AIG’s Deremo: Consumers Need More Useful Life Products
September 15, 2014 by Lee McDonald
OLDWICK, N.J. – John Deremo, American International Group Inc.’s head of distribution for life products, said longer life spans and limited savings mean Americans will require life products that perform multiple functions. Deremo talked to A.M.BestTV as part of special coverage of Life Insurance Awareness Month.
Q. John, what are the biggest opportunities facing today’s life industry?
A. Meeting the needs of Americans for guaranteed lifetime income is the biggest opportunity we have today. Now more than ever people need the products and services we provide. Consider the demographics of the baby boomer generation, increased anxiety over market value volatility following the recession and the strong demand for advice and guarantees, Americans’ low amount and low rate of savings, and entitlement programs like Social Security that desperately need reform to remain financially sound. Another huge factor is longevity. Simply put, we all need to plan for a much longer life in retirement.
Earlier this year, the Society of Actuaries released the preliminary results of a study begun in 2009 of mortality assumptions for U.S. pension plans. These findings represent a dramatic change in mortality assumptions — the key determinant of life expectancy. Based on these findings, in 2029, the life expectancy for a 65-year-old female will be 91.1 years and 87.9 years for a male. We have a large population of boomers who will live well into their 80s. They just can’t count on a pension plan or Social Security to take care of them in retirement to the extent they probably expected. They face rising expenses, especially when it comes to health care. Many of their adult children who have graduated from college with poor job prospects and hefty debt need financial assistance and on and on it goes. This will all have a very profound and positive impact on the life insurance industry. That’s why I’m confident in the future of our industry and our ability to capture many of the growth opportunities we see now and expect into the future.
Q. What do you see as the biggest threat to the life industry?
A. Many think the biggest threat we face today is the low interest rate environment. It’s challenging to offer products that are competitive in a low interest rate environment. But in my mind that’s not the real threat. The real threat is that people simply do not have enough money. As an industry we must help consumers, whose discretionary dollars are already stretched, get the most out of their life insurance product. Part of this is perception.
Most A.M.BestTV viewers are familiar with the 2014 insurance barometer study sponsored by LIMRA and Life Happens, where the most commonly cited reasons survey respondents provide for not purchasing more life insurance coverage is cost. But the study also revealed that the median estimate given by individuals under the age of 25 years for a $250,000 level term life policy was really 10 times its actual cost. Clearly as an industry we have a lot of educational work to do.
We also have to find ways to make a life insurance policy do more for the consumer. With people unprepared for retirement and longevity issues, a traditional death benefit is not enough.
Another clear threat is the declining and aging distribution force. The average financial advisor is over age 50. According to recent data, of the 315,000 advisers working in the U.S. today only 5% are younger than age 30. The number of new advisers joining the industry is declining but the need for professional financial advice is stronger now than ever before. All of us in the industry need to develop the infrastructure, the tools, training and support needed to effectively attract and train the next generation of advisers and agents.
Q. How is AIG handling all of this?
A. At AIG, we’re completely focused on the consumer. We’re delivering a broad suite of competitive products with lifetime income solutions. In particular, I’m excited about term and universal life insurance with accelerated benefit riders. Consumers are concerned about living too long and outliving their assets. They also worry about needing to access funds that were earmarked for other purposes, due to a chronic illness. There’s a real need for smartly structured combination products to address their concerns and also fit their budgets. Combination life insurance products with accelerated benefit riders are changing the way that we think about life insurance. These products can provide appropriate, affordable solutions whether a client faces the challenge of outliving retirement assets, getting sick along the way or dying too soon. We’d like to say it’s about the life in life insurance.
We know consumers have multiple competing financial priorities. That’s why we’re focused on the potential to cover multiple contingencies with one affordable product. This is truly life insurance you don’t have to die to use.
We also think it’s important to serve consumers in the manner in which they prefer to conduct business. We have numerous sales channels dedicated to life insurance, each with its own distinct reach, allowing consumers to work with us through various intermediaries, whether that’s through an independent producer, careers agent, through their bank via their broker-dealers, or even alone through our direct channel.
The aging distribution force is a big issue for our industry. AIG is keenly focused on helping our advisers and agents become recognized as the best in the industry at a time when their expertise is needed more than ever. We recently launched the AIG Financial Distributors University, to further develop our current sales professionals and to attract future generations of financial advisers and agents. We hope to recruit young professionals, recent college graduates, even people interested in a second career to our firm. We are investing in training programs to prepare women and men for careers as advisers and agents, a critical component of our success and the industry’s success going forward.
View this and other interviews at http://www.ambest.tv
