Stock Carriers Seeking Whole Life Business
August 15, 2013 by Linda Koco
At least two stock carriers — Allstate and Phoenix Companies — have debuted whole life insurance policies in recent months.
That’s surprising because whole life insurance is widely viewed as being in the province of mutual insurance companies. The permanent life product of choice for stock companies is universal life insurance, especially universal life with secondary guarantees.
Another surprise is that one of the two carriers (Phoenix) plans to distribute through independent marketing organizations. This makes the products available through independent insurance agencies, which typically do not sell much whole life insurance, preferring universal life instead. (Allstate will distribute through its “exclusive financial specialists” who support Allstate agents.)
Still another surprise is that the Allstate product will pay what it calls “excess credits” into the policy in years when that’s possible. This is similar to whole life policies issued by mutual companies paying dividends from accumulated surplus. The excess credits are not dividends, the carrier said, noting this is a non-participating whole life contract that pays excess credits based on future expected performance.
Anomaly or opportunity
Taken alone, the arrival of these products in the life insurance marketplace can be viewed as anomalies. Insurance veteran Timothy C. Pfeifer, president of Pfeifer Advisory in Libertyville, Ill., said that few stock companies have made recent plays into traditional whole life, except for some final expense and simplified issue products.
Mutual carriers “continue to dominate the market and grow sales strongly” with their participating whole life policies, Pfeifer said.
Still, whole life sales have been making waves in recent years, so it’s possible that some stock carriers want to ride the surf regardless of mutual carrier dominance.
The whole life sales wave is hard to ignore. By year-end 2012, estimated whole life sales had increased for seven consecutive years based on annualized premium, according to LIMRA. In addition, the 2012 market share was 32 percent, substantially higher than in first half of 2007, when LIMRA reported whole life market share at just 22 percent.
By comparison, universal life’s market share in 2012 was 40 percent. That’s higher than the whole life share for the year, but it’s the same market share that LIMRA reported for universal life in the first half of 2007.
The growth in whole life sales was definitely a factor in Allstate’s decision to bring out its new product.
As Lisa Flanary, Allstate vice president-marketing, described it: “About a year and a half ago, we looked at the whole life market and how it was growing. We also saw how our customers were looking for guaranteed cash values. But we were selling primarily term and universal life at the time, so there was a part of the market we couldn’t capture.”
The company decided it wanted to help its financial specialists to be able to deliver an Allstate policy to meet needs of the Allstate customer base, she continued.
Offering whole life does require different policy administration than for universal life, Flanary said, but the more the company looked into it, the more comfortable it became with the approach.
Once product developers had the new policy ready to go, Allstate conducted intense pre-marketing and training with wholesalers and, when rollout-day came in early June, “we hit it hard,” she recalled. The upshot: “Apps started coming in during the first week.”
The policies
Neither of the new products appears to be designed to compete head-on with the whole life policies of the big mutual companies. Rather, their designs seem tailored to the companies’ own business pursuits.
Take the Allstate product. Called Allstate Whole Life Advantage, this policy is designed for sale to middle-market, mass affluent and business customers as well as juveniles. It has banded face amounts from $25,000 to $5 million. There is an accelerated death benefit rider for chronic illness as well as terminal illness.
In a nod to Allstate customer demand for guarantees, the company is positioning the policy as one that has “a death benefit that never goes down,” a “cash value that is guaranteed to go up regardless of market conditions,” and “premium payments that never go up [and] in fact…may decrease and may not be required under certain conditions.”
The excess credits feature mentioned above is an added attraction. The credits are not guaranteed, Allstate pointed out, but in years when the company declares them, they are paid at the end of the policy year. Customers can choose to use their excess credit in one of five ways: buy paid-up additions, reduce premiums for the next year, get cash back, accumulate it with interest or pay policy debt.
The credits come from mortality, interest and expenses, the company said.
[Here’s the technical on that: “The guaranteed premiums and guaranteed cash values were determined using assumptions that allow Allstate to adjust to moderately adverse scenarios,” the company said. “When we project future experience to be better than the assumptions used to establish the guarantees, we declare excess credits to be paid at the end of the policy year. Allstate manages the components that contribute to excess credits and provide value to our customers.”]
The company does have a whole life policy with a $50,000 maximum face for the final expense market, Flanary pointed out. So the rollout is not technically a market entry. Rather, it represents whole life market expansion.
The Phoenix policy, on the other hand, is a market entry — actually, a market re-entry. Phoenix had sold whole life for many years before the company demutualized in 1992. But now it’s putting its toe back in the whole life waters, as a stock company.
Called Phoenix Remembrance Life, the new contract is a final expense policy that’s designed as an affordable product that can address multiple needs for middle market consumers. The issuing company is Phoenix’s PHL Variable Life business unit. Maximum face amount is $100,000, depending on age.
The policy includes several middle-market and family-friendly features and a lot of optionality. For instance, it can be set up to pay a lump sum or one of three income “coverage allocation options” that create an income stream death benefit for a beneficiary. In addition, it includes riders that can advance benefits in case of critical or terminal illness, or that can increase benefits in the case of accidental death.
For additional premium, customers can purchase family-focused optional riders that pay benefits in addition to the face amount. For instance, an education benefit rider provides up to $5,000 per year if the beneficiary (child or grandchild) attends a qualifying institution. A legacy rider provides annual “birthday gifts” of up to $500 a year until the child/grandchild reaches age 22. A lifetime income rider pays the spousal beneficiary up to $1,000 a month for his/her lifetime. And an income term rider provides up to $1,000 a month until the spousal beneficiary turns 65.
The middle market is at the center of the company’s growth strategy, Thomas M. Buckingham, executive vice president-product development and operations, pointed out in a statement. For the last several years, this strategy has focused on the fixed indexed annuity market, he added, but now Phoenix is leveraging that into its life business.
Is this a hint of the future?
Eddie Levin, owner of Levin Insurance and Retirement Planning, an independent broker in Homosassa Springs, Fla., said he has not seen a lot of stock carriers offering whole life products. But he definitely sees the customer value in selling whole life, especially participating whole life.
“Never in my 39 years in the business has anybody ever complained about their whole life policies and the cash value buildup they have,” Levin said.
“In fact, many clients call to thank me for selling them their policies. They say they wish they had bought double the amount, because ‘this is the best thing we ever did investment-wise.’ They say, ‘We can never thank you enough, because you’ve given us peace of mind.’”
