|
Reflections, Lessons, Predictions
By Dean Lambert, Executive Director, LIC
Wins, but a struggle
We all can get caught up in our whirlwinds, focused on action plans, timelines, objectives, and goals. Every month and quarter-end seems to arrive more quickly and come the end of the year; we anticipate starting all over again.
I get it. I watched my wife throughout her sales career, celebrating year-end sales records only to start from zero dollars again on Day One of each...
|
GUEST ARTICLE
Managing Whole Life Insurance Nonforfeiture Options
By John Blocher, FSA, MAAA, Liberty Bankers Insurance Group
An insurer selling whole life insurance might find that they are servicing a significant number of Reduced Paid Up (RPU) policies with small face amounts, where "small" is defined as an RPU face amount lower than the minimum face amount such that the policy is covering its own expenses. A few dollars of Cash Surrender Value (CSV) turn into a tiny RPU face amount policy that must be administered until death. Without management actions, over time an insurer can accumulate a large number of these tiny RPU face amount policies, hampering profitability.
Insurers frequently offer both nonforfeiture options of RPU or Extended Term Insurance (ETI) down to the first dollar of CSV. Each of these options is actuarially equivalent from a policy owner perspective when premium cessation occurs. However...
In Related News...
Blocher Featured in ERM Podcast
In a December 24, 2024 podcast from the American Academy of Actuaries, ERM/ORSA Committee volunteer John Blocher, Chief Risk Officer, Vice-President & Actuary at Liberty Bankers Insurance Group, discusses his career trajectory, risk management issues, and his work with the group Abacus Actuaries in bringing more actuaries of Asian descent into management-level positions.
|
|
Industry News
|
LIC Announces 2023 Final Expense Sales Data
The LIC Final Expense Survey (2023 Sales Data) was released this month. This study offers an in-depth look at trends in the final expense market, including new annualized premium and policy count, policy size, underwriting, and distribution for a select group of companies in the U.S.
Key findings include:
- In 2023, 22 participating companies reported more than 855,000 final expense policies sold, representing $775 million in new premium.
- Twenty companies reported a total of $2.8 billion in-force premium, with case count of 4.27 million and average premium per policy of $764.
- Independent agents represented the overwhelming majority of final expense premium (87%), among the survey participants. Affiliated agents held 13% of the market share and direct-to-consumer sales represented less than 1% of sales among the responding companies.
- Simplified-issue policies dominated the market, accounting for 78% of total sales.
The LIC Final Expense Survey Report is available for purchase in printed or digital format, with discounts for LIC, LIMRA and LOMA members; participating companies receive the report for free.
|
LIC Annual Conference, CEO Forum Earlybird Rates Effective Until January 10
Research-Fueled Decision Making is the theme of the upcoming LIC Annual Conference February 5-7, 2025 at the Hyatt Regency Resort in Clearwater Beach, Florida. See who's already planning to be there on the Meeting Overview page, and download the agenda here.
Plan to be at this premier networking and educational event, where you can build connections and share ideas with leaders at small-to-midsize life insurance companies.
Insurance CEOs will be meeting prior to the conference at the LIC Winter CEO Forum February 4-5, 2025. The CEO program will feature artificial intelligence case studies and a special LIMRA report on key industry trends.
Hyatt Regency Clearwater Beach Resort & Spa
|
How To Become a Data-Driven Enterprise
McKinsey posted a briefing with deeper-dive links on how companies can become truly data-driven.
|
Small and Mid-Sized Insurers Backed by Private Equity Ramp Up Annuity Sales
In a December 20, 2024 article in Life Annuity Specialist, Cyril Tuohy reported on the fastest growing small and mid-sized annuity issuers of third quarter 2024, noting impact of private equity company partnerships.
|
Best's Special Report: Insurers' Federal Home Loan Bank Borrowing Slows
The pace of insurance borrowings from the Federal Home Loan Bank slowed last year following a spike when many U.S. life and annuity insurance companies took advantage of the lower cost of borrowing to capitalize on high interest rates and new money yields, according to a new AM Best report.
|
Equisoft Appoints VP Insurance Solutions
Equisoft, a leading global provider of digital business solutions for the insurance and wealth industries, announced the appointment of Brian Simpson as Vice President, Insurance Solutions, USA. With over 30 years of experience in the life, health, and annuity sectors, Brian is joining the sales team for Equisoft's insurance solutions in the U.S.
|
Gallagher Re: Is Cayman the Future of Offshore (Re)insurance?
