Insurance Product Development in a ‘Wait and See’ Mode

ORLANDO -- When it comes to insurance product development under a Department of Labor fiduciary rule, the story is important.

And that doesn’t mean a page-turning novella, said Tim Pfeifer, president of Pfeifer Advisor in Nashville, Ill. The story refers to why a particular product is a match for the client.

“When an advisor decides to sell a variable annuity, especially in the qualified world, it needs to have something to justify its sale beyond a large selection of investment options,” he explained. “It needs to have something that maybe only an annuity can provide, which is maybe guaranteed lifetime withdrawal benefit, an enhanced death benefit, something that enables the advisor to say ‘This was an appropriate product because they can’t get this anywhere else.’”

The fear is being the focus of a class-action lawsuit, as permitted by the DOL rule. Those stakes have led product manufacturers to a “wait-and-see” mode until the rule is sorted out, Pfeifer said.

He will be joined by Scott Dunn of Scott Dunn Associates to give a presentation on product development at the LIMRA Retirement Conference today.

There really isn’t much to tell beyond some development of fee-based variable annuities, said Pfeifer, who advises companies on life insurance and annuity products.

“People want to see what the new normal looks like,” he said. “Are we in a new normal no matter what happens? Or, if the fiduciary rule were to go away, would things snap back to normal?”

There won’t likely be much more development of fee-based VAs, Pfeifer said, because the producers interested in having those kinds of products are already in the market. Others are waiting to see how those efforts sell, he added.

A lot of the fee-based products will move toward having a very basic foundational product, but in addition offer ancillary benefits such as a GLWB or a death benefit enhancement of some kind, he said. While these options will come at some additional cost, they enable the VA to offer some things that a mutual fund can’t.

One of the biggest challenges in moving to a fee-based world is getting some of the administrative linkages down, Pfeifer said. That includes everything from not only what  you show on a customer’s statement when it comes to a VA, to things such as where the fee is drawn from.

“Carriers are finding this to be an educational process because generally you don’t want to have to take a fee out of the variable annuity,” Pfeifer explained. “You’d like to be able to take the fee from somewhere else -- a dedicated account of some kind.”

Regulatory pressure will continue to make agents and advisors wary about what product is right for the client, Pfeifer said. For example, clients who currently are buying annuities - but have no intention of taking out income – are clients who should be buying life insurance.

Regardless of what happens on the product side, compensation is in the crosshairs, Pfeifer said.

“Are advisors being paid appropriately for the type of advice they are offering? That’s been drawn into question,” he said. “Whether DOL happens or doesn’t happen, I think that is a question that is now firmly on the table.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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