Indexed Sales are Sizzling, but is the Promise Fizzling?
The latest LIMRA numbers yielded quite a bit of good news for indexed universal life. But it was not so rosy for the rest of the universal life field.
IUL premium popped up 19 percent in the third quarter and 19 percent year to date. UL overall increased 2 percent but the YTD was –8 percent. The quarter is the latest chapter in the dramatic story of IUL, which rose from obscurity to prominence in a few years.
Of course, it’s the typical story with indexed products these days. The downside protection with upside potential is an attractive marketing message.
But marketing is the focus of greater scrutiny. The National Association of Insurance Commissioners is looking at illustrations in particular in meetings this month. Illustrations have often been under fire for unrealistic expectations. In fact, Richard Weber, examined how many illustrations in guaranteed universal life presentations bore little resemblance to real-life performance in an award-winning article that he wrote for InsuranceNewsNet.
In his report, Weber, the former president of the Society of Financial Service Professionals, showed how a few percentage points can lead to wildly inaccurate predictions of performance. The products themselves are good, but many sales pitches are a disservice to not only the client but the rest of the industry because of the doubt cast on the products.
The American Council of Life Insurers has model that the NAIC is considering. Or, more accurately, the NAIC is looking at a compromise over the ACLI model, which some critics said did not ensure a more accurate illustration. The ACLI proposal seemed to include a minimum return at the base, but it perhaps still allowed a rosy scenario at the top end.
I am not an actuary by any stretch of the imagination, so I can’t weigh in on the argument over the models, but I will say that any standard can be subverted by someone bent on making a sale regardless of a client’s best interest. If that sounds like a statement in support of fiduciary standard for all, it isn’t. After all, plenty of financial advisors acted against client interest.
As a whole, the insurance industry has an opportunity and responsibility at this moment in history. This is because fewer promises are being kept for Americans’ financial security. Pensions are of course disappearing. And retirement investment vehicles may or may not be on the upswing when retirement actually comes around.
Promises are the bedrock of insurance. So, this should be a banner time. And it is for things with a little bit of sizzle, such as indexed products. There is definitely a place for those and they are the best answer for many clients. But there is still a constituency not being well-served.
In fact, some might say it’s the most important constituency there is for this industry: widows. In a recent New York Life survey, it turns out a substantial number of widows find out their husband was underinsured far too late. Widows whose husbands had life insurance were able to support themselves for 2.5 years, but needed 14 years. That’s quite a gulf. And that’s for the lucky few who have coverage these days.
This is where opportunity and responsibility step in. The central benefit of life insurance has always been the security of those left behind. This widow survey suggests that is not being met. In the rush to sound like purveyors of financial products, it seems the insurance industry is away from its most basic job. The farther away companies and agents stray from insurance, the closer they get to being considered financial players — and everything that entails.