Guarantees, hybrid/combination long-term care products, voluntary coverage, product riders and flexible income options are some of the trends that will help mold the insurance and retirement markets in 2011.
"In today's environment, we see a shift towards protection products that offset volatility and solutions that offer flexibility. The need for guarantees has become a compelling driver, along with an increased awareness of risk. As people near retirement, understanding the risks that may lie ahead and planning for the unknown becomes more critical.
There is also a movement towards worksite products; as employers search for cost-effective solutions, voluntary coverage continues to grow in importance," explains Mark Konen, president of Lincoln Insurance and Retirement Solutions, who offers these six predictions:
Guarantees provide a compelling reason for consumers to consider the financial protection and growth potential offered in insurance and retirement products. In response to consumers' needs for greater protection during uncertain markets, expect to see continued interest in products offering guarantees, including universal life, survivorship life, variable universal life and variable annuities. As consumer risk awareness continues to rise, companies will likely look to offer additional solutions to protect consumers during market fluctuations.
2) Hybrid/Combo LTC Products
Traditional long-term care sales continue to decline while interest in combination/hybrid LTC products continues to rise. One explanation is simple: traditional LTC insurance is often viewed as a "sunk" cost; i.e. if the insurance is never needed, the assets used to fund the premiums are lost.
A hybrid policy with a long-term care rider offers an alternative by allowing the customer to reallocate cash reserves to a product that offers multiple benefits, including an optimized long-term care benefit, a leveraged death benefit (when combined with a life insurance policy) and access to cash if needed.
For example, by just taking a portion of cash reserves, an advisor can reallocate it to a single-premium purchase of a "hybrid" policy that links the benefits of universal life insurance with a long-term care rider, or to an annuity with a long-term care rider, depending on the individual's specific goals and needs.
Additionally, these hybrid products help address multiple needs by packaging protection for risks clients are concerned about as they retire, including longevity and potential long term care costs. The 2006 Pension Protection Act's tax treatment of hybrid/combination annuity/LTC products became effective Jan. 1, 2010, and many companies had products in development during 2010.
Expect to see more companies start launching hybrid annuity/LTC products.
3) Voluntary Coverage
Companies are still working within tightened budgets; however, benefits continue to be a driver in attracting and retaining top talent. Voluntary coverage options provide a cost-efficient choice for employers, allowing them to continue to offer a quality suite of insurance coverage to employees while keeping the costs of providing benefits under control.
4) Term Life
Continued focus will remain on term life products, as consumers continue to seek cost-effective plans for immediate protection. Term also will continue to be used as a complement to permanent life insurance, helping affluent clients meet other needs and goals. Term also can be used as a temporary solution for protection with an option to convert the policy to permanent insurance at a later date - for example, if cash is tied up in stock options, conversion to permanent insurance could happen once cash flow improves. Expect competition in this market-driven space to continue to be strong.
5) Flexible Income Options
Many providers will look to offer clients both variable and fixed annuity solutions in 2011. Clients who have been equity-driven in the past may feel a bit shattered by recent market conditions. Insurance providers may look to appeal to clients who want the stability of a fixed income annuity but the growth potential of a variable option by creating innovative solutions that include both fixed and variable lifetime income options.
Providers that offer lifetime withdrawals on guaranteed minimum withdrawal benefits for variable annuity products have been leading the pack in providing a guaranteed income stream that doesn't require clients to give up asset control. These solutions offer clients equity exposure to provide growth potential, while providing an effective hedge against inflation.
Insurers also are focusing on inflation-protected annuities. These annuities are helping address previous client objections to traditional single premium immediate annuities by re-engineering the traditional product chassis by offering guaranteed income, inflation adjustments to income payments, and freedom for advisors to manage clients' income more efficiently - including access to money in case of an emergency.
6) Estate Planning
Estate tax legislation will continue to be a political football - throughout 2011, carriers will likely continue to pull their estate tax repeal riders as they become increasingly irrelevant. It appears an estate tax will become a permanent fixture, and will likely result in companies re-emphasizing solutions for this market.