Merle Gilley normally seats about 60 agents for his training seminars on selling indexed universal life insurance.
Since the spring, he has been more popular than a dressmaker during wedding season. When it came time for Gilley to book his August seminar, he traded the 60-seat room at the Westin for one that seats up to 200.
Gilley, president of TriQuest USA in Virginia Beach, thinks he knows the source of his sudden popularity.
“The guys that are coming to see me, their primary market was the senior market,” he explained. “These are the guys that were selling indexed annuities to seniors and replacing 401(k) and IRA money. But the DOL has come out and highly regulated that market, and it is going to continually get tighter and tighter.”
That IUL is striking sales gold is no secret to anyone paying attention over the past few years.
But will IUL continue picking up business in the wake of the fiduciary rule? Those who sell IUL expect it to continue to flourish.
“I’ve watched the IUL market go from $43 million a year in national target sales when I first started to I think it’s close to $3 billion now,” said Gilley, in business for 19 years. “I’ve seen the transformation from having two or three carriers in the whole USA selling IUL to just about every carrier that’s anybody carrying an IUL in their portfolio.”
Overall, trends in life insurance are being driven by changes in three main areas: product/sales, regulation and agent force. The industry is seeing dynamic product and sales growth, but is equally challenged by regulatory pressure and difficulties in agent training and recruitment.
Product/Sales: While IUL is the star here, the good news does not end there. Whole life continues to post strong sales growth. And new riders for long-term care and disability coverage are adding sales zest across all life products.
Regulation: The Department of Labor’s fiduciary rule is directing regulatory attention to annuities, to the benefit of IUL. But recent regulation on illustrations from the National Association of Insurance Commissioners (NAIC) is having an impact on IUL sales practices.
Agent Force: The average age of agents is 59, and the sales force is not very diverse. That is making it difficult for the industry to make inroads with millennials and minority populations, as well as to grow business through social media tools.
IUL strikes a balance between traditional life insurance and market flirtation that has resonated with investors. The product boasts some of the strongest sales growth in the industry.
IUL new annualized premium increased 13 percent in the first quarter of 2016, according to the LIMRA U.S. Retail Individual Life Insurance Sales Survey.
The product was the second-biggest driver of overall individual life growth and now represents 56 percent of UL and 21 percent of all individual life premium.
In short, sales are booming. A decade ago, IUL sales totaled $252 million for the year. In 2015, agents sold about $1.8 billion worth of IUL premium, according to the Wink Sales & Market Report.
Likewise, whole life continues to sell well, with annualized premiums up 11 percent and number of policies up 6 percent in the first quarter, according to LIMRA data.
Whole life has seen 10 consecutive years of growth and, as of August, represented 36 percent of the total life insurance market, according to LIMRA data. Mutual companies, which are the primary sellers of whole life, were able to ride out the recession largely because they did not have to show the returns that public companies do.
Whole life products also benefit from their guaranteed premium and coverage amount, as well as their potential to earn dividends, said Mark Morris, senior public relations consultant with LIMRA.
“Consumers say they value these guarantees, especially during times of uncertainty,” he said.
Sixty-five percent of life insurance companies, including seven of the top 10 carriers, showed positive growth in whole life sales. LIMRA is forecasting positive growth in whole life for this year and continued growth through 2019.
Mutual companies continue to dominate whole life sales, enjoy strong credit ratings and perform well financially. Northwestern Mutual, for example, provided an estimated $5.6 billion to policy owners through its 2016 dividend payout.
Ordinary and group life remain core to the industry, contributing 27.1 percent of direct premiums in the first quarter, according to A.M Best data.
“While growth for ordinary and group life sales has been slower than for annuities, it is expected to remain a key driver of long-term in-force profit for the industry,” the report stated.
Riders on the Storm
Unique riders are helping prepare and insure consumers for a variety of late-life events — most important, health care challenges.
Many riders allow access to cash value in the policies (if conditions meet the terms of the riders) to help clients pay for assisted living, nursing home care, adult day care and more.
Speaking at LIMRA’s annual Life Insurance Conference in April, Steve Saltzman encouraged agents to get more involved in holistic planning. Riders are key to growing the book of business, he stressed.
“Consumers are engaged, and they’re looking for help as it relates to having a better plan and potentially transferring some of that risk, and that’s what these products tend to do,” said Saltzman, principal with Saltzman Associates in Waxhaw, N.C.
