The life insurance industry urgently needs to innovate or run the risk that its slow pace of modernization will begin driving away potential customers. That’s the message that Jim Burton, chairman and CEO of Toronto-based insurance distribution firm PPI, wants to send to his peers in the industry.
“There’s a need for innovation,” he says. “Insurance products are very rigid. The consumer needs to have the flexibility to adapt and adjust, make choices and not be locked in. I’m throwing a challenge out to the broader industry; to say: ‘We should be thinking of these things when we’re designing products’.”
Innovation always has been a challenge for the life insurance industry, says Anil Sanwal, vice president, group products, global group reinsurance, with RGA International Corp. in Toronto, a division of Missouri-based Reinsurance Group of America Inc.
However, as other industries innovate and customers become accustomed to products and services that are steadily evolving, modernizing product offerings is becoming increasingly important for insurers, he says.
“Historically, insurance companies haven’t focused as much as they should on creating a culture of innovation,” Sanwal says. “Now, there is additional pressure for insurance companies to think about what’s happening in proximate industries, such as, for example, online retailing.”
In particular, online retailers have created expectations among consumers of quick and convenient transactions and an endless array of product options, Sanwal says. In comparison, the long application process and inflexible products often associated with life insurance are falling short of those expectations.
“We need to make [product selection] easier,” he says. “If we don’t do anything, then we’re just going to disappear. There are enough disrupters around that are giving insurers the incentive to perk up and say, ‘If we don’t change, we’re going to become obsolete’.”
PPI recently collaborated with Quebec City-based Industrial Alliance and Financial Services Inc. (IA) to develop a new “hybrid” permanent life insurance product called EquiBuild that combines features of whole life (WL) and universal life (UL). The product is PPI’s way of addressing a perceived lack of flexibility in some insurance policies.
“Today’s consumer, particularly millennials,” Burton says, “need to feel that they’re empowered to make choices.”
In designing EquiBuild, PPI and IA wanted to create a product that combines the flexibility of UL with certain advantages of WL. For example, the product features an option to participate in a low-volatility investments, called EquiBuild Fund, that has returns that are “smoothed” over time, similar to the investment funds used for participating WL policies.
EquiBuild policyholders also have an opportunity to earn an annual “bonus,” similar to a dividend. (Unlike par policy dividends, however, the bonus is based only on the performance of EquiBuild Fund and not on the mortality of policyholders.)
An EquiBuild policy also provides an opportunity for policyholders to purchase additional paid-up insurance over time to increase the value of their death benefit (a feature typically available only on WL policies) and offers guaranteed cash surrender values, which generally are offered only on WL and limited-pay UL products.
However, EquiBuild has different investment options for clients like a UL policy does. EquiBuild also lets clients choose how much to pay into their policy and enables them to pause payments for periods of time by using the cash in their policy to cover premiums.
“[EquiBuild] has some interesting features that make it very similar to a WL plan with the flexibility of UL,” says Asher Tward, vice president of estate planning with TriDelta Financial Partners Inc. in Toronto. “[EquiBuild] definitely is innovative.”
PPI and IA wanted to incorporate as much flexibility into the product as possible in order to enable clients to customize their policy to their own preferences and make changes throughout the life of the policy as necessary, Burton says. For example, EquiBuild policyholders can switch their policy from individual to joint last-to-die coverage after the policy is in force if their estate planning needs change.
“We have too many examples in which people bought a policy, but then things changed,” he says.
Adding more flexibility to permanent life products presents a new option for clients who previously have considered only term insurance, Burton adds: “Part of the reason that many people buy term insurance instead of a longer-term choice is that they don’t want to be locked in.”
Now, Burton urges other industry players to develop their own ways of shaking up traditional products and practices.
Tward says that seeing insurers developing new options for clients is encouraging: “It’s nice that the industry finally is innovating.”
Thus, he anticipates that the par-style EquiBuild Fund will be an appealing option for conservative clients, given the low returns they’re earning on most fixed-income investments. The fund offers a guaranteed return of 5.5% through 2019.
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