Coming Back To Life
Life insurance writers are fighting back from severe sales declines in late 2008 and all of 2009.
The financial crisis that struck the United States in September 2008 brought about the worst year in individual life insurance sales since 1942, according to marketing and research firm Limra. New annualized premium declined 26% in the first quarter of last year and 21% in the second. The sales declines slowed in the second half of the year, but resulted in a 16% decline for all of 2009.
And that was on top of a 14% decline in the fourth quarter of 2008, which fueled a 7% decline for all of that year. Whole life was the only product to record sales gains in both years.
A huge part of the sales decline occurred in variable life products, according to the 2010 A.M. Best Special Report U.S. Life/Annuity Review & Preview. A.M. Best noted that variable life's new business market share has deteriorated into the single digits after having peaked in 2000 at 36%--in effect going from the most popular product to the least popular in fewer than nine years.
Now life insurers are taking steps to revive sales, often through product development or marketing strategies. Below are accounts from several insurers about how they are attacking the problem.
Axa Equitable: Buttressing Variable Life
In April, Axa Equitable launched what it calls a Market Stabilizer Option on its variable universal life insurance product. The option is designed to provide up to an annualized 25% buffer against falling market values in exchange for a cap on a rate of return tied to the S&P 500 Price Return index. The cap is declared monthly for a 12-month period to work in conjunction with the MSO. "By reducing, or in some cases eliminating losses, it offers policyholders the stability needed to remain invested, even during periods of volatility," said Andrew McMahon, president of the company's Financial Protection and Wealth Management business. "The MSO delivers on lessons learned from the financial crisis and now gives consumers the option to use VUL as a tool to respond to a broader range of scenarios: inflation, low interest rates, rising taxes, job insecurity and equity volatility."
The product innovation aims to shore up a battered part of the life industry. According to Limra, variable universal life sales as measured by premiums fell 49% last year after falling 17% in 2008. Axa Equitable has historically been a big player in variable products.
McMahon said that buying term and investing the rest was the dominant strategy for life insurance buyers in the days of the bull market, but that "in the wake of the Great Panic and Great Recession of 2008-2009, anyone who took that path probably regrets it." Now, Americans face the task of simultaneously rushing to rebuild assets while avoiding future losses, he said. The company has several more life products in the pipeline that it will introduce in coming months to help protect against the unexpected, McMahon said.
Hartford Life: New Products, New Distribution
The Hartford Life Group experienced a 30% downturn last year, according to Brian Murphy, executive vice president in the Individual Life Division.
Hartford's main business model has been to help others sell insurance through its assisted sales network, and financial institutions have been "the cornerstone of our business," Murphy said. "As there was a lot of consolidation and upheaval in wirehouses and banks and the like, it specifically impacted us a little more than others," he said, adding that those institutions accounted for about three-quarters of overall sales.
But even before the recession hit, Hartford had begun to move into the broader independent insurance-producing organizations, most of which do their business through brokerage general agencies, said Murphy. The company is leveraging 18 sales offices around the country with more than 200 life insurance professionals who are Hartford employees. They had been working with banks, wirehouses and independent broker-dealers such as Morgan Stanley, Merrill Lynch, Smith Barney, Edward Jones and Wells Fargo.
Now they are also engaged with the general agencies, either to assist insurance professionals on a case-by-case basis or to form core relationships through the company's new Monarch program. The Monarch relationships are not exclusive, but rather put Hartford in a position to compete with other insurers for BGA business, Murphy said.
The Monarch program, launched Feb. 1, had already signed more than 300 insurance professionals by early May. Murphy said that since life insurance sales in BGA distribution is likely to be a "zero-sum game" for several years, Hartford will need to dislodge other companies from their relationships with producers. "We believe that this Monarch program and the assets that we bring to it will help us to fuel that," he said.
On the product side, Hartford has added a chronic illness rider that accelerates the death benefit if insureds lose the ability to perform two activities of daily living and their doctors verify that they have a chronic illness. It pays expenses beyond what LTC insurance normally would, Murphy said.
Phoenix Companies: Expansion into Middle Market
Lou DiGiacomo, back from the annual meeting of the Association for Advanced Life Underwriting in May, reported there were a lot of good sales ideas and energy. "Producers were optimistic about their businesses and sensed a revival around permanent life sales," said DiGiacomo, a principal at Saybrus Partners, a distribution company wholly owned by the Phoenix Companies that uses an assisted sales model.
In May, Phoenix introduced Simplicity Index Life, which offers flexible premiums, a streamlined application and underwriting process and choices for building cash value, which can be accessed through tax-free withdrawals or policy loans. DiGiacomo said the product, which is a simplified version of an index life product Phoenix introduced nearly two years ago, is part of a new effort to serve the middle-income market, which the company and Saybrus reach through independent marketing organizations. Phoenix has previously focused on the affluent markets, where it still sells through select brokerage general agencies, but DiGiacomo said rating changes prompted the company to expand into the middle market.
