A Market Snapshot: The Economy and Your Business

The one issue that gets people talking is the one that affects their wallets. It's the issue that defined the presidential election and dominates television and print news cycles. For the foreseeable future, it will be a significant issue for the entire country -- and, indeed, the world.

The economy is on every client's mind and will impact every aspect of your business. If you haven't made it a priority yet, it's time to consider its impact on your career. You can't afford to ignore the concerns of clients and prospects who wonder if they can still afford your services.

But just as an economic downturn has a varying effect on different parts of the country, your core products are also impacted differently. Agents who sell life and long term care insurance, as well as annuities, are dealing with more than just "the economy." They're dealing with three product lines that each require adjusted strategies in order to maintain success in a challenging economic environment. Below is a review of how each market segment has been touched over the past year, and how agents in the field are adapting to these changes and overcoming obstacles.

Long term care insurance
Early in 2008, the long term care insurance (LTCI) market was not suffering any adverse effects from the burgeoning economic downturn. About 400,000 new policies and certificates were issued in 2007, and, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance, the first half of 2008 was tracking similarly to the year before. But while hard data is still being compiled, Slome said more recent months have indicated a slowdown.

"The traditional long term care specialist is finding it harder to make sales, but not as significantly as you would expect," Slome said. He estimates that since September 2008, new policies issued by individual agents are off somewhere between 8 percent and 10 percent. He expects a sharper drop among stock brokers and financial planners who sell long term care as a smaller part of their overall business. With a number of other concerns on their plate and clients who are primarily concerned with their market-invested assets, Slome doesn't see those outlets focusing on LTCI the way a traditional agent would.

However, for those agents who make it an important part of their business, Slome believes that the economy will shape how they approach prospects and present LTCI.

"The market, I believe, is going to be dramatically different," he said. "People who use the same old approach to the marketplace are going to be significantly less successful."

Instead, needs will have to be balanced with costs and agents will have to do their homework to find ways to make the policies affordable -- even if it means less coverage than they would originally recommend and factoring in other income sources to make up the difference. Agents will also have to stress the importance of qualifying for policies with favorable age and health statistics so clients don't pay more or get rejected outright when they decide they need coverage.

Jennifer Blanchard, a financial advisor with Commonwealth Financial Group, has seen a new hesitancy among clients to adopt new monthly expenditures in the face of job insecurity and dwindling retirement assets. But she finds success by describing how long term care affects not just the clients themselves, but loved ones, as well.

"My job is to be an advocate and to speak for the person or persons who don't have a voice in the conversation we're having," Blanchard said.

While clients are especially concerned with figures associated with costs, current assets, and future needs, she doesn't think that agents need to change the fundamentals of their business and how they present long term care. Instead, they should focus on making a personal association with the product and help clients see that the true benefits of the product go beyond dollars and cents.

Annuities
The economy appears to have had an impact on fixed annuity sales -- and it's been an overwhelmingly positive one. While the first half of 2008 saw variable annuity sales drop about 7 percent over the same time period in 2007, fixed rate annuities have jumped 61 percent. Third-quarter statistics, while not officially released at press time, indicate a trend in the same direction with an even stronger emphasis on fixed annuities.

According to Kim O'Brien, executive director of the National Association for Fixed Annuities, the explanation for fixed annuity success is simple: As clients watch their portfolios shrink in the market, a product that never loses value becomes more appealing.

"Declared and index-rated [annuities] have traditionally been purchased for their insurance protection, guarantees, and tax deferral," O'Brien explained. "But today, more than in any other market decline, the protection from market downturns will be what motivates consumers to fly to them in droves."

She noted that during two turbulent weeks this past October, the U.S. stock market lost about $2.9 trillion, or about $214 billion per day. In contrast, clients who had their money in fixed annuities lost nothing. With continued market volatility likely, O'Brien sees a strong outlook for fixed annuities and increased sales in 2009.

Brian Appel, a financial advisor with AXA Advisors who sells fixed and variable annuities, sees a renewed interest in the perceived safety of fixed products.

"Clients don't want to talk variable today. They're so worried about the stock market risk and losing the assets that they have," Appel said. "They're wanting to gravitate toward something safe like a fixed annuity."

But while a fixed product might be an easier sale in this market, he warns agents to consider the effects of selling one when a client's goals might require a vehicle better designed for long-term retirement planning. In a fixed product, clients gain the benefit of protecting assets from market-based risk by forfeiting the potential for higher returns that could be found in other areas, so knowing your client becomes critical. He said that his clients in fixed products have a shorter time horizon and are more concerned with preserving assets than accumulating them.

Another important change Appel sees in the field is increased interest in the issuing company and its stability. With economic turmoil and companies in many industries requiring more and more governmental assistance, clients want to know that the insurance company issuing their products is financially sound. He suggests that agents make reputation and stability a part of their presentation and lead with confidence-building information about the companies they represent.

