All the sales peaks and valleys of recent years, all the hot products and features that have burst on the scene only to be eclipsed by the next big thing, are just subplots to the real storyline in the life insurance market, one that Deloitte neatly captures in three words in the subtitle of its 2014 Life Insurance and Annuity Industry Outlook: "Transforming for Growth."
These are words that advisors who are active in the life insurance market—and indeed, the entire life insurance industry, from carriers on down—would perhaps be wise to heed. For as Deloitte emphasizes in its industry outlook, "the time may have come to initiate more fundamental changes in their business models to generate sustainable growth over the long term."
Why the sense of urgency for an industry that has reported solid overall sales growth in three of the last four years? Because, as Kevin Sharps, a Deloitte principal who heads the firm's life insurance and annuity practice, asserts, "the life insurance market is challenged to grow. It has been challenged to grow out of a pretty consistent range for the past few decades."
Only by transforming their sales approaches, marketing strategies, business practices and product offerings will the life insurance industry — and by extension, individual advisors — find sustained growth in the life insurance segment.
Advisors who stay tuned to the storylines and subplots shaping today's life insurance landscape — check out the Q&A that follows for answers to eight burning questions that confront the industry and its participants — not only arm themselves with insight to maintain an edge in a highly competitive marketplace; they position themselves to be part of the industry's transformation, and the growth that it stands to deliver.
Q. Where does the life insurance market stand today, in terms of its growth prospects and the obstacles it must overcome to continue growing?
Sales trends support Sharps' contention about the life insurance market being range-bound. A three-year surge in individual life insurance new annualized premium came to an end in 2013, as sales flattened for the year due largely to an 8 percent decline in new annualized premium in the fourth quarter, according to the research organization LIMRA. Total individual life insurance policy count fell 3 percent for the year. The overall decline continued in the first quarter of 2014, as total individual life insurance new annualized premium fell 7 percent and policy count 4 percent.
The largest contributor to the drop in 2013 was a 7 percent decline in universal life (UL) new annualized premium. Still, UL held 38 percent of the total individual life insurance market, thanks to upticks in sales of indexed universal life, which ended last year up 13 percent.
Meanwhile, variable universal life sales jumped 24 percent for the year, though representing just 5 percent of new premium market share, according to LIMRA. Whole life sales were steady, with a 4 percent premium increase for the year, while term premium gained 3 percent.
It all points to a market that, according to Sharps, is "very mature" in terms of distribution and products, but one that is nonetheless struggling to find new ways to get its message to resonate more loudly with consumers "who have a need [for life insurance] but for whom life insurance hasn't evolved to the top of their list of priorities because it's competing against health care costs and other concerns."
Q. What's the life insurance industry doing to overcome these obstacles? In what ways are insurers and other stakeholders are working to generate sustained growth over the long-term?
Finding new avenues for growth and efficiency must be a group effort involving not only insurers, but distributors, producers and planners, contends Sharps. To that end, he sees progress being made on several fronts:
(1) In the use of big data— analytics, plus more localized, cost-effective, cloud-based CRM systems — to unearth new buyers. Partnerships between carriers and producers will be crucial to these efforts;
(2) In more efficient underwriting using technologies such as predictive analytics; and
(3) In the development of a coordinated, coherent consumer awareness and marketing campaign to elevate life insurance on the public's priority list and to find a foothold in the underserved middle market.
Q. What client issues and needs are driving the life insurance business for advisors, and what products are advisors relying upon most to answer those needs?
A desire for asset protection and preservation is the top life insurance sales driver "across the board, whether it's for someone in their 30s, 40s, 50s, 60s or older," observes Elaine B. Eisner, JD, cofounder of Eisner Gohn Group, an insurance-focused practice in Cleveland, Ohio.
Replacing income and transferring wealth are also key drivers to life insurance purchases, adds Karen Terry, assistant managing director at LIMRA.
On the legacy planning front, Eisner says custom-tailored whole life policies are especially appealing for their guarantees. UL also can be effective in this context, but only with a guaranteed level premium out to an advanced age (such as 110).
Combination products that afford policyholders access to funds for critical illness and/or long-termcare events are also gaining appeal as an asset-protection tool, Terry and Eisner note.
