Carriers bet on life insurance in place of annuities

With low interest rates and volatile equity markets slowing annuity sales, insurance companies think that life insurance will be their next hot revenue generator.

And they expect financial advisers to help carry out their plans.

“The huge consumer need [for life insurance] matches up with the growth part of distribution as we see it, which is in the financial planning, banking and stock brokerage side,” said John B. Deremo, chief distribution officer at American General Life Cos., a unit of SunAmerica Financial Group.

Insurers are hoping that advisers will use hybrid life insurance products that have long-term-care or income riders, and that they will emphasize insurance in estate planning — highlighting the possibility of higher estate taxes — when talking to more affluent investors. Insurance companies also are expanding their online efforts, hoping that younger and less affluent potential customers will buy term life and other policies directly.

On the adviser-sold side, Prudential Financial Inc. said that it is targeting wirehouse and independent representatives as distribution channels for life insurance, while MetLife Inc., at its investor conference last month, indicated that it views retail life insurance as an area with attractive return-on-equity potential.

But whether advisers will buy into this upbeat life insurance outlook is another matter.

Many brokers, though licensed to sell insurance, simply don't see themselves as life insurance agents. Others, accustomed to quick sales of securities, are turned off by the glacial pace of issuing a life insurance policy, which can take months as a result of the required medical exams.

“Companies have been trying to sell life insurance in a major way through reps for many years, and while there's been some success, it hasn't lived up to the hype. There isn't that immediate gratification that comes from selling a stock and getting a commission two days later,” said Steven Schwartz, a life insurance stock analyst with Raymond James & Associates Inc.

Life insurance sales have climbed in tiny increments, with estimated annualized premiums reaching $3.05 billion in the first quarter, compared with $2.96 million a year earlier, according to data from LIMRA.

Brokerage agents sold 38% of the survey's annualized premium sales in the first quarter, LIMRA said.

Insurers have been largely dissatisfied with the overall insurance sales numbers, with executives citing other data from LIMRA suggesting that more than half of American households are underinsured.

Insurers see the coverage shortfalls as an opportunity, especially in the hard-to-sell middle market. But they also see a bottom-line benefit to pushing life insurance, especially in today's economic climate.

“The capital necessary to back guarantees on variable annuities in this environment is very high, and it makes sense to pivot to other kinds of policies,” Mr. Schwartz said. “Whole life and term are high-ROE businesses.”

Further, actuarial tables and life expectancy data make it easy to predict when policies will pay out, while variable annuities add an element of policyholder behavior risk.

To refocus on a more profitable product, Massachusetts Mutual Life Insurance Co. has created a rider that it believes will attract investor interest. In May, for example, MassMutual introduced its LTCAccess rider, which lets the customer use death benefit dollars for long-term care.

“Being able to accelerate some of the death benefit during life to help pay for long-term care, combined with policy guarantees for cash value growth and the eligibility to earn dividends, are driving sales,” said Tara M. Reynolds, a corporate vice president at MassMutual. She pointed to 30- to 40-year-olds as the potential market for the policy and highlighted the attractiveness of dividends, cash value accumulation and the accelerated death benefit.

Meanwhile, SunAmerica will expand distribution of its life product, which also has an accelerated death benefit to cover critical illnesses. Other carriers have tried to meet income needs through life insurance. National Life Insurance Co., for instance, offers a lifetime-income-benefit rider on its indexed universal-life policy. This feature lets clients take their cash value as income. Once a policyholder reaches a minimum threshold, he or she will maintain a minimum $15,000 death benefit, and future income payments will come from the carrier.

Fitting that type of policy into a strategy, however, isn't easy.

“You need a 15- to 20-year [accumulation] period in order for the contract to work,” said Zachary Parker, first vice president of annuities and insurance at Securities America Inc. “It's not a great sales technique for boomers, and younger generations want to do it themselves and buy term over the Internet.”

GOING FOR SPEED

Carriers also are trying to speed up the policy-issuing process.

Prudential's MyTerm, for in-stance, can issue a term life policy quickly over the Internet. At American General, the QuickTicket program has cut the sales cycle to 30 days, Mr. Deremo said.

For its higher-market clientele, American General has an “emerging strategy” involving the use of life consultants and marketing organizations to help train advisers to use life insurance for estate and business planning, and other types of advanced sales, he said.

Using life insurance in this context resonates with broker-dealers.

Kraig Lange, first vice president and manager of the insurance department at Stifel Nicolaus & Co. Inc., said that the firm's internal marketing staff has developed ideas for using insurance in buy-sell agreements for its small-business clients.

“We're seeing increased interest in all estate-planning applications, too,” Mr. Lange said. “I'm assuming that the pending tax law changes are starting to drive some of that.”

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