and assess the growth and performance history, competitiveness, and flexibility capabilities. They may decide to position it as part of the long-term solution. And they may decide to spend time, effort and money to bone up on the trend.

Corporate officers need to know the differences, too, so they can make informed decisions about where and how to allocate budgets pertaining to the developments.

So, how does one decide whether it's a trend or a fad? Here are a few measures:

Sales volume. If it's a trend, look for sales that grow gradually over several years. (An example would be the sales trajectory of variable annuities and, later, fixed index annuities.) But fad products draw sales too–typically spectacular sales in the early days–so examine the sales path carefully.

Number of carriers. A widely held rule of thumb is a product needs to be offered by about 40 insurance carriers to make for a viable, trend-building market. The reasoning is that more carriers mean more activity, competition, buzz and expansion. A fad, by comparison, may have few carriers and no new carrier entries over several years. But these distinctions are not carved in stone–e.g., for a high-end product (like group variable universal life when it was new), carrier count is less important than carrier depth and strength.

National distribution. This helps signal an insurance trend, whereas fads may be more localized. But given the industry's state-by-state product approval process, those delineations are fuzzy. As a result, many trend-hunters look to see if New York's tough-minded regulators have approved the product; if so, that could signal a trend. Alternatively, since the Interstate Insurance Product Regulation Compact now has 30 member states, pass-through here may be the signal they need.

Performance. When it's a trend, several years of sales and other performance statistics will be available. When it's a fad, such stats are skimpy–other than glowing reports of phenomenal sales. A new bonus feature might be more fad than trend, for instance (though some bonus products do morph into trends).

Final thought: Both trends and fads have their place. Responding to fads can help with customer acquisition. Responding to trends can help build staying power. But ignoring which is which can make for misdirected sales and marketing decisions, and perhaps some unhappy customers.