Whole Life Taking on a Whole New Life
Jan. 4, 2010 -- Whole life insurance may be an old standby in insurance circles but it is no longer sitting on the sidelines of insurance promotions. It may even become a regularly brokered product.
Just a few days after the start of the new year, MetLife rolled out a new dividend-paying whole life policy with a flex term rider and a slew of other riders. Called MetLife Promise, it is designed to be sold not only through MetLife’s traditional distribution channel but also through brokerages.
In fact, MetLife has already notified its third-party partners that the policy is available for brokering, a MetLife spokesperson said.
WL promotions are showing up in another surprising channel — the rate quote websites. For instance, a life quote website called wholelifeinsurance.net recently sent out an “info-article” (essentially a press release) discussing the pros and cons of whole life insurance. This is not the only quote engine to highlight WL issues and offerings, but this firm is actively promoting WL insurance in a more deliberate manner than many others.
During much of the 2000s, many insurance agencies, brokerages and carriers, as well as online quote engines, gave far more attention to offerings of less expensive and more flexible policies such as term life and universal life with secondary guarantees. WL was seen largely as a niche product, not a head-turner.
Sales trends are no doubt spurring the increased promotional efforts. Consider: Both of the above developments came on the heels of last quarter’s LIMRA findings that WL sales rose by 6 percent in the third quarter compared to the same quarter of the previous year, and by 15 percent for the first three quarters.
Third-quarter growth is down from the 15 percent and 23 percent increases the WL industry had seen earlier in the year, LIMRA has pointed out. Still, total annualized premium sales were up by 30 percent for the first three quarters.
The third quarter results could even be viewed as part of a new pattern. In third quarter 2009, individual WL sales also rose — by 12 percent, LIMRA says. And in third quarter 2008, they rose by 7 percent for the quarter and 2 percent year to date, LIMRA says. By comparison, in third quarter 2007, LIMRA was reporting that annualized WL premium was flat compared to the same year earlier period, while variable universal life was up 55 percent and universal life was up 23 percent.
Many in the industry believe the sales pendulum has been swinging in WL’s direction due to consumer reaction to the prolonged recession, which started in 2008 and is only now starting to resolve. More and more consumers now want financial predictability and certainty, experts say, and those consumers want the cash value and death benefit guarantees that WL offers.
Security Mutual Life, Binghamton, N.Y., touched on that subject late last September when it refreshed its own WL products by adding a new flexible paid up additions rider and a new level term rider.
WL sales have been rising at the company in part because of the strong cash value guarantees that come with WL products, the mutual insurer said at the time. Policyowners like the fact that they can make policy loans against the cash value to help finance expenses, the company said.
The distribution challenge
Increasing WL sales is not an industry-wide phenomenon, however. The lion’s share of WL business is being sold by mutual companies. In fact, LIMRA has reported that mutual companies represented two-thirds of WL sales in 2009.
That means producers who represent stock companies may have little or no access to a market for WL products. Many are selling universal life with secondary guarantees instead, but if a producer believes a client would be better off with a WL product, the producer may end up referring out the case to a WL firm. This will probably never change unless a brokerage market for WL opens up in a major way.
But substantial WL brokerage activity could happen, given that MetLife is offering to distribute its own WL through brokerages, says Dale Hagstrom, a consulting actuary with Milliman in New York City.
Also, he says, some smaller mutual companies might be willing to broker WLs as well, as a means of increasing production.
This is apparently already happening. For instance, Security Mutual distributes its products through independent agents. In the process, it works with brokerage general agents (as well as personal producing general agents), says George B. Kozol, senior vice president –marketing. For the past 2.5 years, “our leading product at some brokerages has been whole life,” Kozol says.
Most stock companies do not have the infrastructure to develop, sell and administer WL policies, Hagstrom notes. Many stock companies have “factories” that are designed for development, sales and administration of universal life and term life, he explains.
“But it takes completely different underlying machinery to operate and administer WL products, especially WLs that pay dividends and offer various options for using those dividends. Most stock companies probably don’t want to invest the resources necessary to develop this, especially since the volume of WL sales would be uncertain.”
Another factor that is making WL sales difficult for stock companies is New York Insurance Law Section 4231 (f)(2)(B), Hagstrom says.
This law limits the profits a stock company can earn and keep on sales of participating products, including participating WL products, he says. Furthermore, the law applies the limitation to participating business produced by stock companies not only in New York but also in any other state.
That limitation can have a lot of financial impact on a company, Hagstrom says, noting it is a deterrent to stock companies that might otherwise want to enter the WL market in response to today’s rising demand for WL.
The limitation would also be a burden for insurance companies that once were mutual companies but have since converted to stock companies. A lot of those companies have since left the WL market, in order to devote more resources to selling universal life and other non-participating products. It would be expensive for them to return to WL sales now, Hagstrom says
Then again, MetLife is no longer a mutual company. It “demutualized” and became a stock company in the late 1990s, yet it continues to offer, update and enhance its WL policies.
No doubt, MetLife has found a way to produce an adequate return on capital for shareholders with its WL products, despite the New York limitation on profitability, Hagstrom says.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].
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