Is the day coming when insurance agents will be selling crossover life insurance and annuity products? That is the direction Nationwide Financial is heading.
By 2015, the carrier hopes to have its first such product on the market.
That’s significant not only from a product design perspective but also from an industry status perspective. Take a look.
The crossover policies that Nationwide plans to create will combine two different types of benefits—life insurance and annuity—into one unified contract, Eric Henderson said in an interview. He is senior vice president-life and annuity and leader of individual products and solutions for Nationwide.
A crossover contract might be written for a single face amount with the two features included. For instance, it might offer a decreasing face amount on life insurance that would automatically convert to an annuity at some point in the future, Henderson said.
The benefits would be woven together, as one package.
The concept he described is somewhat similar to that used in the so-called “combo” policies, or combination policies, now being sold. These typically combine a life policy with a long term care insurance rider or a critical illness rider. More recently, annuities with long term care benefits have shown up in the combo category.
(Note: Combo policies have been seeing sales growth in recent years. For example, as a percent of total universal life sales, the inclusion of long term care riders on universal life products has increased from 15 percent for 2011 to 16 percent for the first nine months of 2012, according to a just published Milliman survey of 28 universal life carriers. In addition, more carriers are beginning to offer and track such products and nearly 79 percent of the 28 surveyed companies expect to market either or a long term care or a chronic illness rider with their universal life policies within 12 to 24 months, Milliman said.)
The crossover concept he described also hinted of the unifying approach that UNUM (then UnumProvident) took in 2000 when it debuted its Income Series of disability insurance policies. Those contracts allowed policyholders to “convert” their disability coverage to long-term care insurance, without new underwriting, between ages 60 and 70.
In addition, the idea has some parallels to the now commonplace life insurance provisions (and/or riders) that “accelerate” the life policy death benefit, albeit the similarity is less pronounced. The acceleration occurs in event of such long term care, terminal illness or other benefit triggers while the insured is still alive.
The similarity among these products is that they mix different categories of benefits together in ways that serve two or more protection needs in some fashion. All seek to broaden the appeal of the contract elements to a customer base that wants parts of the various coverages.
However, the crossover products Nationwide is envisioning would be a single unit of coverage, Henderson said. (Think crossover vehicle—i.e., autos that combine elements of cars and sports utility vehicles. The parallel is not exact but the unification into one model with features of each gets at the goal.)
Henderson isn’t detailing how the products will differ from combos, hybrids and accelerateds. Who knows, perhaps all or some of those products will be one day be included in in a “crossover group” the company might establish for internal or marketing purposes.
But what he did say is that, to make the crossovers happen, Nationwide has restructured its life and annuity departments into one department.
“We need a single unit in order to do this (because) everyone (the life insurance experts and the annuity experts) needs to be on the same page,” Henderson explained. The people who work on the crossover products will be subject to unified oversight and they will have common goals, so the development is integrated, he noted.
The initiative is part of the company’s 2020 strategy, which has specific goals for sales of annuities, life insurance and crossovers.
“We will always have life-only and annuity-only products,” Henderson said. But the crossovers will bring the two together for customers who prefer that.
The anticipated target market right now is the middle market, although this could change as development proceeds. The focus will be on providing customer value, consistency of message, and solutions that customers need over time.
The company already has one person on board who is dedicated to crossovers, Henderson added.
Anyone who has had any experience with development or sale of a new type of insurance product will be watching this with very curious eyes. Some of the things they will likely be wondering about include:
Silos. Nationwide’s unified life/annuity department might be a springboard for ideas on how to get around the silo problem.
This is the problem that results when silos inside a company conspire to block cross-pollination of ideas and coordination on product design and implementation. These silos can reflect functional duties, titles, time constraints, and product lines and any number of other demarcations. Developers across the country say that, when silos are strong, it’s like herding cats to get everyone together when building a new insurance product.
Sometimes attorneys and marketers don’t even see the product until it’s time to do the filings. Sometimes the field force never gets a look-see before day one of sales. The result is delays, mistakes, and sometimes inter-departmental mud-slinging.
Some developers may wonder whether they could adapt Nationwide’s newly combined life/annuity department into a structure that will help their companies break down those silos. If so, what would the impact be? And what else could be combined?
Regulation. Arrival of a crossover product such as described above will raise plenty of questions on the regulatory level. For instance, which laws and regulations will apply? Are new regulations needed? What to call these types of products and in what category should they be filed? What reserves are required?
Virtually all insurance innovations encounter similar questions, and carriers expect that. For some, this can be an exciting time since it may require insurance professionals to blaze new paths through the regulatory thickets. But if insurance departments don’t understand or if they resist, those “exciting times” might downgrade to “challenging times” or even “difficult times.” Depending on the hurdles, the path to product success could be a long one.
Due to potential regulatory challenges, certain carriers prefer not to be first to market with a new type of insurance policy. For them, “me-too” status is just fine. Then again, since profit is still considered to be a reward for risk-taking, others may think this exactly what they want to do. Nationwide’s move in this post-recessionary climate will likely nudge others think about this issue once again.
Producers. The arrival of unique product—as the crossover products might turn out to be—could be a mixed bag for insurance producers.
Producers who represent Nationwide will likely be happy because they will have something different to present than they had before. If the product enables them to break into new or broader markets and/or serve a previously unmet needs, so much the better. And if agents were included in the design phase, chances are good that the product will include features deemed of value from the producer point of view.
However, certain other producers (perhaps independent agents or career/captive agents of other carriers) may squint their eyes. If they perceive the product as a competitive threat, they will soon start hitting up their own carriers and distributors for comparable products or strategies. Thus might begin a new round of “beat the product,” insurance-style.
Post-sale confusion. If the products are unusually innovative, a period of confusion and marketplace uncertainty may follow the initial sales period.
This happened following the arrival of universal life, modern variable policies and indexed annuities to the marketplace. These periods initially delayed, and even derailed, sales in some quarters, but the inquiries also contributed, often by way of new regulations, to product refinement, product maturation and product acceptance.
The thing is, when companies move into brand new product territory, they don’t know if, how or when the confusion cloud might appear or what the outcome is likely to be.
Coming out of the cave
Starting in 2008, the above possibilities, expectations and questions didn’t matter much. Product development went into the corporate cave, so to speak, to wait out the recession. Out of sight was out of mind. But now, in 2013, a slow economic recovery is underway, so developers are coming out of the cave and looking around for pockets of opportunity. What they do or don’t do—and how the market might respond—matters once again.
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