With price increases and tough market conditions hampering sales of universal life (UL) insurance policies, some insurers are reinvigorating their UL offerings in an effort to generate more sales. Other firms are redirecting their sales efforts toward life insurance products that have more appeal in the current environment.
Most recently, Toronto-based Manulife Financial Corp. unveiled a new suite of products, called Manulife UL, which will replace the firm’s 20-year-old InnoVision lineup of UL products. The new UL policies boast simplified features; a new, low-volatility investment option; and a revised commission structure that could give financial advisors added incentive to sell this product over others.
“Universal life sales have been slumping for the last four or five years,” says Byren Innes, senior strategic advisor, financial services consulting and deals, with PricewaterhouseCoopers LLP in Toronto. “[Insurers have] said, ‘Let’s step back and take a fresh look at what’s selling; what the marketplace is finding attractive today. How can we make this more attractive?'”
Advisors who sell the new Manulife UL policy will receive, in addition to the first-year commission, a 3% renewal commission in each subsequent year for the life of the policy – as long as the policyholder is making regular payments into the policy – rather than renewal commissions for a limited number of years, as is the case with most UL policies.
The idea is to compensate advisors for the ongoing advice that they presumably are providing to the client in the years after the sale of the policy, says David Baker, assistant vice president, insurance products, retail markets, at Manulife.
“We think that for the vast majority of cases, that’s going to help incent advisors to continue to service the business, and give them a reason to maintain that relationship with the client,” says Baker. “We wanted to reward advisors for continuing to service that business and providing advice to their customers. It helps keep that business on the books, which ultimately is in the best interest of the customer.”
Although this commission structure is not new to the insurance industry, the majority of policies pay either a small annual renewal commission for 10 years after the sale of the policy or a slightly higher percentage for just three to five years.
Stream of income
The extended renewal commission approach appeals to brokers who like the idea of establishing a long-term, predictable stream of income, says Innes: “Conceptually, the more you pay me, and the longer you pay me, the better.”
Chantal Marr, president of LSM Insurance Services Ltd. in Markham, Ont., says the prospect of being paid over the entire life of the policy is certainly attractive: “I would like to see less commission paid up front and more paid over the life of the policy. This better aligns the broker commission with the ongoing service of the policy, and it creates a more stable residual income when sales are slower.”
Manulife also tweaked the commission structure on yearly renewable term (YRT) UL policies to bring those commissions more in line with those paid on “level cost of insurance” (LCOI) policies.
Previously, advisors typically would receive first-year commissions that were considerably lower on YRT policies compared to LCOI policies as a result of the method used to calculate commissions.
“We’ve revised our commission structure to make it a little more equalized, in terms of the commission that is paid between a level and a YRT plan,” says Baker. “That is really to enable advisors to be able to present both options with equal confidence, without feeling that they’re being penalized if the client were to select the YRT plan.”
The commission changes, new investment options and simplified nature of Manulife’s new UL product could resonate well with both advisors and clients, Innes says. “It’s just a simpler, easier product to understand and to explain to clients,” he says, “and it has some lower costs associated with it. It might help Manulife’s market share.”
The launch of the product comes after sales of UL policies in Canada fell by 17% in 2013 and by 14% in 2012, according to Connecticut-based global insurance association LIMRA International Inc. Whereas UL was the top-selling type of life insurance in Canada just a few years ago, representing 41% of life insurance sales in 2008, the product’s market share dropped to 23% last year, well behind both whole life (47%) and term (30%) insurance.
“The trend has definitely been downward,” says Rob Kanehl, associate analyst, product research, with LIMRA. “The extended low interest rate environment has had a really big impact there.”
Low interest rates and rising capital requirements have forced insurers to raise prices drastically on UL policies, making the product increasingly expensive for clients. In addition, low interest rates and market instability have made the investment component of the policies less appealing for clients.
Given these challenges, many advisors and clients are shying away from UL policies and opting instead for term insurance, which is more affordable, or for whole life insurance, which exposes policyholders to less investment risk compared with UL.
“As long as I believe that [participating whole life insurance] offers more solid guarantees and a better upside for my client, why wouldn’t I sell that?” says Innes. “The opposite is true on universal life. There are fewer guarantees and the returns don’t look as good.”
Manulife is not the only insurer taking steps to try to regenerate interest in UL. Last year, for example, Quebec City-based Industrial Alliance Insurance and Financial Services Inc. launched a new UL policy called Trend. That product boasts premiums that fluctuate as interest rates change over time, in an effort to appeal to clients who are reluctant to lock into a UL policy at a time when premiums are unusually high.
Other insurers have made minor adjustments to their UL offerings, as well, says Innes: “We’re seeing tweaks out there, for sure. Everybody is always fighting for market share, so someone is always doing something.”
Meanwhile, other insurers are responding to the shift in life insurance-buying patterns by concentrating their sales efforts on more popular products. For example, many insurers have aggressively cut their rates on term policies to compete for new business in that category of the market.
“They’re focusing more,” says Kanehl, “on sales of term and whole life in general.”
Once interest rates begin to rise, however, this trend could quickly reverse itself.
“That would take a lot of the pressure off,” says Karen Terry, assistant managing director of insurance research with LIMRA. “When the environment changes, the interest in UL may very well tick back up.”
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