As I look back at 2005 and then forward toward the new year, I'm reminded of the saying, "May you live in interesting times." Whatever else you might think about the challenges facing our industry, you'd have to agree that they are interesting -- and that they provide opportunities for life insurance carriers and agents.
The Landscape Today
One of the more interesting things happening today in our society is the aging of the population. According to the U.S. Census Bureau, 26 states will double their populations of people older than 65 by 2030. Just this past July, the first of the baby boom generation turned 59 1/2 , making them eligible to access retirement benefits without penalty. This is the largest single generation, and it's moving into a new stage in the life cycle.
Meanwhile, the government is looking at revising Social Security, and estate tax reform/repeal still is up for grabs. Despite a tentative rebound in employment and the stock market, the volatility of fuel prices, the commitment to support military efforts, and the effect of hurricane relief cast a shadow on the recovering economy and consumer confidence. In addition, the life insurance industry is wrestling with the greatest degree of regulation ever, the evolution of distribution, and some significant changes in reinsurance.
What should a carrier do? I can only tell you what we at Transamerica Insurance & Investment Group* are doing to address and even capitalize on these interesting times.
New Markets, New Opportunities
Transamerica has developed considerable proficiency in the older age, affluent market. And while we will continue to grow in this segment, the potential changes to the estate tax have prompted us to expand our expertise to include other niches and demographic segments. The fundamental purpose of life insurance still is to protect against the possibility of dying too soon, but it also can offer protection against "living too long." New products and services are being developed that will help the baby boomers manage their retirements and help small to mid-sized companies with executive benefit planning. We've also created programs that target ethnic and woman-business-owner markets. And we're venturing into the upper end of the middle market with some innovative product solutions.
The Brave New World of Reinsurance
As carriers painfully have discovered, the reinsurance arena has changed dramatically because of consolidations and market exits. There simply are fewer reinsurers with whom to do business. In addition, there's increased scrutiny when it comes to older age, large case business. We've been working closely with our reinsurers and exploring new and interesting product designs. Certainly, the industry will adapt to this new chapter in reinsurance. In the meantime, it definitely is a challenge for all of us.
The Argument for Modernization
Regulation is an ever-increasing challenge, and the focus here is on finding ways to manage the costs and drain on human resources. We support the idea of an Optional Federal Charter (OFC). We see it as an opportunity to update an overly complex and burdensome state regulatory system and as a means for providing consumers greater product choice and portability. The OFC would allow carriers to choose between state and federal regulation -- much like the dual banking system that's worked well for over 100 years. As a carrier doing business in almost all states and jurisdictions, we think having to comply with rules generated by 56 different insurance regulators simply is too inefficient. It also is difficult and expensive for agents who must meet licensing requirements in multiple states. It's time to modernize and better equip our industry to compete, which would benefit the agent, the carrier, and the customer.
The Evolution of Distribution
Distribution is changing, as it must in response to the market. It certainly is not as simple as it used to be. Looking back just a few decades, carriers enjoyed high margins, distribution mostly was captive within restricted territories, and permanent insurance was the life insurance product of choice.
Then came the tidal wave of information that enabled customers to become better informed. New financial service providers entered the market, certain product categories became commoditized, and the demand for guarantees changed the UL universe. It's easy to see why the role of the distributor would have to evolve, and quickly.
The captive agency system has been in decline for years. It's being replaced by increasing independence, a focus on scale, and the related trend toward agencies banding together for leverage.
So where does that leave us in terms of opportunities to expand and grow our distribution? Our primary customer is the brokerage general agency. We are extremely fortunate to have a large network of established agencies, but we have to earn their business every day. Our goal is to provide consistently competitive products and service, which includes everything from product design to underwriting to technology.
Our growth will come from building on our base and earning more business from our current relationships. We can help our agencies grow by opening new markets and providing support at the agency level from our regional marketing centers. We also are looking to expand our presence with independent broker/dealers and wirehouses.
Making It Easy
We never aim to be the low-cost leader when it comes to product pricing, but we'll be in the game. But we see technology -- and the improvements to service that it confers -- as an opportunity to establish a durable competitive advantage. It's true that for distributors, technology facilitates multiple carrier relationships. That could be considered a downside. But we see it as a chance to differentiate ourselves. It's all about making it easy to do business with us.
Early in 2006, we're launching a new commission-payment system that will increase frequency and add flexibility. We also are updating our new business platform and simplifying our e-mail system. Our objectives with technology are to increase our speed to market, enhance our service, and help our agencies reduce their cost of doing business.
Some Things Stay the Same
Next year, Transamerica will celebrate its centennial (the first Transamerica life company -- Occidental Life Insurance Company -- was founded in Los Angeles in 1906). Much has changed in the past 100 years, and the challenges we face today bear little resemblance to those our founders confronted. But no matter how interesting the times become and how we as an industry choose to seize the opportunities, the fundamental purpose of life insurance hasn't changed. It's a promise to pay. Whether it's paying a traditional death benefit to a family, ensuring that a small business can continue, providing estate tax liquidity, or helping the baby boom generation thrive during retirement, this promise always will remain our focus and commitment.
* Transamerica Insurance & Investment Group markets products underwritten by Transamerica Occidental Life Insurance Company.
Ken P. Kilbane is president of Transamerica Insurance & Investment Group (TIIG). Mr. Kilbane joined Transamerica in 1996 as vice president, technology, of Transamerica Asset Management. In 1998, he was named vice president of special projects for Transamerica Insurance & Investment Group, responsible for various technological operation and sales/marketing initiatives. He became vice president of e-business development in February 2000 and held that position until June 2002, when he became vice president, Legacy Marketing Sales. Mr. Kilbane was named president of TIIG on June 1, 2005.
