With pressures intensifying on their long-term guaranteed products, insurance companies are anticipating the introduction of new products which will be less risky for the insurer, but still attractive to advisors and their clients.
Paul Smith, Manulife Financial’s vice-president of marketing and product development for individual insurance says, “I think over time what you’ll see is that new products will emerge that will deliver good value and will deliver on some of the things that people like about level COI universal life and that over time people will say, ‘Hey you know what, this isn’t a bad deal’. We’ve already seen the YRT designs are changing a little bit. There might be a product that is half way between level COI and YRT that comes out in the future.”
As he deals with continuing level COI pricing increases, one advisor explains that he is exploring alternatives, such as building relationships with smaller insurers and looking at other products.
Lorne Marr, founder of Markham, Ontario-based LSM Insurance Services, says smaller companies can offer attractive products. “Union of Canada is one company that we started to do some work with. They have a pretty unique Term 100 product. It basically gives the insured the level premiums for life. It gives them a (50%) paid up feature at the end of 15 years or age 55, whichever comes earlier… Western Life is another smaller company that still has a very good Term 100 product and they haven’t adjusted the rates on it.”
He also finds smaller companies offer more personalized service. “Another advantage of working with a small company like a Western Life or Union of Canada, or an Assumption Life is that brokers can actually talk to an underwriter directly…With a Manulife that’s not possible.”
Insurance advisors who deal with a variety of carriers can still find good rates and products for their clients, he adds. “We are looking at some other policies that we weren’t offering before. For example, we were selling a lot of the 20-pay non participating whole life and Manulife got rid of that product and Empire raised their rates, so we looked at 15-pay non participating whole life. A few companies haven’t adjusted their premiums on that.” He adds that this may happen in the future so it is important for advisors to do their research and take advantage of these attractive rates now. “If you can get the company before they do their second round (of pricing increases), you can save your clients a lot of money.”
He also has a suggestion for insurers who are exploring product alternatives: “I think there is a market for a guaranteed product with higher premiums and much higher cash values.”(DG)
Does Manulife have plans to introduce such a solution? “Nothing immediate, but certainly we have seen in the U.S. that there has been adjustable (premium) products being developed that are kind of half and half. Things in the U.S. usually lead us from a market perspective.”
He adds that for such products to be successful in Canada, they would have to be priced lower than the level COI products or clients would not be willing to take a chance that the premiums could go up, as well as go down.
Peter Wouters, director, retail insurance products & marketing and tax & estate planning for Empire Life says his company is doing research and development on an adjustable premium product, although it has no short-term plans of introducing one. “One of the things we’re kicking around the table is the viability of an adjustable product and seeing how we could structure that product to recognize the current marketplace and to make this an attractive alternative for advisors and customers that protects them from any further downside and allows them to benefit in some way on an upside.”
He says these kinds of products do exist and are common outside of Canada. However, several years back they fell out of favour in this market. In today’s low interest rate environment, they have a better chance of being successful here, he believes.
This is because adjustable premium products are priced according to the current market conditions and adjust as interest rates change. “If interest rates go up, your rates should go down and you benefit.”
He adds that with completely guaranteed products the opposite happens. “If interest rates do go up, the market does improve, you don’t participate in that. You’re locked into those rates for the rest of your life…The best time to buy a completely guaranteed product is when the market is at its peak, when interest rates are really high and the forecast is that they are going to stay that way.”
Pierre Vincent, senior vice president, product strategy and business profitability with Transamerica Life Canada says he also expects new products to be introduced to the market as insurers are driven to innovate to respond to the level COI issue.
He also expects that the way advisors will sell permanent products will change because of the higher pricing. When level COI pricing was lower, it was easy for advisors to determine that, for example, $500,000 of level COI would be sufficient to cover a client’s present and future needs and this amount of coverage was affordable.
Now with prices heading up, advisors may have to look at alternatives, such as a combination of UL YRT, whole life and term. “With those products, when you combine them carefully, you can provide very good solutions to consumers.”
He believes advisors will refine their needs analysis process and use sophisticated tools to start looking at how the insurance needs of clients will vary over time. For example, advisors will start proposing a smaller proportion of permanent protection and combine it with varying lengths of term insurance as a solution that will evolve with the needs of the client.
Transamerica has been promoting this approach that it calls “layering” and offers advisors a tool called LifeScripter that helps them determine a client’s evolving insurance needs over time and how to build a solution that meets these needs. Mr. Vincent says the company is beginning to have a reasonable amount of success with this approach. He estimates that Transamerica’s sales of its YRT UL products are double the volume of the industry average and now account for 55% of the company’s UL sales, whereas its level COI sales are 45%. He estimates the industry, on average, would be selling about 75% level COI UL and 25% YRT UL.
Mr. Wouters says as demographics and regulations evolve, not just pricing but product design is going to change, as well as promotion and perhaps even distribution. “We’re going through a sea change right now in the industry and we’re not through it right now. But you’ll see companies reacting to that in different ways, either by deciding if they do want that kind of business (level COI) or if they only want it with certain age groups or amounts…”