Gallagher Re's Andrew Edelsberg published insights into advantages and obstacles of the Cayman Islands as a reinsurance destination.
|
NGL Launches Funeral Home Support Service
National Guardian Life Insurance Company announced the implementation of its Funeral Home Support phone line, a dedicated resource to help funeral home directors and employees with filing claims, reporting, and answering questions about in-force policies.
|
Executives Not Ready to Fully Trust AI Compliance Promises
AI startups promise to help organizations meet complex new regulations while saving money on data-related work, but compliance executives advise caution, according to a December 17, 2024 Wall Street Journal article.
|
Allianz Pulls $1.7 Billion Bid to Buy Stake in Singapore Insurer
Bloomberg reported December 16, 2024, that Allianz SE withdrew an offer to buy a majority stake in Singapore's Income Insurance Ltd. for about S$2.2 billion ($1.6 billion), dealing a blow to its ambitions in a key growth market.
|
Gallup Tackles 7 Workplace Challenges for 2025
The workplace has not returned to pre-pandemic normalcy, and leadership challenges abound in 2025. But each of these challenges has a solution, according to a Gallup Workplace article.
|
Protective Partners with iPipeline to Ramp Up Variable Annuity Sales
Life Annuity Specialist reported on Protective Life's new partnership with iPipeline, "enlisting the insurtech's Laser App product to automate financial documentation and expand its distribution network for variable annuities."
|
Upcoming LIC Events
LIC Winter CEO Forum (reserved for insurance company CEOs/Presidents)
Hyatt Regency, Clearwater Beach, Florida
February 4-5, 2025
LIC Annual Conference
Hyatt Regency, Clearwater Beach, Florida
February 5-7, 2025
Mark your calendars...
LIC HR Committee Conference Call
March 14, 2025, 2-3:30 p.m. ET
LIC Technology Committee Meeting
Hosted by Equisoft, Philadelphia
April 29-30, 2025
LIC Final Expense Workshop
Hosted by Optimum Life Re, Chicago venue TBA
June 17-18, 2025
LIC Summer CEO Forum (reserved for insurance company CEOs/Presidents)
Sonoma, CA
August 26-28, 2025
|
LIC 2024 Premier Sponsors
Thank you to these LIC Premier Sponsors, who supported all of LIC's events throughout the year.
Parkway Advisors is focused on being the best most respected provider of service in the insurance industry. Parkway offers asset management, consulting, and statutory investment reporting services that are customized to the needs of each insurance client. Through Parkway's emphasis on personal service, custom solutions, and strong communication, our clients have enjoyed historically strong performance success, especially during the financial crisis and the low interest environment that has followed. www.parkwayadvisors.com
iPipeline is a leading provider of low code, cloud-based software solutions for the life insurance and financial services industry. Through our SSG Digital, end-to-end platform, we provide process automation and seamless integration between every participant in our ecosystem including carriers, agents, general agencies, advisors, broker-dealers, RIAs, banks, securities/mutual fund firms, and their consumers on a global basis. Our innovative solutions include pre-sales support, new business and underwriting, policy administration, point-of-sale execution of applications, post-sale support, data analysis, reporting, user-driven configuration, consumer delivery and self-service, and agency and firm management. www.ipipeline.com
illustrate inc (merged with thinktum in 2023) provides powerful, cloud-based end-to-end solutions for life insurance carriers to energize, automate, simplify, and streamline the application process for virtually any life insurance product or distribution channel.
The no-code/low-code LIZ and OPUS platforms combine to provide a comprehensive, adaptable, and client-focused solution for life insurance carriers, with a particular emphasis on the needs of small to medium-sized carriers. The goal is to provide not just a technological solution but a partnership that understands the unique challenges and ambitions of each client. www.illustrateinc.com
QLAdmin Solutions is a leading technology partner for the small to mid-sized insurance company offering traditional life, health, annuity, preneed, final expense, and Medicare Supplement products. QLAdmin serves the entire policy lifecycle from new issue to termination with expert policy administration processing that is both comprehensive and easy to use. QLAdmin continues to evolve based on product and client needs ensuring extreme client longevity and satisfaction with QLAdmin products and support. QLAdmin is your proven partner in policy administration. www.qladmin.com
Equisoft is a business-first technology company dedicated to helping insurance and wealth management organizations reach their goals. Specialized expertise: Over 25 years of experience helping small and mid-sized life insurers & fraternals solve their biggest challenges through digital transformation. www.equisoft.com
|
About The LIC Bullet
The Bullet is the official e-newsletter of the Life Insurers Council, which has been providing networking and practical business solutions for life insurers since 1910. As a council of LIMRA and LOMA, LIC serves the unique needs of small to midsize member companies, offering a personal network of peers with practical solutions to shared challenges. The Bullet delivers immediate and relevant industry news and editorial.
