A year after the onset of the financial crisis, advisers remain wary of insurers' financial health when recommending products, according to the
InvestmentNews 2009 Insurance Product Survey.
This year, 58.6% of the 953 advisers surveyed indicated that an insurer's financial rating was the most important factor they considered when recommending life insurance to clients. That's up from the 47.0% who cited it in 2008.
The product's price ranked No. 2 as a consideration and was cited by 46.6% of respondents, compared with 41.2% last year.
Awareness of carriers' balance sheets and exposure to failing investments was heightened the past year, and advisers say they've been paying closer attention to which carriers are best poised to follow through on their promises.
Some 59.3% of the advisers polled said they were concerned about the financial health of the industry as a whole.
“As a strategist for the firm, I recommend that our advisers use companies with adequate reserves and ratings, and that they understand how companies are hedging their portfolios and reserves,” said Rick A. Jaye, the chief financial strategist at Advanced Equities Wealth Management Inc. When account values in some variable annuities dipped to the point that they were worth less than their living-benefit riders, some wondered whether carriers could follow through on guaranteed-lifetime-withdrawal benefits.
“You see variable annuities that are at 50% of the protected account's valuation,” Mr. Jaye said. “The first question that comes to mind is: How can the company provide that kind of protection on an ongoing basis? We know the companies didn't properly hedge for those events.”
The economic crisis also ate away at clients' investment portfolios.
As a result, 62.8% of advisers polled this year reported that they were having a harder time getting clients — particularly baby boomers — to consider purchasing long-term-care coverage.
“What I'm seeing is that people are having more objections to the cost of long term care insurance,” said Mary Sterk, president of Sterk Financial Services Inc., which manages $120 million.
“What I'm running into now is that they don't want to pay larger premiums for coverage that they may never use,” she added.
Additionally, the percentage of advisers who say they're recommending LTC insurance more often than in the past has gone down. Back in 2008, 63.5% of those polled said that they were recommending such coverage to investors more frequently than in the past. This year, only 44.9% could say the same.
'MORE RECEPTIVE'
But others observe that clients are much more aware of the risk that a long-term-care event could pose to them and their assets. “I found it was easier to get clients thinking about long-term-care insurance after the crisis,” said Taylor K. Ranker II, principal and managing partner at Ranker-Hanshaw Financial Group, which manages $150 million.
“It awoke them to the risks they hadn't thought of or wouldn't look at before,” he added. “We found them more receptive to now reviewing their protection needs.”
Advisers were lukewarm toward hybrid LTC products that matched this coverage with life insurance or annuities; 67.9% said they weren't recommending them more than they did in the past. “I know that my clients haven't used any of the hybrids,” said Brian C. Large, a senior vice president at Lenox Advisors Inc. “Life insurance is life insurance, and long-term care is long-term care.”
On the annuity front, advisers once again said that guarantees are the most important product feature when they make recommendations. This year, 66.8% of the polled advisers indicated as such, compared with 54.5% last year.
Anecdotally, advisers say that they're noticing a pickup in clients' interest in fixed annuities, including traditional fixed-income and fixed-index annuities.
“We're doing a little bit of everything on the fixed-annuities side, using the fixed-index annuities for some who want market potential and not a 2% or 3% interest rate,” said Gary Frank, an adviser in Appleton, Wis., with Invest Financial Corp. His practice manages $87 million. “Recently we have come across some older clients who wanted nothing to do with fixed-index annuities, but we used it because the fixed rate was paying higher than [certificates of deposit],” Mr. Frank said.
Other advisers said that while investors are asking about fixed annuities, they aren't necessarily buying more of them: 72.1% of advisers surveyed said they aren't recommending more immediate-fixed-income annuities now than in the past.
“We haven't seen an upswing in fixed-annuity sales at our practice, but more people are requesting fixed annuities,” said Mark B. Murphy, president and chief executive of Northeast Private Client Group in Roseland, N.J.
Ms. Sterk agrees, noting that clients sought growth before the crisis, and now they're interested in a combination of protection and growth. “That framework calls for certain vehicles, so there's a resurgence of interest in life insurance, [certificates of deposit] and fixed annuities,” she added.
On the variable-annuities front, advisers reported that some clients were leery of the products last fall, and that led to lower sales at some firms.
“I wouldn't say the change is significant, but we are seeing less volume,” Mr. Large said of his firm's variable-annuity recommendations. “We saw a switch from variable annuities over time as clients became less comfortable with the carriers' standing behind the variable annuities, especially the ones that took a big hit.”
WARMING TO TERM LIFE
Term life recommendations climbed this year, with 50.5% of polled advisers saying they recommend term life insurance most often. That's up from 28.5% in 2008.
Advisers pointed out their preference for term policies when compared with most cash value life insurance policies. “We're recommending more term life now than in the past,” said Mr. Ranker. “The only permanent life insurance products we use are no-load variable-universal-life insurance, and that's for people with heavy needs for accumulation and death benefits.”
Mr. Frank agrees. “We usually go for term life for basic needs,” he said. “We want our clients to have enough assets to self-insure. If we do use permanent life, we use universal life.”
Continuing last year's trend, 72.4% of advisers said that they are not recommending health savings accounts more often now than in the past. Last year, 63.9% shared that sentiment.
“We haven't heard much about HSAs from our clients,” said Ms. Sterk.
However, she noted, her firm outsources its health care matters.
E-mail Darla Mercado at [email protected].
