By Linda Koco
This article is reprinted from the January 2013 edition of InsuranceNewsNet magazine.
Flexible products and flexible planning strategies will be all the talk in 2013, as the life and annuity industry gears up for a year of many unknowns. The product frontier will feature designs made for sale in today’s hostile environment of low interest rates, high market volatility and continuing regulatory pressure, but with enough flexibility to adapt in an improving economy.
The new products with this dual-functionality won’t be glittery but they will be durable and longer-term focused. According to some market watchers, a lot of these products will debut as the year unfolds and carriers clear off their shelves to make room for post-recession compatible products.
This could open up some new opportunities for advisors, many of whom tend to gravitate to the oldies-but-goodies, such as term, whole life and traditional fixed annuities, when times are tough. This time around, advisors will have other options also.
“Flexibility in the face of change” is one of two product concepts that will be extremely important in 2013, predicts Louis Shuntick, senior vice president-advanced planning, Lincoln Benefit Life.
For example, he says, advisors should consider attaching a “liquidity rider” to a universal life (UL) product. This rider will guarantee access, upon surrender, to the greater of the UL’s contract value or amount paid in premiums. That guarantee could increase the long-term usefulness of the UL product, Shuntick says, noting “flexibility is good for serious planning.”
In general, he says, advisors need to “get away from spreadsheet selling,” where recommending the cheapest life insurance policy tends to rule the day. Instead, he says, advisors should look for products that can build substantial cash value that is accessible on favorable terms later on via flexible features.
The other important concept in 2013 will be achieving “certainty in the result,” Shuntick says. In uncertain times, products that can do this will have strong appeal.
Guaranteed universal life
Those possibilities are important for advisors to keep in mind because one very popular type of life policy is expected to lose some, if not all, of its luster in 2013. That product is guaranteed universal life (GUL), the universal life (UL) contracts that include secondary guarantees on the death benefit.
Experts predict prices for GUL will go up and availability will go down in 2013. That’s because revisions that National Association of Insurance Commissioners adopted for Actuarial Guideline 38 will take effect in January. These revisions increase the reserves carriers must hold for GUL products. As a result,
experts say, carriers will increase GUL premiums.
That change, combined with low interest rates and high capital requirements, will put a “ton of pressure” on these products, predicts Bobby Samuelson, a life insurance authority who is executive editor at The Life Product Review.
“It’s as if the legs were chopped off an Olympic jumper who was already trying to run with 50-pound weights,” he says.
In fact, he says, “I do not foresee any situation where UL pricing will go down in 2013 or sales go up.”
Mike Murphy, vice president-advanced markets, American General Life companies, predicts “some companies will even exit certain GUL products.” As for the remaining products, “these will get more expensive.”
“Some companies have financing in place for the higher reserves, so AG 38 will have less impact on GUL price and availability at those carriers,” Murphy says. “But we could see the smaller companies exit the market, because they can’t be competitive any more. There could be moratoriums on sales, too, if the companies can’t get it together (on AG 38) by Jan.1. Or maybe they will just eat the cost of the higher reserves until they can do what they need to do.”