A few decades ago, someone had the simple idea to tell a unified story that paired investment tax-deferral with living benefits and it launched the current $100 billion a year variable annuity (VA) market. This monster of a market dominates in the institutional advisor channels for insurance carriers. By comparison, it dwarfs the entire life insurance marketplace multiple times over. Why is this? When we take a look at variable universal life (VUL), the equivalent product on the life insurance side of the fence, it exhibits many of the same qualities as variable annuities. The VUL version doesn’t guarantee an income, but it comes with its own form of “living benefits” such as tax-free supplemental income and long term care through LTC and chronic illness riders. It has nearly identical investment options that provide tax-deferred growth and accumulation potential, all while doing so at an equal or lesser cost than their VA counterpart. With a tax-free death benefit that annuities can’t provide, it really becomes a superior product or a “super VA” story. Taking a look at the statistics, in an alarming number of VA sales the first distribution ended up being a death benefit. Arguably, those clients would have been better served with a MEC VUL contract as opposed to a VA. So what’s the hang-up here? The real problem is that no one seems to be talking about this fantastic story and the large institutional BGAs haven’t figured out how to deliver a unified message to financial advisors. Institutions and carriers are thirsty for someone to step up and deliver results, and if the BGA can’t fill that need I’m afraid they will be forced to look elsewhere. For over 40 years, the penetration rate of advisors actively selling life insurance in the institutional broker/dealer channels has remained somewhere in the range of two to five percent. What was that old definition of insanity? Oh yes, doing the same thing over and over and expecting a different result. Perhaps it is time to start looking at a different approach to this longstanding problem.
The BGA isn’t solely to blame for the lack of advisor penetration and sales; there are other external forces that have existed. Historically, the main issue within the institutional BD channel has been the non-transactional nature of the life insurance sale. This isn’t news, and underwriting in general has never been popular in the wires. This problem should begin to weed itself out over the next 10 to 20 years as big data, predictive analytics and accelerated underwriting processes become more advanced. We have already seen this in a couple of VUL products where a policy can be issued within 10 to 15 days, as long as it is below a certain death benefit threshold and the client clears certain excluding conditions. Other carriers are well down the road to developing such programs and their capabilities and capacities will only continue to expand. This readies the mass-market platform for variable life and creates incredible potential for those willing to embrace it. The overwhelming majority of insurance professionals believe this trend of accelerated underwriting will continue and over 80 percent of general agents who participated in our annual survey believe it is very important or somewhat important to make life insurance more transactional. Easier and faster underwriting will drastically increase the appeal to the investment oriented advisors and especially those who currently market annuities.
Another issue is that, as an industry, we shot ourselves in the foot because of the way we sold VUL in the past. For too long it was sold as a max death benefit sale, using the minimum amount of premium to leverage the maximum amount of insurance along with an illustration rate north of 10 percent, which we know now to be completely unreasonable. There is no wonder why these policies blew up, and the pain it caused for sales professionals, advisors and clients has not been forgotten. If you want to sell it that way, use a lifetime no-lapse guarantee VUL product or simply stay in the fixed insurance arena. There is another way VUL can be sold, and one that opens the door to a huge marketplace. There are over 125 million people between the ages of 30 and 59 in the U.S., double the size of the 60-plus market of around 57 million (see diagram below). Illustrating VUL as an accumulation or investment vehicle, with an over-funded structure using the maximum amount of premium and the least amount of death benefit, creates an extremely resilient investment product. If you couple that structure with an industry standard 10 or 20 year no-lapse guarantee, overall market volatility becomes almost insignificant. We’ve run multiple scenarios with actual investment performance beginning in and running through the 2001 and 2008 market downturns, and the product not only maintained, but produced enough cash value to provide supplemental retirement income in later years to the client (A five-pay, overfunded scenario, across multiple carrier products). This solution is perfect for those young, healthy, high income clients who have a desire to find a ROTH alternative solution with no restrictions or exclusions. In a recent BGA survey we conducted at the broker/dealer, only 36 percent of BGAs are positioning or selling VUL in such a manner. Although most noted they are seeing an uptick in accumulation sales, the majority remains protection based. In addition to that, VUL makes up only between one and ten percent of a BGA’s total product mix in general. For a product that is ideally positioned to bridge the gap between the insurance and investment worlds, it simply isn’t being talked about. VUL is also a wonderful lead-in product, and once you have earned the advisors trust and attention you can always pivot to indexed or fixed solutions.
If underwriting becomes less of an obstacle and we can embrace the investment story tied to VUL, all of a sudden this becomes a wholesale product as opposed to a point-of-sale product. BGAs are not set up to be wholesalers, nor do they have an immediate desire to become one. It is a part of the culture in the life brokerage world where we are resistant to becoming a “product” wholesaler and don’t want to tell just one story. We need to get past that mentality if we are going to drive any real results. In the wires, around 90 percent of all life insurance sales are client initiated, which means BGAs and sales professionals have become predominantly order takers and spreadsheeters as opposed to proactive marketers. Incorporating wholesale activity into the point-of-sale model will inherently help the real underlying issues: activity levels and advisor penetration.
In order to boost the number of advisors seen, a wholesale framework needs to be introduced to the BGA distribution model. The question is how do we effectively do so? One true partner to the VA wholesaler has been the investment company counterparts with which they work. They have helped sell the investment story within the tax-deferred wrapper of the VA. The same can be done for VUL; it is just a matter of bringing the parties together and talking about the story of tax-free asset planning. At The Leaders Group, we have launched a couple of wholesaling programs together with leading investment companies where a scripted VUL presentation is delivered side-by-side with an investment presentation in front of large advisor audiences. These are the first true wholesaling programs of their kind in recent memory to market VUL to financial advisors. Having the investment companies involved in the presentation brings a familiar face and voice into the conversation and it ties the advisor into what they are already doing for a living: constructing and managing portfolios and investments.
The keys to effectively wholesaling:
- Activity, activity, activity
- Tell a unified, scripted story
- Repeat, repeat, repeat
As BGAs and life insurance professionals, we need to begin to think bigger and on a mass-market scale. We have far too good of a product story to not be telling it. One way to widen the scope of exposure to financial advisors is to appeal to their investment nature. Marketing VUL with an over-funded, accumulation design to clients age 30 to 59 is potentially a way to do just that. Using a simple, unified VUL story alongside the investment fund partners will lead to new advisor relationships and increased penetration levels across all advisor channels. BGAs need to bring a common story together, across all of their salespeople, and begin to embrace traditional wholesale techniques and practices. The bottom line is we need to protect the BGA distribution model for years to come and the way to do that is through increased activity and advisor penetration across the board.