LIC E-News Online Community: As a networking organization, we welcome dialogue and input from our readers - therefore we are transitioning The Bullet to its new home in the LIC E-News online community at LICConnect. All Bullet subscribers have access to this forum, and others can request access by contacting lic@loma.org.
|
Feature Editorial (Full Text)
Reflections, Lessons, Predictions
By Dean Lambert, Executive Director, LIC
Wins, but a struggle
We all can get caught up in our whirlwinds, focused on action plans, timelines, objectives, and goals. Every month and quarter-end seems to arrive more quickly and come the end of the year; we anticipate starting all over again.
I get it. I watched my wife throughout her sales career, celebrating year-end sales records only to start from zero dollars again on Day One of each new year. She embraced the challenge, but it was no doubt a grind. The picture that comes to mind is that of Sisyphus, the tyrannic King of Ephyra whom the gods sentenced to an eternity pushing a boulder up a hill only to have it roll down every time he neared the top.
Analyzing the life insurance market, one can understand why insurance leaders may feel a bit like Sisyphus even when experiencing a measure of annual sales growth. According to LIMRA's 2024 Barometer Study, "self-reported life insurance ownership has remained stable for the past two years with 51% reporting they own at least one insurance policy." While "stable" is an excellent adjective for an industry focused on managing risk, it's not what business stakeholders want to hear when describing sales unless it precedes "trends in revenue growth."
There are myriad challenges to sales growth in the life insurance space, despite a fertile marketplace: consumer awareness, acknowledged need, access to information, and general affordability. The LIMRA report has found a need gap of 100 million American adults acknowledging they need life insurance (or more life insurance). So, how do we convert a "stable" market to a "growing" market?
What about the growth in annuity sales?
We've all heard total U.S. annuity sales have experienced double-digit growth for the past two years. This is largely a demand-pull phenomenon, as, according to LIMRA, "favorable economic conditions and demographic shifts" are driving consumers to these products; in other words, "organic" growth.
Another reason for the growth in annuity sales, according to LIMRA, is the more than 11,000 Americans that turn 65 every day. At least 4.1 million Americans are projected to turn age 65 through 2027, and less than half believe their retirement savings will be sufficient to cover their basic living expenses. LIMRA's research shows individual annuity product sales are clustered around traditional retirement age between 62 and 65, and most of these consumers say they are interested in investing in an annuity to close their savings gap.
The question remains: How can small- to medium-sized life insurers and fraternals catalyze real sales growth?
You're probably expecting me to have an answer here. As an organization committed to growth through shared experience, and knowing there's a great deal of opportunity for everyone, I am compelled to invite readers of the LIC Bullet to sound off!
The sales growth challenge always provokes more questions than answers. Even when tracking annual revenue increases, the question is, "how can we grow more?" Most companies are not experiencing rates of growth that might cause strain, right? This is where an investment in market research comes into play.
Consumers can tell us what will make them buy life insurance (or more life insurance). Well, maybe. Far too often, consumers do not behave like they say they might. Are we asking the right questions? Are we asking in the best ways? During the LIC Preneed Forum in November, guest speaker James Forr, Director of Insights at OlsonZaltman, discussed their methods of eliciting what motivates consumers to buy. It is a fascinating journey in which they compel subjects to use metaphors to describe their attitudes, opinions, beliefs, motivations, and actual purchasing behaviors. The result is learning what people actually do in the moment, not what they think they would do.
This, of course, is just one part of the marketing strategy puzzle. There is also the matter of timing (for example, seasonality or life stage), pricing, and the whole idea of storytelling -- from old school institutional brand messaging to new-school influencers on non-traditional media.
What do people really want insurance to do for them and how do they feel once they get it done?
When asked, most life insurance stakeholders, from carriers to consumers, will say insurance offers financial protection when people need it most, at expected or unexpected times of life and death. Some might avow investment value of a life policy or annuity.
As mentioned earlier, it is important to understand the real reason people make the choices they make. What do they expect a product or service to do for them? If you were hiring an insurance policy to do something for you, what would that job be? Is it really about providing financial security for surviving family members or helping one afford the basics upon retirement?
There was some interesting work done by a man named Clayton M. Christensen and his consumer insights team that was published in the Harvard Business Review about eight years ago. I find it fascinating and applicable as we try to understand how to grow sales.
Christensen says we must "know our customers' jobs to be done." He says consumers "hire" products to do something for them. One of his best examples of this theory is work he did with Burger King, which was trying to increase milkshake sales.
