Blueprints

September, 2009

Dear Friends and Clients,

Over the years, life insurers have taken a variety of approaches to constructing their product portfolios.  At one extreme, there are carriers who build their portfolios by reacting to sales reps and/or competitor actions.  At the other extreme, there are insurers who meticulously research and analyze agent, consumer, and shareholder views on any product launch.

As we thought about this range of behavior, it struck us that building a product portfolio is like building a house.  Homes need to have certain fundamental rooms (kitchen, bathrooms >> term life, fixed annuity) in order to operate as a home.  Beyond that, homeowners make different decisions about including some room designs and not others (screened-in porch, Great Room >> variable life, indexed annuities).  And in an effort to create exceptional value in a home, many homeowners add unique wrinkles (home theatre, wine cellar >> combo products, indexed SPIAs).

Insurers need to keep their portfolios up-to-date, just like a home.  A fresh coat of paint (adding riders) or replacing the carpeting (re-price ULSG) can keep the portfolio fresh.  Can a home have too many rooms?  Yes, product portfolios can be too big, unwieldy, and poorly maintained.  Each room of the house contributes to the overall “story” of the house – product choices are exactly the same.  Carriers should craft their product lines so that they are sturdy, and can last with minor upkeep for years – unfortunately, some product portfolios are “teardowns” – every few years, a complete refurbishing occurs.

Portfolio construction requires careful attention, not knee-jerk reaction. And just like home selection, portfolio selection is critically guided by “location-location-location”, or “markets-distribution-demographics”. 

Time to draft the blueprints!

Tim Pfeifer
President