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Distribution Leaders Round Table Future of Life and Annuity Product Development

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Distribution Leaders Round Table Future of Life and Annuity Product Development

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  1. Distribution Leaders Round TableFuture of Life and Annuity Product Development Naples, Florida February 9. 2012 Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC

  2. Opening Comments • Note: The title of this session is directed at the future of product development, not the future of products. • The process of developing life insurance products and annuity products has certainly undergone changes in the last five to ten years. • Indeed, the process of product development is interwoven with the kinds of products that are being developed. • The last half of this presentation will focus on the industry product path over the next ten years.

  3. Key Product Development Tenets of the Future NUMBER 1 The Product Development Cycle will Shorten • State filing efficiencies • Competitors are speeding up • Field expectations • Impatience • Improved technology • Must exceed, not just meet peer products Product A Product A–1

  4. Key Product Development Tenets of the Future True Creativity will be Challenged by Multiple Factors NUMBER 2 • Regulators/ regulation • Systems is still generally the critical path • Producers, despite outward appearances, want familiarity • Insurers’ cultures are conditioned to avoid risk of spectacular failure “ME–TOO” “AN IMPROVEMENT ON SUCCESS “GAME CHANGER”

  5. Key Product Development Tenets of the Future NUMBER 3 Pricing and Product will Give Way to Process Product Process Pricing • Harder to differentiate • Too easy to copy • Complexity of products • Simplified issue • Non-invasive underwriting • E-apps and e-issue • Efficient market comparisons • Common pricing parameters • “More money than time”

  6. Key Product Development Tenets of the Future NUMBER 4 Intensify Quest for Game Changers • Higher Interest Rates • Medical Breakthroughs • Technology • Flatter Commissions • Reasonable reserves and capital • Management of Inforce Business External Internal

  7. Key Product Development Tenets of the Future NUMBER 5 A Full Product Suite is No Longer Necessary Many resources exist to compare competitiveness Carriers feeling that certain products do not play to strengths Captive distribution more likely to demand full range of products Buyers seeking pricing mistakes? Variable annuities and no-lapse UL out of favor Less price-sensitive within a range

  8. Key Product Development Tenets of the Future NUMBER 6 Adoption of Marketing/Promotional Elements from Other Industries 2 for 1 First Month Free Reward Points Loyalty Rewards Market Segmentation On-Line Discounts Cross Selling with Unrelated Business Partners Multi-Phase Marketing

  9. Key Product Directions in the Future Low Interest Rates Increase in No-Lapse UL Prices, and More Exits from Market Regulatory Crack Down on AG38 WHY? Delays in PBR Re-trenchment of Pacesetting Carriers

  10. Key Product Directions in the Future Relative advantage in low interest rates Emergence of Indexed UL as a Swiss Army Universal Life Product Uses for accumulation, income, and protection WHY? Expansion of crediting formulas, indices Rise of limited pay, modest underwriting varietals

  11. Key Product Directions in the Future What About: Variable UL Term Par WL • Mild Awakening • Low interest rates • Modest guarantee features • For sophisticated buyers • Still a shadow of former self • Higher Prices • Lack of reinsurance leverage • Underwriting pullback • Low interest/no PBR • Mortality flattening • 20 year Term: linchpin • Continued Strength • Low interest rates gives relative boost • Strength of carriers writing • Portfolio yields will support PLUS: Life Settlements Survivorship Guaranteed Issue

  12. Key Product Directions in the Future ANNUITIES Which lines will struggle? • New sales not biggest problem • Inforce renewal guarantees are for some carriers Declared Fixed Rate Annuities (DRFA) • Highly correlated to yield curve • Fear of negative MVAs Market Value Adjusted Annuities (MVA) • Liquidity concerns • No interest leverage Deferred Income Annuities (Fixed)

  13. Key Product Directions in the Future ANNUITIES Which lines will thrive? Indexed Annuities Variable Annuities SPIAs • Continuing GLWB focus • Indexed SPIAs • S&P variations until interest rates rise • Commission and bonus reduction – new channels • Carrier control of investments • Litigation risk • Deferred income VA with guarantees • Pressure on fees • Growth despite low rates • Current under-pricing • Demographics undeniable, especially with captive producers • Liquidity thrusts

  14. Thank You! Timothy C. Pfeifer, FSA, MAAA E-mail: tpfeifer@pfeiferadvisory.com www.pfeiferadvisory.com