OneAmerica CEO: Company Focusing on More Traditional Life Products
April 16, 2014 by Fran Matso Lysiak
OLDWICK, N.J. – Equity-indexed universal life, while a popular product, is not something OneAmerica Financial Partners is interested in pursuing for now, according to Scott Davison, who this month took the helm as chief executive officer of the company. OneAmerica isn’t sure that equity-indexed life products are sustainable and instead prefers the more traditional whole life product, he said.
Q: We still have low interest rates and regulatory issues. What do you see as challenges as you take the helm?
A: For us, we’re in businesses that we think are sustainable for the long term. There are certainly challenges. Low interest rates are No. 1, I think, for everybody in the industry. We’ve had a very strong investment team and strong investment performance over the years, so that takes a little of that pressure off of us.
Also, we take a very long-term view of the market. We’re able to stay in some product lines even in times of difficult economic circumstances, because we’re in them for the long term. A good example would be our life insurance products, which are challenging in this type of a low interest rate environment.
I think from a regulatory standpoint, that’s continuing to become more and more challenging as we continue to see layers and layers of regulation coming down the pike. We’re just going to have to adapt to that. Most of that regulation, if not all of it, is well-intended. It’s intended to protect the consumer.
Q: What are the main reasons the industry is continuing to have some challenges getting individual life insurance sales back up to pre-financial crisis levels?
A: It’s been a challenge to the industry. We’ve had pretty good results. Our five-year annual growth rate has been about 21%, where the industry’s been down a little bit over that time period. From my perspective, I think a lot of it stems from some companies getting caught in a cycle of chasing after unsustainable product designs.
I worry also about equity-indexed universal life, not that I think that’s a bad product design, but there are challenges with how that’s sold and illustrated in the marketplace. That’s an area that’s a big growth opportunity today that we’ve said no to for now, because we’re not sure that it’s sustainable, given how it’s being sold today.
For us, we’re focused on whole life insurance, which is a very traditional product, but it’s had great sales results and a lot of attraction in a post-crisis world, because of the guarantees in it, and in asset-based long-term care. The life insurance component of that is built on a whole-life chassis. We think that’s a great product, very sustainable over a long period of time. Sticking to those basics has helped us.
Q: Some say there is a serious agent shortage out there. What is your view on that?
A: I think there is, and again, it gets back to, we haven’t done a good job as we’ve moved, as an industry, more towards independent distribution. There aren’t as many companies bringing in young people into the industry.
You’re seeing a shortage of agents. We’ve seen a big drop-off over the last 20 years in the number of agents out there in the individual market, and you’re seeing fewer young people being brought in and properly trained on the fundamental principles of our business that have always been true.
Q: There is another wave of some significant premium rate increases being sought in long-term care by some high-profile insurers, primarily on older and closed blocks of business. Your thoughts on this situation?
A: The health-based long-term care business has been a huge challenge for everybody involved. It’s been a challenge certainly for consumers. It’s no fun to get a 25, 35, 45% rate increase, particularly if you’re in your retirement years and you’re already struggling with the fact that you’re living on a fixed income.
It’s been a challenge for regulators who are looking to protect the consumers, but also to keep companies in the game, and it hasn’t been any fun for many of the companies serving that part of the market with that product line, because they’ve struggled to get the returns on capital that they need, which is why they’re asking for large rate increases.
We take a totally different tack on that business. We don’t believe that the health-based long-term care avenue is the way we should be going after serving that need. We are a significant player in the asset-based long-term care business, so combo products is what they’re also called, where we use life insurance or an annuity contract combined with integrated long-term care benefits to help the customer re-position their savings to cover the needs of long-term care.
Huge leverage in those products, both using the life insurance and annuity chassis and also, based on some of the changes in the tax law the last few years, there is an enormous advantage for people re-positioning their assets in that way to cover long-term care.
Q: OneAmerica is in the retirement plan business, geared to small- and midsize employers. What are trends and opportunities your company is seeing in this line?
A: It’s been a great growth business for us. We’ve been growing, most years, double digit for the last several years. Last year, a little slower, about 8%, but the industry overall was down in sales last year. Some of that may have been because of the distraction caused by the implementation of the Affordable Care Act, but we’re still seeing strong sales, even into 2014. It’s a changing market. It’s certainly very dynamic, from a regulatory standpoint, so that can be a challenge.
Q: What are the top regulatory challenges facing the retirement plan industry, particularly defined contribution 401(k) plans?
A: There’s a fair amount of uncertainty there. I think the biggest thing on our mind is the changes in the definition of the fiduciary standard. We know that the regulators are very interested in making sure people have access to retirement income in retirement.
We think that’s got to be a critical part of the plan. We hope that, while we want strong consumer protections, that we don’t go so far that your plan provider isn’t able to provide rollover services, guidance, and other products that can help them get down the mountain.
Q: Finally, the areas again that you are specifically targeting for growth for OneAmerica in 2014 and beyond?
A: One is the retirement plan business, and then also the ability to be able to help people with retirement income strategies. Two is asset-based long-term care. We think that is a sky-is-the-limit opportunity for us and for the industry. There’s just huge demand out there. Everyone we talk to is trying to solve the long-term care problem, and we think we have the answer. Three is career agency, believe it or not. We are huge proponents of the career system.
We think, on average, those advisers are as well-trained as anybody in the industry, and we plan to grow that business, and we think there’s opportunity to grow that particular channel. Lastly, we have a small but growing employee benefits business.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
Wink’s note: We disagree with the CEO of OneAmerica on IULs. We think they have a proven track record after 17 years!
