Page 3 Profile
Mike Fanning
Mutual Respect
by Carolyn S. Ellis
Mike Fanning serves as Executive Vice President for MassMutual's U.S. Insurance Group, which includes the distribution, marketing, product management, finance, compliance, systems applications and operations for all MassMutual insurance products sold in the U.S.; life insurance (individual and group), disability income (DI), and long term care (LTC). We spoke with Mike about how life insurance is meeting the needs of consumers in today's economy and about MassMutual's model for building a field force for the 21st century.
L&HA: As many consumers have less to spend, it seems counter-intuitive that MassMutual's life insurance premium and policy counts are up. Please comment.
MF: Sales are up despite or because of the economy. We've seen a flight to quality, with people looking for safety, stability and guarantees, the core of whole life insurance. Features like death benefit, level premiums, and the growth of cash value and the ability to access it like a piggybank are sought after in times like these. We've had record sales this year in whole life, up eight percent. From 2005 to 2008 we grew whole life sales by 14 percent while the industry grew about one percent. With our existing customers, we have continued to balance being a highly rated company with paying a very competitive dividend. In November we announced the payment of a $1.23 billion dividend for 2010.
L&HA: Is MassMutual better off than it would have been if the economy had stayed the course?
MF: I don't like to think of it that way, and I would not wish to go through the last 12-18 months again. However, the downturn has highlighted the advantages of being a mutual company. We expect to have record levels of capital and surplus this year, but not because we benefited from the economy. In 2004 and 2005 we made decisions to focus on the fundamentals of our business. We were disciplined about how we develop and manage products, how we underwrite, and how we invest and match our liabilities to assets over time. We made very tough decisions 12 to 24 months ago to exit the distribution of our products through third parties, banks, broker dealers, and wire houses, because that wasn't consistent with what we were trying to build for our policyholders.
L&HA: Your sales figures were strong for 2009, with whole life premium up eight percent and policy count up 21 percent. Are people buying smaller policies?
MF: We're seeing more policies being written at smaller face amounts. In the first half of the year, it's been pretty typical to hit some very big cases. However in 2009, the coast states like New York, New England, Florida, and California all got hit really hard on real estate as well as the general economy, and we didn't see a lot of those big policies coming through. Our producers went back to what they do well, talking to new potential customers and their existing clients. We expect to be close to the top 10 writers of life insurance premium in the United States in 2009. When the LIMRA numbers come out, we'll probably be in the No. 10 or No. 11 range.
L&HA: What is the role of technology when you have a well-trained sales force?
MF: Even if you have an advisor helping people develop a long-term financial plan, you need to be technologically advanced. People are thinking about financial decisions around investments or insurance differently today and gathering more data. Whether they are Generation-X or -Y, or even Baby Boomers, people use the Internet. This is true for consumers and agents. We have some agent recruits who have never filled in a paper form! It needs to be easy to do business with our company.
The research we are doing shows some subsets of the market, particularly women, want to be educated and prepared for discussions with a financial advisor when they choose to sit down with one. Financial literacy and education are important and can be delivered by the web and technology, but if they're not supplemented by a strong, professional sales force, you won't have success. If you are a 40-year-old, two or three times income probably isn't going to cut it. It takes a qualified financial professional to help people navigate those types of decisions.
L&HA: Are certain types of life insurance selling well now?
MF: We have seen a significant shift back to basics, to whole life insurance and term. Like everyone in the industry we have seen a sharp decline in UL sales, particularly at older ages, and in VUL because of the equity markets. High early cash value products have been very successful for us this year, like ten-pay or life paid up at age 65. People want to be sure they have death benefit protection in place but also the potential to generate supplemental retirement income when they turn 60 or 65.
L&HA: Are there certain demographics that lead the strong sales numbers?
MF: Mass affluent is our core business. By affluent, we mean the standard definition of income of at least $100,000 and investable assets of $250,000. The high net worth marketplace is important, too. Working with small businesses is a significant part of our business either from key man or executive benefits and executive bonus types of programs. Our demographic runs around where our average agent age is, roughly age 51.
L&HA: Is it an advantage to be a mutual company in this environment?
MF: We've been structured this way for more than 150 years, and we are more committed than ever, our leadership team, employees, and agents, to staying a mutual company. That creates an alignment for success. By that we mean making sure we are here to meet the obligations of a death benefit or disability or long term care claim 30, 50, or 80 years from now. We've got a large block of participating whole life. Our investments were consistent with the long-term nature of that type of business, so we think 2009 and 2010 will end up being incredibly strong years for us in terms of capital and surplus. In 2009 we are looking at $8.5 billion in surplus.
L&HA: How is persistency?
MF: On our core products in our life insurance business, it has been incredibly good. The lapse rate has been the lowest in the industry if you look back over the last five or 10 years and through 2009. More impressive, in our disability income business we saw that trend continue as well. Again I would credit our discipline in underwriting on both the financial and medical side. Our lapse and surrender rates are right around our historic averages.
L&HA: How do sales compare for disability income, long term care insurance, retirement/401(k) plan services, and annuities?
MF: Our sales were either up significantly or tracked the industry. For our retirement services, primarily 401k, we had a record year in 2009. Sales were up 26 percent year over year, with $4.8 billion of new sales. Our total annuity sales were up about four percent. As happened throughout the industry, our variable annuity sales were down, while fixed annuity sales, including immediate annuities, were up significantly. We're starting to see a lot of traction around single premium immediate annuities and income-generating products.
Consistent with the industry, our DI and LTC sales were down. The good news is that in the latter half of the year around August and September, both of those started to come back, particularly around app count, and premium began to rebound coming into the end of the year.
L&HA: Your field force recently reached a milestone of 5,000 agents. In addition to strong numbers, would you say the quality of new agents is better?
MF: In late 2008 and 2009 we saw career changers, especially people with sales experience, recent college graduates, women, and people of diverse backgrounds moving into insurance-based financial services. Our sales force has grown about nine percent each year over the last three years, but more important is the diversity. About 25 percent of the new recruits are female, an all-time high for us, and about 15 percent are from a multi-cultural background.
We are seeing people with talent coming back into the industry. Our veteran general agents say they haven't seen the quality of today's candidates for the last 30 years. Retention is very difficult, and by bringing them in to a team-based, collaborative practice, we see the retention rate go up.
L&HA: Is succession planning part of your strategy?
MF: These collaborative practices with longer-career agents are attractive to young people coming in. Succession planning is not a formal thing, but as we work with our field organization, it's at the top of the list. Agents thinking about retirement want to transition their practice to someone they trust. Our average age of agents is close to 51, and many in the industry are over age 60.
L&HA: Does MassMutual provide training for agents to serve special market segments?
MF: We have two programs certified by the American College and exclusive to our agents. Our Special Care certification covers planning for individuals who have special needs or children of those families. Estate and tax planning, special needs trusts, and even the emotional dynamics are covered. The second one is Certified Family Business Specialist. Because of our small business orientation, we want to make sure our agents have expertise in succession planning, business valuation, family business dynamics, and how to use our products and services for business owners.
We have also made a long-term commitment to LifeBridge, our program that provides up to $50,000 of life insurance to income-qualifying families to pay for their children's education if a parent dies. Working closely with our agents and local agencies, we have given over half a billion dollars of free life insurance.
L&HA: Looking ahead, what does your crystal ball reveal?
MF: We continue to see strong momentum in 2010. Regardless of what happens with the economy, we're sticking to the fundamentals: growing our field force, training and educating our agents, and focusing on core products that deliver long-term value to our policyholders. It's our mutual strategy. Doing the right thing for our policyholders over the long term has been validated by our results.