Key Trends in the Life Insurance Industry
STEVEN M BUMBERA, CLTC
Financial Services Professional
Agent, New York Life Insurance Co
Sea Girt, NJ
(888) 695-5565
sbumbera@ft.newyorklife.com
www.bumbera.net
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Today’s Agenda
About me and my involvement with NAF
Insurance 101
Longer-term trends in the life insurance industry
The financial crisis and its impact on life insurers
What it takes to succeed in the insurance industry
Q&A
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Why I’m a Life Insurance Agent &
Why I’m Involved With NAF
Why I became an agent
Value to me and my family
My Involvement with NAF
Benefits for me
Benefits for the students I’ve worked with
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Insurance 101
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
What Insurers Do
Transfer risk from the consumer to the insurer for a fee
– Risk “pooling”: bringing several risks together to balance the
consequences of any individual risk’s being realized
Underwrite policies, charging policyholders fees based on their risk
levels
– Smokers pay higher life insurance premiums
– Young men pay higher auto insurance rates
Build reserves with the premiums they collect from policyholders
– Legally mandated minimums to ensure carriers can pay claims
Increase their financial assets by investing their reserves
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Key Industry Segments
Life Health
– Medical
Long-Term Care
– Dental
Property / Casualty Disability
– Auto
– Home Liability / Malpractice
– Specialty (specific
Reinsurance
industry, kidnap/ransom)
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Life Insurance and Annuities:
Meeting Two Major Consumer Needs
Protection
– Protect families and businesses from the financial hardship created by
the death of a key individual
– Provide the policyholder with peace of mind
Asset Accumulation
– In addition to death benefit, a powerful savings vehicle
– “Fixed” policies offer guaranteed returns
– “Variable” policies participate in upside (and downside) of the financial
markets
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Life Insurance and Annuities:
Major Products
Life Insurance
– Term insurance: coverage for a fixed period of time
– Permanent insurance: lifetime coverage plus asset accumulation
• Whole Life
• Universal Life
• Fixed or variable
Annuities
– Investment (Deferred) annuities: death benefit plus asset accumulation
• Fixed or variable
– Income annuities: guaranteed income stream
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Life Insurance Companies:
Playing a Key Role in the U.S. Economy
Life insurers are the economy’s #1 source of long-term capital
– Largest source of bond financing for corporate America, with more than
$2 trillion invested annually
– Insurers’ bond purchases financed the Boulder Dam, the Sears Tower
and the Empire State Building, among other landmark projects
– Insurers are a crucial source of long-term mortgages, and a very high
percentage of their mortgage holdings remain in good standing
The industry employs about a million people and contributes roughly
$10 billion annually to federal, state and local tax revenues
Every year, life insurers return hundreds of billions of dollars to the
communities they serve in life and annuity benefits and dividends
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Longer-Term Industry Trends
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Life Insurance Industry Trends
Demutualization and move to independent agent distribution
– Companies seeking access to capital markets, in part to fund acquisitions
– Windfall for top management
– Challenge of balancing short-term demands of Wall Street with long-term
nature of products
– Spurred move away from career agent distribution, which requires
long-term investment
Convergence of life insurance and other financial services
– Emergence of financial service “supermarkets”
– Growing awareness of life insurance as an asset class
Aging of the agent force: average age is now 50+
– Only a handful of career agency companies still aggressively recruiting
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
Life Insurance Industry Trends
Growing dependence on technology
– Product illustrations
– Communications
– Practice management
Increasingly complex product offerings and regulatory environment
– Demand for increased customization (riders, “dial-a-guarantee”)
– Regulated independently by each state
– Focus on protecting consumers, especially seniors
Marked shift away from permanent insurance to term, especially
long-duration term (20-30 years)
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
Life Insurance Industry Trends
Growing secondary market for life insurance
– Viatical market emerged in the 1970s in response to the AIDS crisis
– Growing popularity of life settlements
– Insurance purchased with the intent of selling: investor- and stranger-
owned life insurance
Internet playing an increasing role
– 40%+ of consumers now use the internet to educate themselves about
insurance and to choose a carrier or an agent
– Direct online purchases still comprise a very small share of the market
because of the complexity of product offerings
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
Life Insurance Industry Trends
Huge focus on saving for retirement and income in retirement
– 78 million baby boomers entering or in retirement
– Trillions of dollars in assets will be transferred from one generation to the
next
– With improvements in longevity and health care, retirement now lasts
longer (20-30 years in many cases) and is more active – and expensive
Personal responsibility for retirement continues to grow
– Fewer than 20% of workers are now covered by pension plans
– Long-term prognosis for Social Security is uncertain
– Limits on 401(k)s and IRAs
– Personal savings are key
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
The Financial Crisis’s Impact
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Most Fundamental Reshaping of the
Financial Services Industry Since the New Deal
Subprime mortgage market meltdown
Government takeover Fannie Mae and Freddie Mac
Bankruptcy of Lehman Brothers
Acquisitions of Bear Stearns, Merrill Lynch, Washington Mutual and
Wachovia
Federal government’s huge loans to AIG
Goldman Sachs and Morgan Stanley become bank holding companies
Treasury Department’s $700-billion rescue of the financial sector
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
How Will Life Insurance Companies
Fare in This Recession?