“When seniors were polled about what their greatest financial worry is related to retirement, health care expenses top the list,” he added.
Sales numbers bear that out.
Premium for products with riders increased 14 percent in 2015, a rebound from the decline in new premium growth in 2014, according to LIMRA data.
New premium totaled $3.1 billion in 2015, which represents 15 percent of all new premium collected for individual life insurance products. There were more than 200,000 life policies with riders sold in 2015, a 37 percent increase compared with 2014 totals.
Regulations Driving Trends
A couple of significant regulatory moves are also affecting life insurance sales.
On April 8, the Department of Labor published its long-fought fiduciary rule. The industry successfully defeated the DOL’s 2010 proposal, and three lawsuits are underway to delay or overturn the current regulation.
But odds are growing that advisors and agents are going to be adhering in some form to a fiduciary standard; if not the DOL rule, then possibly an SEC standard called for under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
That means adhering to a restrictive best interest contract exemption (BICE) if agents want to continue selling popular fixed indexed annuities (FIAs) on a commission basis. It includes arduous disclosures, liability exposure and a signed contract between agent and client.
IUL is very similar to the hot-selling FIAs. Both give consumers future, tax-deferred earnings, along with the possibility of some gain tied to an index.
Agents interested in switching their product focus from FIAs to IUL will find carriers — led by Allianz Life — swiftly adapting to market pressure.
A top IUL seller in the independent distribution channel, Allianz moved quickly to draw agents to its Life Pro Plus product.
Just weeks after the fiduciary rule was published, Allianz announced it was adding a convertible term rider and a multiplier interest bonus to the Life Pro Plus IUL.
The rider allows the policyholder to add term insurance to their permanent policy and have the option to convert all or a portion of the term coverage, over time, to permanent coverage.
The bonus design uses a multiplier to grow the accumulation potential of the policy. Beginning in year 11, the bonus is calculated based on any interest earned throughout the policy year, and credited annually, with a cap of 1 percent.
“The latest enhancements provide consumers with increased flexibility to address a variety of changing needs, from a new addition to the family to an unexpected financial obligation,” said Jason Wellmann, senior vice president of life insurance sales for Allianz Life.
The product design changes accomplish another important goal as well. They put Allianz in the news and at or near the top of sales spreadsheets at a time when agents are looking for IUL products.
Although the DOL targeted annuities with the fiduciary rule, analysts say some life insurance sales could be affected.
The fiduciary rule governs advice on qualified retirement account money. So that means all life insurance sold into 401(k)s and purchased with plan distributions will be covered by the new rule.
Experts say the direct impact on life insurance sales might not be significant, but agents need to be prepared.
“While not a broadly used strategy, selling life insurance to a 401(k) plan is certainly covered by the rule,” said Caleb Callahan, chief operations officer and executive vice president of ValMark Financial Group. “That one is a direct bull’s-eye in terms of what the rule covers.”
With the fiduciary rule tied up in court, the final regulations for selling products into retirement funds are not yet finalized. The DOL has said it will issue guidance to clarify aspects of the rule, and has not ruled out significant changes before the rule’s initial mandates take effect in April 2017.
The National Association of Insurance Commissioners is the primary source of life insurance regulation. Last year, the NAIC finalized its two-part Actuarial Guideline 49, known as AG 49.
The regulation came about in response to concerns that IUL illustrations were unsustainable.
As IUL sales boomed, Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink, said the potential for lawsuits grew as well.
Part one of the guideline went into effect Sept. 1, 2015, and resulted in more reasonable illustrated rates below 7 percent for products. It also required that companies be able to support those rates for the life of the product.
Provisions detailing information on policy loans and establishing additional standards went into effect for all new business and in-force life insurance illustrations on policies sold on or after March 1, 2016.
Separate from the loan illustration disclosures, agents have to present three other new illustration disclosures.
So far, AG 49 is drawing a mixed reaction from the industry. Moore can live with the limits on illustrated rates.
“It’s not how I would have done it,” Moore said. “But it’s livable, and I think it’s going to help insurance companies in the end.”
In fact, Moore thinks AG 49 will help preserve the IUL market.
“Indexed life is a great product and I want us to be able to use it as insurance professionals,” she said. “I don’t want it to get a tarnished name due to a whole bunch of class-action lawsuits and suitability problems.”
The changes to policy loans limit interest rate differences that can be illustrated between interest rates credited to loaned amounts and the corresponding loan rate charged to the loan balance.
