Page 3 Profile
The Whole Story
by Carolyn S. Ellis
L&HA Features Editor
As Senior Vice President, Individual Life, Michael Ferik oversees The Guardian's life new business and operations as well as life product development and pricing. We spoke with Michael about the return of whole life to center stage in financial planning.
L&HA: Whole life sales are up this year and that growth is importantly attributed to younger buyers. Please comment.
MF: The average age of whole life sales for the industry and at Guardian is around 37 - 38. For the last three years we have seen whole life sales growing strongly relative to the industry. Between 2007 and 2010 whole life grew by about 8% compound while the whole industry shrank by a similar amount. The consumer public and purchasers of life insurance have come to realize that guarantees matter a lot more given the economic environment. Consistency of returns and strong financial strength from companies like mutuals contribute to strong whole life sales.
L&HA: The old saying, "What goes around, comes around" applies to many things. Is it surprising that whole life is once again recognized as the foundation of a sound financial plan?
MF: Our advisors who have been selling whole life their entire careers would say whole life is a strong vehicle and foundation of your financial plan. The stats show a great resurgence of whole life sales. Going back to 2005, whole life was about 24% of all life insurance sales, but today it’s about 31 - 32%. One of our advisors sent me a note from a client thanking him for whole life they had bought five years ago because the values went up, unlike the equities markets or other asset classes. Past clients are seeing the steadiness of whole life.
L&HA: According to a national survey by The Guardian of owners of whole life insurance, whole life isn't viewed by younger buyers so much as an insurance product as an alternative asset class.
MF: When we did this survey we might have expected to find it was people close to retirement who were very worried about their financial stability. However, we found it was younger individuals who were equally if not more concerned, as a direct result of the financial crisis in 2009. With whole life, I know that if I just pay my premiums the product will be around no matter what happens to equities or investment performance. With the continued strong dividend that Guardian and other whole life products have, there’s upside potential.
L&HA: With this rising tide of strong sales, are the carriers addressing the middle market?
MF: Whole life has a correlation to mid-market because it sells at an average age of 37-38. Individuals under age 45 are starting their professional careers, building assets, and having families. At Guardian we have a good range of products for the middle market and for affluent and older individuals who have accumulated assets.
L&HA: Are current conditions bringing new products to the marketplace?
MF: We offer something called EABR, Enhanced Accelerated Benefit Rider, which will accelerate your death benefit to help cover costs for long term care if you get critically ill. This rider is free for our customers. There's renewed interest in limited-pay products. We have 10 and 20 Pay Whole Life, Life Paid Up at Age 65, and other whole life's geared toward business and individuals. Our new Hybrid Current Assumption UL (CAUL) product offers flexible payments, low cost guarantees, and excellent cash value. The Secondary Guarantee Rider offers an optional secondary death benefit guarantee competitive to life expectancy.
We have introduced what we call The Living Balance Sheet, a proprietary producer/client platform that gives Guardian clients an integrated and interactive view of their business and personal balance sheets. This is a great way for agents to help clients strategize and track more than one financial domain.
L&HA: After many years of focusing on investments, do financial advisors need retraining to sell today's life products?
MF: As we said, there are cycles in the marketplace, and right now we are in a very positive whole life cycle. Life insurance agents who focused on variable life insurance have found equity performance has resulted in a marked decrease in those sales. The insurance market in the US is underserved in how much life insurance people take advantage of, from a savings or planning perspective. More training and more interest with respect to this market is needed. At The Guardian we recruit new FRs from a range of disciplines and age groups so we can continue to sell successfully to 37-year-olds and 65-year-olds.
L&HA: From your background as an actuary, can you comment on changes have you seen?
MF: Mortality improvements are stronger than we projected 10, 20, or 30 years ago, and that has been great for the industry and for our policyholders. Competitiveness of products has improved; today about half the dividend we give to our policyholders is based on sharing mortality gains. Persistency has been on trend.
L&HA: How is pricing changing?
MF: Term insurance is most driven by mortality, and over the last decade prices have come down. They have steadied in the last couple of years and maybe increased a little, based on competition in the industry and reinsurance. But in term insurance I would say things have steadied. If you look at what I refer to as universal life secondary guarantees, over the last couple of years some companies have exited the market and a number of other companies are increasing rates. One factor is their viewpoint on what long term interest rates are. At Guardian we launched a UL hybrid product. It's a non-guaranteed interest rate, so you get accumulation. We provide a guarantee to life expectancy as opposed to lifetime. That provides value and we can still have very good and competitive performance.
L&HA: Have lower interest rates and the economic climate affected pricing?
MF: For lower interest rates, it's too soon to tell. Over the couple of years and the last couple of months prices have drifted downward. There will definitely be an impact long term. While interest rates have been coming down, they have also been highly volatile. The real question for the insurance industry is how long they will stay where they are. Everyone is just waiting and seeing if this is a short term dip. The economy obviously has slowed down sales broadly although the insurance industry rebounded in 2011. Our industry has been around for a long time. We try not to react to short term changes in interest rates, so we’ll see where those go.
L&HA: What would you say has been most significant in 2011?
MF: I'll run through some quick stats for the industry: through the first half of the year, whole life was up 10, term was down 8, universal life was up 7, variable life was up 9, and total was up 4%. The trend for us here is continued resurgence in whole life. We're up in the low 20s range this year with similar trends in the others. I'd say for us that is the marked story for 2011. We are cautiously optimistic that whole life will continue to be strong, relative to the other lines in 2012. For a mutuality with good financial strength and whole life insurance we think we have a good value proposition. But fingers are always crossed with the economy.
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