Advisors and their clients are seeking coverage period flexibility and urging insurers to offer the right to convert shorter term policies for long-term coverage.The term insurance market, formerly known for offering commodity products, is seeing a growing trend toward convertible products. Insurers like Sun Life Financial, SSQ Financial Group and Assumption Life recently overhauled their term products to meet the market’s appetite for short-term coverage that can be exchanged for longer-term coverage.
Sun Life recently expanded its Term 15 and Term 30 line. The insurer now offers an option that let insured convert their T10 and T15 into T20 or T30.
“To succeed in the term market, you now have to make a commodity that is often sold based on price, more attractive because there’s always someone who will sell it for less. What the market wants is more complete products,” Stéphane Vigneault, regional vice president - Eastern Region for Sun Life, explains.
While upgrading its products, SSQ Life added a conversion option to its Term Life 10, inherited from AXA Insurance, which it acquired in 2011. Clients now have the right to exchange 10-year term for T20 or T70. The insurer offers this right starting from the first anniversary of the Term 10 coverage until the fifth anniversary, which is the industry standard, says Sylvain Charbonneau, vice-president of actuarial, medical underwriting/new business at SSQ Life.
“This addition responds to demand from our advisors and clients,” Charbonneau points out. “Many insured want to be able to extend their term insurance period without having to provide proof of good health. This option also lets them boost their coverage without increasing the premium dramatically, as would be the case if they opted for permanent coverage.”
Charbonneau adds that this option is growing more popular because needs are changing faster and faster. “A commodity product, term has become a haven for most insurers in a low interest rate environment,” Charbonneau says. “Competition around price was intense, but now it is moving to flexibility. Insurers want to build loyalty and retain advisors by offering options to meet clients’ rapidly changing needs. For instance, clients are going through different lifecycles, separating, divorcing, remarrying, moving to a new house, etc.”
Amidst the host of changes made to the FlexTerm line in March, Assumption Life added an option to modify term, the Moncton New Brunswick-based mutual confirms. The insurer says it wants to let its sales force know that it is listening to them. “The new options were inspired by people in the field who know clients’ needs better than anyone else: advisors and managing general agents,” says Assumption Life CEO André Vincent.
The conversion option meshes well with the addition of T10, 30 and 35 to the existing line of T15, T20 and T25 coverage. “The distribution network is evolving and needs are getting more precise,” Paul LeBlanc, vice-president, Sales and Marketing points out. “Our clients today have many different needs. Advisors want to be able to offer them a greater variety of terms.”
The option to change the term can be exercised between the second and fifth anniversaries of the policy, LeBlanc continues. “For example, insured can change their T10 into T20 or their T20 into T25, T30 or T35,” he says.
Competition may be shifting to flexibility, but pricing is still heated. SSQ lowered the prices of its T20, Term Life 20. “The industry got used to fierce competition in T10, but the competition has also intensified in T20 in recent years,” Sylvain Charbonneau says.
The price cut is not huge, but it does reposition SSQ in the game. “It’s about 1% or 2% on all insurance amounts for ages 35 to 55. This is the most active segment in the term market, which happens to be our target market,” Charbonneau explains.
SSQ also plans to make rate bands more “granular. “ We are currently reviewing pricing and risk selection criteria for our whole term insurance line,” he says. “By easing some medical requirements, we can move the rate band increments from 10 years to 5 years, for example.”
Assumption Life also focused on rate band competitiveness. “In general, our term portfolio targets the middle-class market,” LeBlanc says, adding that in this market one dollar can make a big difference.
The insurer trimmed its coverage limit for simplified issue for its FlexTerm, FlexOptions and ParPlus (whole life) products from $250,000 to $249,999. Insurance applications for $249 999 and under will qualify for the simplified issue process, while those for $250,000 or more will be fully priced. The result is better prices for clients, Paul LeBlanc explains.
Products can be compared more easily in third-party rating tools because Assumption Life now has the same limit as its competitors. “Typically, advisors compare prices of coverage of at least $250,000,” he explains. “We will be more competitive because before, research was comparing apples and oranges.”
Assumption Life is also improving commissions. From March 9 to May 9, 2015, the insurer is offering a 5% special bonus on first-year commissions for all FlexTerm policies placed. This comes to a total commission of 50% on all terms.