Burger King had completed a great deal of consumer research asking what would make people buy more milkshakes from them. "Do you want them more chocolatey, cheaper, chunkier…?" They incorporated responses into product innovations and, can you guess the result?
Zero impact on sales. Zip. Nada. Nothing. But the customer spoke, and they were convinced they answered the need.
As you might surmise, the voice of the customer is only as valid as the questions and methodology, time and place. So, BK invited Christensen's team to do their brand of discovery. Before asking any questions of customers, they spent hours and hours observing the time milkshakes were bought, what people were wearing, if they were alone, if they purchased other food with it, if they consumed it in the restaurant or in their vehicles, and so on.
The findings and implications were amazingly revealing and impactful. It turns out half the milkshakes were bought and consumed before 8:00 in the morning. The customers were always alone, it was the only thing they bought, and the milkshakes were always consumed in the car.
The next day they stood outside to ask the milkshake drinkers, "Excuse me, what job were you trying to for yourself that you are hiring your milkshake to help you do?" As expected, puzzled looks ensued and the interviewers persisted.
"Think about the last time you were in the same situation, needing to get the same job done, but you didn't come to hire a milkshake. What did you hire?" As they listened and compiled the data, it became clear that they were trying to get the same job done. They all had a long and boring drive to work. They just needed something to do to keep the commute interesting. One hand on the wheel, and another hand available to do something while they drove. Most wanted something to tide themselves over until their 10 am coffee break.
As Christensen put it, one could "hire" a bagel, a banana, a granola bar, and a jelly donut, perhaps. But these are gone quickly, they are crumbly or messy and can be distracting while you drive. Ever tried to put a schmear on your bagel while driving? Not advisable, trust me.
Turns out the most qualified candidate for the job of giving you something to do on the commute while filling your belly is a milkshake. One-handed enjoyment. Thick, filling, no mess, and if your free hand gets cold you can put the cup in the cup holder.
As Christensen's team discovered, understanding the job makes improvements obvious. In the case of a Burger King milkshake, the investment in innovation was less about the taste or anything you might think would improve the product itself. It was more about understanding what people were using the milkshake for: Not just sustenance; but utility. The product innovation in this case might be less focused on taste and more focused on a container that doesn't make your hand cold. Or, it could be merely how, when and to whom milkshakes are marketed?
How does this apply to growing insurance sales?
Going back to James Forr and his metaphoric elicitation technique, we might not yet understand how having life insurance makes people feel. Read that again: "having" life insurance – not "buying" life insurance. Insurance companies spend so much time, money and effort on customer's experience, from identifying the need and educating themselves to selecting an agent, the sales process, completing the app, issuing the policy, post-purchase communication, and payment of claims.
Have we really learned how people feel when they have life insurance? I am not sure there's any data of this kind out there. Maybe there should be. Who's up for some research?
Speaking of research, the 2025 LIC Annual Conference is all about research. Attendees will learn the importance of data-based decision making, how to build a culture of research-informed strategy, and ways to gain insights with constrained resources. Learn more HERE. Register by January 10, 2025, to save $200!
Predictions
Competiscan released its 2025 Trends and Predictions report and their research shows 2024 was the year of product innovation in the life insurance and annuity space. They predict differentiation will be a big challenge in 2025 and believe companies will rise to it. In our experience, A number of LIC members are working on, or have completed rolling out new agent or consumer portals in 2024. Competiscan sees this trend continuing as a means to improve efficiency and all stages of the customer experience. It is clear that technology investments will not wane anytime soon.
In a broader sense, companies commenting on the future of insurance and financial services agree that the lack of geopolitical stability is something to watch. Cybersecurity due diligence will also be a high priority, especially as governments are distracted by political shifts. Speaking of which, all eyes are on the incoming Trump administration in anticipation of campaign promises made and kept (or not).
What do you predict for the coming year? Is your outlook positive? What will your common and perhaps unique challenges be in 2025? Send your comments to lic@loma.org and we'll publish as many as we can in the January issue of the LIC Bullet.
Season's Greetings
On behalf of LIC Director of Operations Audrey Wittenburg, and the people of LIMRA and LOMA who help us support LIC members, I'd like to wish you all the best as we close the year and look forward to 2025. Here's to a happy and prosperous new year!
