Business as usual, but not in unusual times. As we enter another year in a very tough economy, agents, brokerage general agencies and insurance companies face unprecedented challenges to maintain margins and market share. The following article is a representation of what we at American National Insurance Company (ANICO) are seeing and believe we will see going forward into 2013.
Actuarial Guideline 38. AG38 is a differentiator for those insurance companies that practiced aggressive pricing strategies tied to inadequate reserves. These companies are now scrambling to make up reserve deficiencies and modify or pull existing products to comply with AG38’s clearly defined reserve requirements. Conservative insurance companies such as American National, which may have not been as competitive in the past due to meeting the full AG38 reserving requirements, are excited about the opportunities of a level playing field.
Product Development. Term product rates will continue to be tweaked throughout the year as insurance companies continue to balance the need for market share while maintaining acceptable margins. As stated previously, certain insurance companies such as American National have been reserving to what we believe has always been the spirit of regulation AG38 and we are well positioned to increase market share due to a leveling of reserving requirements which others have not done until recently. More term products will include accelerated benefit riders (chronic, critical, terminal) as agents and consumers demand these benefits.
Permanent life: A continued shift to indexed life will be seen as more companies introduce IUL products. However, an increased level of agent and consumer education is needed to avoid potential lawsuits claiming IUL products were sold as investments instead of as life insurance. As a result, illustration disclosures will become more lengthy and informational. Agents will look to brokerage general agencies to explain the differences in products and help in accessing the market opportunities of IUL. This will require BGAs to change from the status quo spreadsheet presentation to one that fully outlines each product’s nuances. The IUL market will continue to be the largest life growth segment for 2013.
Annuities: As with IUL, we will see more indexed annuity products introduced during the year as agents and consumers seek downside protection with upside potential. Additional options for premium allocation buckets will continue to be the trend, yet the concern is at what point does the indexed product become too similar to a variable product. At what point do we become too aggressive with the premium allocation options and therefore subject these wonderful products to FINRA regulation? Gold, silver and other exotic premium allocation options will eventually bring the regulators to the table again to challenge who can sell this product and how this product should be sold.
Single premium immediate annuity sales will continue to increase because consumers want guaranteed income without market risk. The comfort of knowing the income generated from an SPIA is guaranteed offsets the lack of receiving larger payouts as seen in previous years. Add to the guaranteed payout the ability to surrender the contract if a consumer needs access to funds and you have a winning combination from the American National SPIA product.
Multi-year guarantee annuity sales will continue to slide due to the current investment environment. Consumers will not lock up their funds for numerous years, due to the general consensus that the economy will begin to improve in the near future.
Distribution. Many agencies have seen flat to declining sales in 2012, and this will continue to be the trend for 2013. Why? Agencies refuse to change their methods of acquiring new business and ignore the fact that there are fewer producers remaining in the business each year.
As I stated in last year’s article, far too many brokerage general agencies rely heavily on product spreadsheeting rather than adding value to their relationship with agents. Today, everyone can offer multiple products and companies; however, the successful, growing agencies are those which are agent relationship focused. These agencies bring value by providing agents with point-of-sale assistance, product education, marketing techniques and new sales opportunities.
While an agency can use a spreadsheet to illustrate the differences in premium required or loan distribution amounts, does that truly give the full story? The answer is a resounding no. What about accelerated benefit riders—does a client pay for the benefits or are these benefits part of the policy without an additional cost? How many triggers does the critical illness rider include? Is the variable loan rate set at an arbitrarily low rate which subjects the policy to higher volatility? Successful agencies must know the differences in the products, communicate those differences to agents, and assist with selecting the appropriate product for each client.
A challenge faced by every insurance company due to shrinking margins is the ability to continue to pay large fees to agency aggregators in order to be part of a “preferred” insurance company list. As with the relationship between an agency and an agent, the necessity of having a value-added relationship with an aggregator’s management and members is the key to continued support of the aggregator by the insurance company. Lack of any such relationship makes it an easy decision for the insurance company to change its focus to individual agencies and away from the aggregators. Being a part of a preferred list is not enough; loyalty must be a two-way street going forward to sustain continued support.
While 2013 will continue to be a challenging year for agents, agencies and insurance companies, there is a silver lining in every dark cloud for those who realize business cannot be conducted as usual in the unusual times we are facing.
Everyone at American National Insurance Company wishes you the best year ever in 2013. Hopefully you will experience the value-added relationships, products and sales concepts available to you from ANICO. [CWK]
