It’s been a bumpy ride. Slow economic recovery and low interest rates have pounded the industry for five years. Carriers, advisors and customers are in it together, and we face common challenges. But our industry has proven its resiliency in the past, and 2014 can be a year of growth and profitability if we apply basic principles that have stood the test of time.
As the CEO and chairman for the companies of OneAmerica and a former advisor and general agent with 40 years in the industry, I have a unique perspective into our business, what lies ahead and how we might respond to these lingering challenges.
A swirl of litigation, regulation, tax reform
The ongoing effect of the sluggish economy and persistent low interest rates on the life insurance industry is evident in the following Bloomberg statistic: At 1.6 percent, the real gross domestic product in June of this year was just a tick above the 1.1 percent GDP in March of 2008.
The financial crisis has left a hostile legal environment behind in its wake. The life insurance industry as a whole is feeling the pinch of increased litigation. Further, proposed regulations such as the fiduciary standard rules by the Department of Labor and Securities and Exchange Commission have the potential to change the distribution landscape for some products.
Related story: Outlook upgraded for U.S. life insurance industry
All the while, the impending threat of tax reform has carriers teaming up with the American Council of Life Insurers to educate Washington about the value of our industry and keeping the precious tax benefits of life products off the table as a way to raise revenue.
The competitor landscape is also changing. Companies have adjusted prices on products or have limited or eliminated them altogether. Carriers have had to tighten the belt on expenses yet another notch and some may still settle for lower enterprise profits.
Achieving growth amid these challenges has been difficult, but our resolve to overcome them has never been stronger.
Life industry a major player, opportunity awaits
Despite the challenges, the life industry remains strong. While we know the true value of the life industry is in how it positively affects people’s lives, it also has a major impact on our economy. According to LIMRA’s September 2013 The Facts about Life and Annuities report, $63 billion in death benefits and $72 billion in annuity benefits were paid in 2012. In addition, $1 in every $5 of American’s long-term savings is in life insurance and annuities.
Yet a major gap remains. There’s been much ado about health care reform and finding a solution to the gap in health care coverage that includes 48 million Americans, according to the U.S. Census Bureau. But what about LIMRA’s reported $15.3 trillion gap in life insurance coverage for 70 million U.S. households? The loss of a bread winner or shortage of funds in retirement is devastating to families who, if not prepared, also turn to government agencies for services. LIMRA also reports that approximately two-thirds of pre retirees do not expect to receive enough income from Social Security and employer pensions to cover their basic living expenses in retirement.
Therein lies our opportunity. With this noted gap in coverage and a population having difficulty saving for retirement, the need for retirement income, long-term care solutions and life insurance protection has never been more evident.
It’s time to take charge
We need to meet these challenges and seize these opportunities in 2014. The U.S. government cannot ride to the rescue, nor do we need them to. We — the industry — are the cavalry. We are positioned to fulfill the protection and retirement needs of Americans, and history is on our side.
In 2014, these principles will remain critical:
- Keep customers the “main thing.” Carriers and advisors that stay true to their mission of building relationships and serving customers will see a great return on that investment.
Advisors should check in with their clients, assess changing life circumstances and reassure them of the strength of their financial choices. They can hold a customer appreciation event focused on an important educational topic such as income planning, invite each customer to bring a non-client as a guest and later publish their materials. There are endless activities an advisor can do to stay in front of clients. Plot them out now.
- Stay committed to financial strength. This hallmark of the best-performing companies provides the foundation for carriers — and advisors — to be successful. Unquestionable financial strength is necessary to find success in this challenging environment.
- Adapt to the environment and provide solutions. I mentioned earlier that some companies are walking away from products. Given the negative news coverage and its potential for significant rate increases, it’s not surprising that long-term care insurance is one of them. Because of its challenges, however, others are finding newer, different options for their clients, known as “asset-based” long-term care.
Two features helping overcome common concerns with traditional long-term care insurance are:
- A payout is made to beneficiaries at the time of death if the policy has not been exhausted for long-term care; and
- Premiums are usually guaranteed, meaning older clients will never be exposed to an increase in the cost.
These products have really taken off. In 2012, sales of asset-based long-term care products grew 19 percent over the previous year, representing a fourth consecutive year of double-digit growth.
A Worthy Battle
The year ahead will certainly be challenging. But when carriers and advisors team up and take charge, the industry will forge ahead. Listening to and engaging with customers, being a pillar of financial strength despite an unstable economy, adapting to the changing world around us to provide solutions will help all of us grow and thrive.
When it’s all said and done, we may wear a few battle scars, but meeting the protection and income needs of individuals and their families will always be a worthwhile endeavor.