Industry is typically nearly “recession proof” …
– Life insurance is usually “sold, not bought”
– Sales declined by about 2%, on average, during past several recessions
… but it’s different this time
– Some companies have taken on far more risk than in the past
• Investments in credit default swaps, collateralized mortgage
obligations and other derivatives
• Products with aggressive guarantees
– Very well-publicized problems at AIG and other insurers have shaken
consumer confidence
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
Consumer Confidence in All Financial
Institutions Has Declined
Pct. of consumers with
an “extreme amount” or July Oct Jan Apr
“quite a bit” of confidence in… 2008 2008 2009 2009
Community Banks and Credit Unions 59% 32% 45% 43%
National and Regional Banks 46 12 22 21
Insurance Companies 32 12 18 15
Mutual Fund Companies 31 9 12 12
Federal Government & Regulators 18 8 9 8
Stock Brokerage & Investment Firms 19 4 7 6
Financial Rating Agencies 17 4 6 4
Source: LIMRA (2009)
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
Consumers’ Response to the Financial Crisis
Sharp rise in the personal savings rate to a 14-year high
Savings as a Percentage of Disposable Income
94% of consumers say the recession will have a lasting impact on the
way they handle their finances*
* Source: Money Magazine
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
Life Insurance Sales Off Sharply,
As Annuity Sales Climb
Because of sharp declines in the the fourth quarter, 2008 was worst
sales year for life insurance in the past 50 years
Life sales declined another 26% in the first quarter of 2009
– Term sales holding up well, as consumers seek affordable protection
– Resurgence of interest in whole life
• A safe place to put money
• Issued by mutual life insurers, which have been far less affected by
the crisis than publicly traded insurers
– Variable life insurance sales off sharply, reflecting lack of confidence in the
equity market
Fixed annuity sales have surged 50% year to date to a record high,
with a clear “flight to quality”
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
00381341 CV (Exp.03/09)
What It Takes to Succeed
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Life Insurance Careers
One of the most stable large industries in the U.S., without major
fluctuations in employment
Major job categories
– Sales – Underwriting
• Agents – Compliance
• Sales management – Investment management
– Product – Corporate infrastructure
• Product development • General management
• Product management • Customer service
• Actuaries • Technology
• Marketers • Finance
• Human resources
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Preparing for a Life Insurance Career
First and foremost, a “people” business
– Working directly with or designing solutions for consumers
– Active listening
– Strong interpersonal skills
– Self-motivation and discipline
– Language skills increasingly important
Creative and lucrative opportunities for mathematicians
Alternate career path for doctors and other medical professionals
Limited opportunities for those without college degrees
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Questions?
STEVEN M BUMBERA, CLTC
Financial Services Professional
Q
&
Agent, New York Life Insurance Co
Sea Girt, NJ
(888) 695-5565
sbumbera@ft.newyorklife.com
A
www.bumbera.net
2009 Institute for Staff Development
Students Today, Leaders Tomorrow