Buckle Up For A Fast Product Ride In 2008

On the other hand, Gallo says, this has spurred industry efforts to make the products easier to understand. For instance, she says 2 LTCs now use 80/20 co-pays–a simplification because the 80/20 concept is commonplace in health insurance. Meanwhile, states that have adopted LTC Partnerships are also working on allowing reciprocity with other Partnership states, easing concerns of owners who move from state to state.

Other regulatory actions have served to set new product standards. For instance, 10 state insurance departments have now adopted the so-called "10-10 friendly policy" for fixed index annuities, says Moore. This says an FIA should have 10-year surrender charge, starting at 10% in year one and declining to zero after year 10.

"It's a guideline, not a rule, that resulted from perceive market abuses," she says. Still, it is catching on. Some carriers are making all their FIAs fit 10-10, she says, and "this is affecting competitiveness on rebates, caps, service and/or commissions to the marketing organization. Furthermore, broker-dealers have started using 10-10 as a screen for the FIAs they allow on their approved products list." And, because of the interstate compact, she predicts other states will pick up 10-10 in 2008.

Technology continues paving the way for product developments and opportunities. For instance, to make inroads to the underserved mid-market, ING decided to apply various technologies that would increase efficiencies and therefore make it cost-effective to serve that market, says Dan Mulheran, president of ING Life Distribution, Minneapolis. Examples are web-based data entry, and outsourcing of backroom work and fulfillment. ING also brought out new products in 2007–return of premium term and IUL–and in the process "reengineered our factory" for both the level term and ROP term products.

With computers and systems so sophisticated today, life carriers need to use them to differentiate products, and to be able to respond to consumer needs, says Gary Dworkin, a brokerage general agent in Rochester, N.H., and the chair-elect of National Association of Independent Life Brokerage Agencies.

This will be happening with UL, he says. For instance, the agent can design no-lapse guarantees for any period of time the client wants and needs, Dworkin says, not just for 10 years or 25 years. Also, agents can apply cash accumulation riders to no-lapse minimum cash value ULs, so these ULs will function more like cash accumulator ULs, he says. Such "UL crossovers" will make the product more appealing, he maintains.

Expansion of guarantee periods is also showing up in term life policies, Dworkin says. It's not restricted anymore to 10- or 25-year level term, he says. Now, "advisors can offer term for 10, 11, 12, or 13 years, or whatever period the customer needs."

This is good for serving the mid-market, he contends, noting that many such customers have a specific need–and budget. The agent can adjust the term to 17 or 25 years, or whatever will fulfill the goal with the available dollars, he says.

Product combination is a parallel trend. Today's ever-more-sophisticated systems are enabling carriers to combine products and features in new ways. Most often cited are the nascent offerings of LTC features with annuities and life policies.

But other types of combinations are occurring, too. For instance, more voluntary insurance is being handled on group platforms even though voluntaries are payroll deduction plans, says Gil Lowerre, president of Eastbridge Consulting Group, Inc., Avon, Conn. But individual worksite plans, also payroll deduction, have become less distinct, to the point that his firm refers to both worksite and traditional voluntary cases as "voluntary."

Meanwhile, many true group insurance carriers now also offer voluntary products, Lowerre says, and almost all employee benefit brokers sell both voluntary and core insurance products.

On the disability side of the house, brokers are starting to design coverage in a way that fits the individual DI protection around a client's group LTD, says Petersen. That's not new, but now it's more prominent, he says.

In annuities, advisors are increasingly using SPIAs to pay for 10-year LTC plans, says Olsen.

In LTC insurance, "we're seeing LTC policies bring in features of other products," says Gallo. For instance, one LTC has a death benefit (like life insurance) and another has a return of premium if death occurs before a certain age (like ROP term).

Innovation is in the air for 2008, as well. In life insurance, the adoption of the 2001 Commissioners Standard Ordinary mortality table (by 2009) will "override everything," predicts Dworkin. Permanent life carriers will need to review, re-price and re-file their products, he says, "so it will be an intensely active period, and innovation will result."

For the same reason, 2008 will also see a fire sale of products using the 1980 CSO, predicts ING's Mulheran.

As for niche markets, Mulheran sees more efforts to bring life insurance not only to the mid-market but also to multi-cultural and foreign national markets. "Companies are working hard to shape product delivery and approaches to meet these needs."

In the voluntary market, enrollment systems will increasingly offer employees personal advice (face-to-face or call center) on the numerous benefit options their employers now offer, says Lowerre. A couple of carriers have started doing this, and employers like it, he says.

In FIAs, carriers are starting to offer not only guaranteed withdrawal benefits, says Moore, but also bonuses on these benefits (not on the account value).

Roame sees some "collision" of investment products occurring. One involves sale of rights to appreciation on one's house. Another involves use of "account annuities" which guarantee a payout on one's brokerage account until death, at which time the estate could sell the underlying asset.

In view of the above trends, product complexity is bound to be a continuing issue throughout 2008. For that reason, say experts, the industry must make education and training a top priority.