Phoenix was downgraded twice since the onset of the financial crisis, from an A.M. Best Financial Strength Rating of A (Excellent) to B+ (Good). According to the A.M. Best Credit Report on the group, "Phoenix had historically maintained a strong brand name in the high-net worth and affluent markets, and its reputation as a manufacturer of life and annuity products for these markets was well-regarded. However, the recent credit issues have forced the company to move down market and away from its strengths."
Saybrus Partners is part of its new distribution model to replace previous sales relationships with State Farm and National Life, the report said.
In the first quarter of 2010, Phoenix reported net income of $13.7 million, its first profit since 2008. Annualized life insurance premium was $900,000. Simplicity Index Life is more affordable and easier to underwrite, apply for and sell than VUL, DiGiacomo said.
Prudential Financial: Ability to Raise Prices
Unlike the industry's, Prudential Financial's overall life sales had risen in 2008 and 2009, primarily due to term and universal life, though variable sales declined significantly. Mark Hug, chief marketing officer for individual life insurance, said the positive results were due to a flight to quality, a push to sell more through the brokerage channel, and some products that ranked in the top quartile of competitiveness. However, the company raised prices in 2009 on both no-lapse UL and term, which slowed sales momentum and led to sales declines in 2010. Hug said higher costs of financing and capital created the need to raise prices.
"We thought the competition would follow to some extent," said Hug of higher prices. "Some of them did, but a lot of them did not."
Prudential's annualized life premiums in the first quarter of 2010 were $68 million, down from $83 million in the first quarter of 2009.
To reboot sales, Hug said Prudential plans to take advantage of its underwriting speed and its large-case ability. It will also push accumulation products, including its variable line. Last August, subsidiary Pruco Life Insurance Co. introduced VUL Protector, which guarantees the death benefit will not lapse regardless of how the underlying investments perform. It offers 13 asset-allocation investment options, including a money market and a fixed-rate option.
A Prudential analysis found that the variable life market share did not grow during the strong market from 2003 to 2008, which is why Prudential developed the VUL Protector guarantee. "It's doing pretty well among our agents, but on the brokerage side, we have trouble getting traction with any variable contracts," he said. "We are also looking at agency-like distributors who like variable life. For example, we just forged an agreement with Farm Bureau to sell our product exclusively. Farm Bureau doesn't want to build its own variable life contract, but they want to sell one. We believe innovations like that can go a long way to selling variable contracts in a broker's world."
Prudential has an active strategy to make its brokerage partners successful. Hug described brokers as large general agents around the country, such as Crump, Branco and Life Mark. "You'll be seeing more of this," he said.
Lincoln Financial: The Appeal of the Combo Product
The companies of the Lincoln Financial Group experienced sales declines in line with the industry, but its MoneyGuard UL/LTC combo product experienced 30% growth last year, according to Mike Burns, head of life product management. Life premium last year across all insurance lines was about $610 million.
Lincoln's core products are UL, VUL and term. Burns said the company maintained its market share in UL and increased its share in the other two lines. The gain in market share occurred despite a hike in prices in term products and UL with secondary guarantees to help "meet the challenges of the marketplace," he said.
MoneyGuard, which Lincoln has offered for nearly two decades, is single-premium universal life insurance with a long-term-care rider, so that if long-term care is never needed, the insured's beneficiaries still receive the death benefit. If LTC is needed, tax-free proceeds are available from the death benefit. The product also has a cash value, so that policyholders can choose to get some or all of their money back before accessing benefits. "It's a product that resonates with the marketplace and aligns well with the demographics...of boomers thinking seriously about their retirement security," Burns said. The product is popular not just with traditional insurance producers, but also with independent financial advisers, he said.
Lincoln will continue to focus on its core highnet worth protection markets, estate planning and wealth transfer, Burns said. It uses brokerage, banks, wirehouses, retail and personal producing general agents. The company has no plans to establish any new sales outlets, but will try to grow market share in the channels it has, he said.
In this year's first quarter, Lincoln's total life sales are down about 2%. "We're coming out of this," Burns said. "I'm optimistic we'll continue to see increased activity and momentum as the year progresses."
Burns said he has hope for VUL sales. "It may be premature to say it's dead, but I don't know if it's ever going to reach its old level of prominence without some significant changes," he said.
Learn More:
Axa Equitable Life Insurance Co.
A.M. Best Company # 06341
Distribution: Career agents, broker/dealers, banks, financial planners
Hartford Financial Services Group
A.M. Best Company # 18217
Distribution: Independent agents, wirehouses, brokers/dealers,
broker general agencies
Phoenix Life and Annuity Company
A.M. Best Company # 009072
Distribution: Independent agencies, wirehouses, regional brokers/dealers, financial institutions
Prudential Insurance Company of America
A.M. Best Company # 06974
Distribution: Career agents, general agents, brokers/dealers, banks, direct
Lincoln National Life Insurance Co.
A.M. Best Company # 06664
Distribution: Brokers, banks, wirehouses, retail, and personal producing general agents
For ratings and other financial strength information visit www.ambest.com.
By Ron Panko, senior associate editor, Best's Review: Ronald.Panko@ambest.com