If the illustration includes a policy loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge by more than 1 percent.
That means that for a carrier charging 6 percent loan interest, for example, the maximum illustrated rate on the loan balance cannot exceed 7 percent.
‘Off the Deep End’
In other words, AG 49 slammed the brakes on wide interest rate differentials, also referred to as “loan arbitrage,” which played into the hands of skilled agents.
Moore is no fan of the loan changes.
“I really think that they went off the deep end with that,” she said. “It’s not what I had in mind at all. It’s not very flexible at all. And it’s also discriminatory.”
The loan change gives whole life products an advantage over IUL, Moore said. A whole life product with a dividend could illustrate a positive arbitrage much larger than 1 percent, she explained.
Richard M. Weber predicts the NAIC will revisit the rule because the allowable percentage is still too high.
“I think AG 49 certainly accomplished its objective in coming up with a rationale for a number that is based at least on something historic,” said Weber, president of the Ethical Edge, a fee-only insurance fiduciary advisory firm, “rather than just whatever the company happened to allow as a default.”
Weber’s company offers fee-based consulting in a number of areas of life insurance policy management. The company never recommends illustrating a policy at more than 5 percent, he said.
“If the performance is better than that, then that’s good for the policy owner,” Weber said. “We would much rather have performance be a positive than a negative for you. We want you to start with a reasonable expectation.”
Agents in Turmoil
The fiduciary rule is forcing some agents into a choice: get a Series 65 license and keep selling annuities under the new rules, or focus more on IUL and other life products.
That regulatory pressure just adds to the difficulty of attracting talent to the industry. Establishing a client base and making enough sales for a decent paycheck take time.
To make matters worse, outside forces — for example, the rise of technology and lack of diversity — are making it harder for traditional agents to best serve the market.
The average age of insurance agents is 59 and trending higher, noted Ernst & Young analysts in the 2015 Retail Life Insurance and Annuity Executive Survey. Agents and carriers most receptive to change are adapting much better.
Historically, selling insurance is a “low-engagement” process with customers.
“We kind of set up our businesses where we sell you a product and then we leave you alone,” said Doug French, principal with E&Y.
Changing that tradition will be hard, but insurers need to develop a “holistic” approach to customer relationships, he added. The report refers to this as “life-cycle selling.”
“The key is to change the role of the agent at the point of sale to unlock customer lifetime potential, not just take an order or close a sale,” the survey states.
For instance, this cross-selling could include integrating 401(k) plans with options for life, health and disability insurance.
Today’s customers are accustomed to being served through a variety of digital platforms. The traditional insurance agent sitting behind a desk meeting with clients isn’t going to work anymore, the E&Y report said.
At the very least, insurance companies need to have a presence online, because that’s where the customers are. Thanks to the internet, customers have “unprecedented access to pricing information,” the report noted. That is feeding the rise of robo advisors and self-service.
In order to better reach millennials, insurers are trying to streamline the buying process, Mary Pat Campbell, vice president of insurance research at Conning said, with varying degrees of success.
“That age group is used to not having to go through the rigmarole of the sales process that you generally have to do with life insurance,” she added. “So various players are trying to reduce some of that buying pain.”
The spotty economy since 2008 and persistently stagnant wage growth are other issues affecting low life insurance ownership, said Scott Hawkins, vice president of insurance research and consulting at Conning.
“You have other pressing demands for your disposable income, and life insurance, in surveys, oftentimes falls to the bottom, which is certainly understandable,” he said. “It’s this message of you need to prioritize retirement, then health insurance and life [insurance] last.”
Many top insurers are very eager to diversify their advisor force, Hawkins said. It could be the key to unlocking significant sales potential.
“When you look at the demographic makeup of most financial advisors, they are solidly middle aged, solidly white and solidly male,” he noted. “In an increasingly diverse America, that presents a challenge in marketing.”
Meanwhile, Gilley is watching the trends and adapting on the fly in his Virginia-based marketing organization. While his training seminars are a hot ticket, he wants to stay one step ahead of the transitory life insurance marketplace.
That means being ready for an influx of agents who want to move from selling annuities to selling life insurance. In business for 15 years, Gilley has between 3,000 and 3,500 agents selling IUL.
“I love life insurance. I always have,” he said, bullish on IUL. “What other product is there in the marketplace that will give me some upside potential but limit my risk?”