Dean Lambert, Executive Director, LIC
(515) 414-6895 | dlambert@limra.com
|
Guest Article (Full Text)
Managing Whole Life Insurance Nonforfeiture Options
By John Blocher, FSA, MAAA, Liberty Bankers Insurance Group
An insurer selling whole life insurance might find that they are servicing a significant number of Reduced Paid Up (RPU) policies with small face amounts, where "small" is defined as an RPU face amount lower than the minimum face amount such that the policy is covering its own expenses. A few dollars of Cash Surrender Value (CSV) turn into a tiny RPU face amount policy that must be administered until death. Without management actions, over time an insurer can accumulate a large number of these tiny RPU face amount policies, hampering profitability.
Insurers frequently offer both nonforfeiture options of RPU or Extended Term Insurance (ETI) down to the first dollar of CSV. Each of these options is actuarially equivalent from a policy owner perspective when premium cessation occurs. However, they are not actuarially equivalent from an insurer perspective and if expenses are considered over time, ETI is noticeably better than RPU for smaller amounts of CSV.
Other than waiting them out, it may seem nothing can be done to manage tiny RPU face amount policies. However, an insurer might consider a toolkit of potential management actions to be used individually or together:
- File new life insurance products without RPU. If RPU is not available, then no new RPU policies out of new issues occur. Note that other than CSV, no specific nonforfeiture option is regulatorily required and many policy owners may prefer CSV. For any single premium life policy with no future premium, CSV is the only nonforfeiture option.
- Set ETI as the default nonforfeiture option. With a default set to ETI, no new RPU policies occur unless a policy owner specifically requests RPU. Historically, a default set to RPU resulted in a high proportion of the existing RPU policies.
- Offer CSV to anyone who has a small RPU face amount policy. This is no different than the amount available upon policy owner request anytime. This may involve special mailing and is usually done as cleanup after sources of new RPU policies are limited or eliminated. Many policy owners who are reminded that a CSV is available may prefer CSV instead of RPU.
- If RPU is offered, create a minimum RPU face amount, otherwise the RPU nonforfeiture option is not available. Practically, this is considered to be "substituting" ETI when the face amount isn't at least the minimum RPU face amount. The minimum can be written into policy forms or established as company practice or both.
Actions 1-2 are straightforward and might be considered standard strategies for dealing with this issue. These actions might be considered, even if some insurers have not previously taken a variation on them.
Action 3 will help reduce the proportion of existing small RPU policies. The insurer makes the policy owner aware that a CSV is available upon request. An accurate mailing address and potentially the CSV amount for each policy owner is required. Some of this effort may be able to be coordinated with existing statements sent to the policy owner, emphasizing that a CSV is available. Many times, this action is not taken because of the lack of a good mailing address or other overhead required to make the CSV offer. If taken, monitor the take rate to make sure this action continues to be worthwhile, if completed in phases.
Action 4 requires analysis to set a minimum RPU face amount. An insurer might consider how well different face amount sizes bear those expenses. The goal might be anywhere from where margins in the policy cover 100% or a lower percentage of expenses. An RPU policy at the minimum theoretically should be at least as profitable as paying the CSV. Paying the CSV might be interpreted approximately as 0% return at the time of premium cessation. In other words, the minimum RPU face amount policy should not result in a loss against the expense an RPU policy will incur in the future compared to paying the CSV, though this is a floor not a goal.
Once a minimum RPU face amount is set, if a request for RPU would result in a face amount that does not meet or exceed the minimum, the policy owner instead receives ETI. This can be authorized by company practice or described directly in the policy form or both. The insurer should not change this minimum very often so that all the parties involved (e.g., marketing, agency, and customer service) can communicate a clear message to the policy owner over time.
An expense sometimes ignored is the requirement to periodically check for a death against the Social Security Limited Access Death Master File (LAMDF). For ETI, the LAMDF check only is required through a period a little past ETI expiry to ensure death didn't occur during the ETI period, where for RPU the check is required for life until a death is reported.
Other considerations are relevant. Check any proposed management action with compliance to ensure nothing proposed is contradictory to policy form language. Indicate In any filing of a product where RPU is available, tables of values on policy pages that RPU is not available below the minimum usually by showing zeros or dashes in the appropriate column until the RPU face amount is high enough that RPU is available. Consider that it is possible for a premium-paying non-Modified Endowment Contract (MEC) policy to become a MEC upon conversion to RPU, especially if premium cessation occurs during the first seven policy years.
An insurer may improve profitability on their whole life block of business by reducing expenses through taking some or all these management actions. Taking management actions to limit or prevent tiny RPU policies may also increase the franchise value of the whole life block of business and may help an insurer continue to offer smaller face amount life insurance that some policy owners in the marketplace need.
Editor's Note: We invite readers to ask questions or start a conversation about the subject matter. Feel free to post as a reply here in the E-News thread or in the ERM Community or email lic@loma.org.
|
|