Variable Life – Beaten Down for How Long?
November, 2009
Dear Friends and Clients,
Recent life insurance sales statistics show the cold reality of sharp production declines across UL and VUL business, and modest declines across term and whole life. There are many reasons for the sales slump with life insurance, but what is most problematic are the plunging sales for Variable Life business from already weakening levels. According to LIMRA, Variable UL sales are down 55% in the first half of 2009 versus the first half of 2008. Variable Life sales (fixed premium designs) are down 72% over the same period. Is this temporary, or is variable life insurance no longer a key part of the life market?
It is dangerous in our business to say “never” or “always” about anything, but we believe that variable life will struggle for the foreseeable future. Here’s why:
- Consumers have been stung by the economy, and they want guarantees and cheap costs. Despite its advantages on many regulatory fronts (no Illustration Regulation, AG38 reserving, or VA-CARVM), variable life has not been able to deliver death benefit or living benefit guarantees at an attractive cost.
- As much as anything, customers want stability, not volatility. Variable life designs have not been adequately structured to soften volatility, whereas Indexed UL (the new growth engine for life sales, in our opinion) functions well as a risk and volatility softener.
- Some of the strongest uses/sales approaches for variable life rely upon relatively consistent growth in the equity and bond markets. Few have confidence today in such performance.
- The emergence of Principles-Based Approaches (PBA) and Market Consistent Pricing will negatively affect some products more than others – variable life is likely to come out on the short end in this area.
It is our view that certain sophisticated parts of the life distribution landscape can still find variable life fruitful territory, but for the market as a whole – take a good look instead at Indexed UL or at products that combine indexed and variable life attributes.
Tim Pfeifer
President |