"If you lead with, 'Here's the company and here's why I use this company,' it puts clients at ease," Appel said.

Life insurance
According to LIMRA International data (year-to-date figures up to and including the second quarter of 2008), life insurance experienced no change in annualized premiums and face amount, and just a 1 percent drop in the number of policies. But those figures don't tell the whole story: Universal life policies saw across-the-board gains in annualized premiums (3 percent), face amount (4 percent), and number of policies (2 percent). Whole life policies also saw gains in terms of face amount and number of policies.

So which policies suffered? Variable universal life saw a significant drop in annualized premiums (7 percent) and steeper declines in face amount (11 percent) and number of policies (15 percent). But even those numbers don't compare to the sharp drop in variable life business; annualized premiums and face amount each dropped 24 percent compared with 2007, with 27 percent fewer policies sold.

Larry VandeVen, regional director for Penn Mutual, has seen that cautious trend among clients in the field, with guarantees found in level premiums and fixed rates finding broad appeal in the current economy.

"People are more focused on trying to conserve their assets and not lose money, as opposed to being wild-eyed and optimistic about all the money they can gain on the upside," he said. The trend also follows for index products, although client perspectives have also changed there; instead of showing concern for the rate ceiling, he said that clients are now more focused on the guaranteed floor of those policies.

VandeVen recognizes that agents face some new obstacles in this economy. Clients may be less eager to write checks for new policies and commit to new expenses in times of financial uncertainty, and other professionals who sell insurance as a small part of their business might focus more on insurance as other variable instruments fall out of favor with the public. In order to remain competitive in this market, he said that agents need to be educated regarding the various types of policies they offer and focus on the benefits of minimizing and eliminating client risks. Agents providing policy guarantees
will attract the attention of those who have been rattled by heavy losses in variable investments.

"Guarantees, guarantees, guarantees. That's what clients are looking for right now," VandeVen said.

An uncertain future
With headline-generating economic news reported almost daily, the outlook for different segments of the insurance industry will remain somewhat unpredictable. But with more than 20 years in the business, VandeVen has seen a variety of economic climates and their effects on the financial sector.

He believes that if agents stay focused on highlighting product benefits and good prospecting, they can continue to enjoy a healthy career.

"The economy has had a pretty dramatic effect on everything, including our industry," he said. "But the things that have saved our industry since its beginnings -- the guarantees and the delivery of promises -- if we focus on that, we'll be able to thrive, even in this economy."

Michael Murillo is a freelance writer and frequent contributor to the Agent's Sales Journal. He can be reached at vivamurillo@hotmail.com.

Health Insurance and the Economy Health care is a bit different than other segments of the insurance industry. While a poor economy can be blamed in part for challenges selling other insurance products, the reverse is in some ways true for health care. Years of rising health care costs themselves can be considered contributors to employer and employee financial burdens over the past several years. According to the Millman Medical Index, health care costs for a family of four rose an average of 8.4 percent annually between 2003 and 2007. It also rose another 7.6 percent from 2007 to 2008, estimating the total burden for a family to be $15,609. Employers paid an average of $9,442, which leaves nearly 40 percent ($6,167) for the family to pay through payroll deductions and out-of-pocket costs. Marketing programs whose costs keep rising has been a consistent challenge for health agents, but according to Randy Schreier, president of Oklahoma Employee Benefits & Insurance, economic uncertainties provide extra obstacles. "When the premiums keep rising and when the general market is not as strong as it was, that creates a challenge for the employer, which forces them to have to cut back someplace," he said. This could result in overall higher costs for the employee such as higher deductibles and copays as employers try to maintain a valuable benefits package. Still, Schreier has been adding groups to his business over the past few months and said that national companies have been affected more by the economy than local ones operating in Oklahoma, which is faring somewhat better than other parts of the country. He suggests that agents in different states will have different experiences. But all health agents need to be creative and know both their products very well in order to tweak the benefit structure into a good fit for each client. "Each insurance company has different strengths and weaknesses," Schreier said. "Some of them have really rich benefit plans as opposed to others carriers which might only offer some basic coverage. To make that premium dollar go further, you might switch to a company that has richer benefits but maybe raise that deductible up just a little bit." Employers can also consider health reimbursement arrangements where the employer picks up part of a deductible once the employee has met a specific amount of it, saving premium dollars for some small businesses. In addition to knowing each product, Schreier also says it's important to know the client well enough to recognize which benefits will have the most impact and which cost increases can best be tolerated. Companies with younger employees use health benefits differently than older ones, for example, and agents need to find the right cost structure that works for that particular company. "Study the products and know the ins and outs of each insurance company's products to try and find the best match for the client, but be as creative as you can in mixing and matching the benefits and knowing what's important to the client," Schreier said.