08.28.18

Industry Expert: It's Time Advisors Took a Fresh Look at Insurance Products

by: Rich Blake

Since the dawn of the Caveman commercials, the experience of purchasing car insurance has been recast as pretty much painless.

Although relatively more complicated and potentially more sticker-shock inducing, buying health insurance is not exactly impossible to navigate once you get the basics down. Indeed, Obamacare was created not only to make healthcare coverage more affordable, but also easier to comprehend.

But what about life insurance? Even seasoned financial advisors find it difficult to wrap their heads around the array of product offerings (whole, universal life, term life, mortgage life) and may even steer clear of having an insurance-related conversation with a client. This inertia/bias partly owes to the shared perception that life insurance is a steeper, acutely complicated ordeal, particularly when compared to a retirement or college tuition savings asset allocation review.

These days, insurance industry members seem to be owning up to the extra-cumbersome nature of its services — and are taking steps to simplify the process, said Jill Perlin, vice president, advanced markets and sales training, individual solutions, at Prudential Financial.

"I think the overall message from the insurance providers to the distributors is simple — ‘we hear you,'" Perlin said.

One example of an overly complex insurance-related proposition is the underwriting process. In the past, this process has often involved urine tests, lab samples and full physicals administered by doctors. But these days, the process has been made less onerous as new actuarial data science techniques now allow for more efficient risk assessment strategies (provided you are a non-smoker).

"The process is getting less and less complex," Perlin emphasized. "It's a new day."

Prudential recently rolled out a new underwriting process, PruFast Track, for consumers applying for term and permanent life insurance products within specific eligibility criteria.

"We’re talking about a much more customized approach," Perlin said.

Requirements are based upon an evaluation of the client information, not just age and coverage amount. It’s also a more streamlined process. Initial submissions can be made via worksheet or drop ticket, and the client then completes the remainder of the application via a telephone interview. Some designated "accelerated cases" are approved within days or sometimes even hours, Perlin said.

The innovation is timely, with the industry grappling with declining sales.

Individual life insurance new annualized premium fell 2 percent in first quarter 2018, compared to first quarter 2017, according to LIMRA’s First Quarter 2018 U.S. Individual Life Insurance Sales Survey. This is the third consecutive quarter of declines.

“Growth continued to be hindered most by fixed universal life (UL) insurance results,” said Ashley Durham, assistant research director, LIMRA Insurance Research. “Interest rates, principle-based reserving and product discontinuation resulted in a 19 percent decline in fixed UL sales.”

Myths and Misconceptions

Perlin described some of the misconceptions that could be acting as a headwind pushing advisors away from weaving insurance products into their conversations more frequently.

One of the most common misnomers, she said, was expensiveness, a combination of the connotations of steep commissions and the stigma of inadequate value on investment.

Insurance products' value is something that should be explained through a wholly different prism, that of outsourcing risk, and not alongside, say, the upside potential of low-cost stock ETFs. This risk mitigation emphasis puts the cost in a new relative light. Even more importantly for advisors when framing the advantages of having insurance discussions — they need to address a client's entire financial picture, always looking to answer the question, what is the need here?

The two most common types of insurance — car and homeowners — are sold straightforwardly, laying off risk (or put another way, getting a sound night's sleep), Perlin explained. People realize the disruption cost should something happen to their car or home.

"Once you have the 'God forbid something happens to you' conversation with the head of a household and spouse, the need to address final expenses, to avoid piling up debt and just the overall disruption, can be articulated in a way that the relative value indeed comes across."

Planners also tend to leave insurance out of the retirement and healthcare savings conversations because mutual funds tend to dominant these conversations. It’s a myth that insurance products don’t have a role here as well.

Those savers who have hit maximums on retirement accounts can turn to cash value insurance contracts and pile money into them on a tax-deferred basis.

Insurance products are also useful in estate and succession planning scenarios. For example, Perlin said, there may be a situation where a family business is being transferred from a parent to one or more siblings, even as some other siblings are left out of the business succession equation for whatever reason. Insurance products can be used so that they can be equitably taken care of, i.e., named beneficiaries of policies. It’s important to note that there are no restrictions on the use of benefits; it doesn’t require submission of bills, receipts or any evidence that qualified expenses have incurred and can be used for any purpose.

When it comes to healthcare expenses, consider the example of chronic care riders which, Perlin said, can be added to life insurance policies as an offset to possible unforeseen healthcare expenses.

“Insurance products, because of their breadth and uniquely solutions-based nature, can be applied across generations, with options for young, middle-aged and older customers," Perlin added.