The next frontier for sales growth isn't annuities but life insurance.
That was the conclusion reached by life insurance chief executives on a panel at an insurance industry conference hosted by Standard and Poor's this morning in New York.
“A five- or six-year [fixed] annuity at 1 to 1.5% is favorable versus a certificate of deposit or a money market, but we've reached the tipping point where the value proposition isn't there,” said Jay Wintrob, president and chief executive of SunAmerica Financial Group. “That's a market that's in the doldrums.”
The insurer, a unit of American International Group Inc., is a major manufacturer of fixed annuities, particularly under its Western National Life Insurance Co. subsidiary.
On the variable annuity side, meanwhile, insurers have been fleeing the space. “In the market overall, you now have less appetite from the carriers than you have demand from the distribution,” said Michael A. Wells, president and CEO of Jackson National Life Insurance Co.
Indeed, he said he predicted four years ago that the VA field would winnow away until there were a half dozen players left. “Nobody wants 100% of their book with one company, and no broker-dealer wants 100% of its sales in three companies,” Mr. Wells said. “In order to have orderly competition, we need more firms succeeding.”
Executives pointed to life insurance as a potential area of growth for them, namely in the untapped middle market.
“There are massive opportunities in the U.S., largely in bread-and-butter products,” said panelist Roger Crandall, chief executive of MassMutual Financial Group. “People understand that they need life insurance, and they're stunned at how inexpensive the products are. Term is inexpensive.”
Mr. Wintrob agreed, noting that his company has tackled the life insurance problem by directing its agents to focus on Main Street business owners and middle-income Americans — those with $35,000 to $100,000 in family income plus $50,000 to $100,000 in investible assets.
“The U.S. is underinsured, and that segment is even more underinsured,” he added.
The key to success via life insurance sales lies in how carriers position the product with these customers. Middle-market clients have heard about long-term-care insurance and disability, so they might be interested in a life insurance policy with an accelerated-death-benefit rider that allows them to tap some of that money under certain health circumstances.
“It's life insurance you don't have to die to use,” Mr. Wintrob said. “It's a story with a lot of meaning for that market; it has lots of rapid growth and we'll be expanding it to our independent distribution over the next several years.”
Mr. Crandall added that tapping the life insurance opportunity in the middle class will mean training advisers and agents to understand that perspective.
“From what we've found, there is no substitute from investment in your distribution: teaching people how to talk about the products,” he said. “More calls leads to more leads, which leads to more applications and more sales.”