By Dave Beck
Egan, Berger & Weiner, LLC
The holiday season is now fully upon us, so by this time of year the 12th showing of Dickens’ “A Christmas Carol” has been on TV. While debate will continue to rage over which Christmas movie is best, personally, I’m partial to the Scooby-Doo version, Ho-Ho-Horrors!
Watching Shag and Scoob with my granddaughter got me thinking about how much the insurance industry has changed since I got into the business in 1985. Full of youthful exuberance and a full complement of brown hair, what scared me then is much different than what worries me now that I am wiser, and wearing the salt-and-pepper look (admittedly a little more salt than pepper).
I can’t help but wonder what the Ghosts of Christmas Past circa 1980 would reveal to us today, and more importantly, what the Ghost of Christmas Yet to Come has to tell us.
First, a look back with the Ghost of Christmas Past. In the 1980s, the old industrial life-insurance policy roots were starting to wither. Many of us may be old enough to remember the friendly life insurance agent walking door to door, collecting the weekly premiums of nickels, dimes, and quarters for the policies assigned to him.
Back then, the idea of insurance planning took the approach of, “How much can you afford? Voila, you now have an insurance policy!” That approach had little regard for how the policy or coverage fit into your overall financial plan. In fact, almost every insurance-rate manual focused on only two things: premium and cash value at age 65.
It didn’t take long for insurance planning to evolve into more than just a how-much-can-you-afford approach. Appropriately, it became part of a long-term plan, one that requires a needs-analysis.
But then the insurance world was rocked by the creation of Universal Life policies. This game-changer was brilliantly marketed by E.F. Hutton Life. Who doesn’t remember the commercial touting: “When E.F. Hutton talks … people listen.” Sheer genius.
It made sense for people to invest in these policies, because they were tied to the current market interest rates. In 1981, the prime rate was a staggering 20.5 percent and the new policy had premium flexibility to boot, so naturally, Universal Life Insurance quickly became the product of choice.
Today, things are different. Insurance rates have plummeted as life expectancy soars, the prime rate is at 3.25 percent, and thanks to the Internet, people now have the ability to buy life insurance policies online. The Ghost of Christmas Past may never have seen that coming.
The financial services profession has now also changed from product-pushing sales and commissions to being consumer-focused and advice-driven. Gone are the days of determining insurance need by how much you have in your budget, for insurance planning is now part of an overarching financial plan.
Companies use new variables in underwriting each policy, not to mention the umpteen different policy designs on the market available today—ranging from the traditional policies of yesteryear to hybrid policies that combine life insurance, annuities, and long-term care all into one. Still, to figure out what and how much insurance you need, a knowledgeable insurance agent is a must.
So here’s the big question: Will that be the case in the future? No one can state definitively what the future will hold for life insurance, but these things seem rather certain:
- There will be increased underwriting scrutiny as insurance companies look to minimize claims experience to offset the lower profit margins due to falling insurance rates, because of the increase in life expectancy and the low-interest-rate environment.
- Insurance companies will look for new and innovative ways for product distribution, since a recent study shows that among households that are likely to buy insurance in the next 12 months, 35 percent state that they have not done so because no one has asked them.
- Someday, you may be purchasing your life insurance at warehouse clubs or superstores, but that assumes that somehow a life insurance policy can be commoditized the same way that a bag of M&Ms can be.
- The changing demographic of the inevitable aging of America will certainly prompt insurance carriers to look to products that will address the concerns of that market segment while searching for products that have broader appeal through the ability to solve multiple insurance needs within one policy in a cost-efficient manner.
Undoubtedly the policies that attempt to solve a multitude of insurance needs within one policy will present insurance carriers with unique underwriting risks. So this trend will only increase the level of underwriting scrutiny, and these policies will get increasingly more difficult and complex. Moving forward, a trusted and knowledgeable financial professional will probably be needed to determine if and how a particular plan will work within your entire financial plan.
For those who love their insurance agent—have no fear; we are here to stay. For those of you who would rather have a root canal than talk with an insurance agent, I can’t promise that the insurance industry will introduce sedation insurance planning for a less painful experience.
From the ghost of the insurance professional today to all of you, please have a safe and joyous holiday season.
About Dave Beck
Beck is a partner at Egan, Berger & Weiner, LLC in Northern VA. He has three decades of experience working in the financial services industry, and more than 15 years of experience working for two of the largest insurers in the United States, including six years as the principal in a private insurance agency.
A graduate of George Mason University, with a BS in Business Marketing and a minor in Economics, Beck resides in Woodbridge with Linda, his wife. They have three children: Brian, Nicole, and Michael, and one granddaughter.
A former high school athlete, Beck plays softball and ice hockey in local leagues. He grew up in Springfield, VA, and is a staunch supporter of the Redskins, Capitals, and Wizards.
Questions? Send Dave Beck an email at email@example.com.