Hitting Up The Middle

Producers Can Seize New Opportunities in the Middle Market

by Thomas Buckingham

Mr. Buckingham is executive vice president of The Phoenix Companies, Inc. Connect with him by e-mail: [email protected]

There has never been a better time for producers to capitalize on opportunities in the middle market. It’s nothing new that the middle market is enormous or that it is chronically underserved. Yet those long-standing realities of the market have not always led to attractive opportunities for producers – until now. What’s changing?

  • First, an expanding range and greater urgency of needs, particularly for pre-retirees and retirees, which are being driven by demographic forces and macro-economic trends.
  • Second, new multi-dimensional products to meet more of those needs affordably.
  • And lastly, fresh tools and technology to help producers overcome hurdles to success, including the perception that middle market sales are not worth the time they take.

Let’s Look At Needs

We’ve been hearing for years about the demographic forces reshaping the concept of retirement. Someone planning to retire in the next decade is looking at a far different future than a prospective retiree 20 years ago. Longer life expectancies, the decline of defined benefit plans, concerns about the stability of Social Security and the costs of medical and long-term care have changed the very nature of retirement planning. A retiree now faces the difficult task of having to grapple with more contingencies across a longer period of time.

Consumers have become all too aware that they must take more control of their future income and protection, but they don’t necessarily know how to go about doing that. For one thing, many people who suffered setbacks during the 2008 financial crisis emerged wary of the stock market and searching for guarantees. Yet, persistent low interest rates have made traditionally “safe” vehicles such as money market accounts and CDs less viable as options for producing retirement income.

On top of that, there’s the hard fact that most people approaching retirement have accumulated less than required to meet their needs. Even those who were disciplined and saved diligently for a target number may find that their target is not adequate in an economy that is very different than when their savings plan was conceived.

The specific needs those savings have to cover will vary depending on age and income. For example, there are differences between the typical middle market consumer approaching retirement, who likely has less than $250,000 in investable assets, and what LIMRA calls the “mass affluent” consumer, who has somewhere between $250,000 and $500,000. The mass affluent may have more complex needs, similar to those of high net worth individuals, such as creating a legacy or minimizing estate taxes.
That said, there are common threads across nearly all ages and incomes.

Most clients need their savings to provide a lifetime retirement income and to cover final expenses, as well as protect themselves and their families from the financial effects of disability, catastrophic medical expenses, long-term care and/or untimely death. What links the great majority of middle-market clients is that they are trying to solve for multiple needs with limited dollars.

What’s Out There To Meet These Needs?

The same demographic and economic forces that are altering consumer needs are also shaping the design of products intended to address those needs.

For instance, just about every annuity product in the market today is built to address longevity risk in some way, filling the void left by traditional pensions and Social Security for a population that will live longer than any previous generation. Products also have evolved to account for a volatile stock market, low interest rates and rising health care costs. Most annuity products today have shifted from a focus on cash value accumulation to a multi-faceted protection focus, covering both income and a wide variety of other retirement needs and risks.

The prolonged low interest environment has also changed the way these products help clients achieve their income objectives, from pure yield potential to a variety of guarantees such as guaranteed lifetime withdrawal benefits (GLWBs).

Consumers have become all too aware that they must take more control of their future income and protection, but they don’t necessarily know how to go about doing that. For one thing, many people who suffered setbacks during the 2008 financial crisis emerged wary of the stock market and searching for guarantees

This expansion in scope makes sense from both consumer and carrier perspectives.
Middle market and mass affluent consumers need to stretch each dollar to cover as many needs as possible.  For many, it’s no longer about finding the product with the highest yield but rather one that generates a solid amount of income and has a range of benefits.

This is driving the growth of combination annuity products that do double and triple duty by packaging together income, chronic care and/or family protection features. Life insurance products are heading in the same direction, with policies offering living benefits such as chronic and critical illness riders.  These multi-dimensional products are helping bridge the gap between a middle-market client’s needs and the limited resources they have to address them. It also gives them more flexibility should their needs or priorities change.

For carriers, becoming more innovative with benefits is the best way to offer value in a low interest rate environment.  Competing solely on rates and caps is likely unsustainable, so carriers can now compete on how well their products balance cash accumulation with other guarantees and features that are equally important to today’s retirees. The flexibility that helps consumers affordably address multiple and potentially changing needs is also the best way for carriers to remain competitive.

And for producers, the guarantees and more flexible features of these newer products make it easier to focus their client discussions on needs and solutions.

Tools for Succeeding in the Middle Market

The growing needs of middle market and mass affluent consumers and the wide range of new products designed specifically to meet them doesn’t automatically translate into success for producers who want to expand in this arena. The middle market has been underserved for some very practical reasons, chief among them the time it takes to choose, apply and ultimately purchase life and annuity products.

However, producers now have access to new tools that can help them serve this market more efficiently, making the process financially worthwhile for them and more appealing to their clients. Carriers are making sales easier not only by providing both broad-based product portfolios that meet the full spectrum of client needs but also by developing tools to make selecting products easier. Many are offering digital tools to help producers do a thorough needs analysis, which can help with prioritization and product selection. It’s important that these tools help identify needs and not just pitch solutions. Starting with the client’s needs makes it much easier to assess products and features and make recommendations on life insurance, annuities and other potential solutions.

Technology is also transforming underwriting and administrative processes

In the past, life insurance underwriting could be a drawn-out process involving medical exams and document collection that could take six weeks or even longer to complete. Of course, some polices still need to be underwritten traditionally. But today, increasingly more products are offering simplified underwriting, especially in the lower face amounts that are appropriate for middle market clients.

This simplified process usually involves a phone interview and, often, the policy issued immediately or within days. All the producer has to do is help the client fill out a brief electronic application and possibly speak to an underwriter to supply other required information. The hassles of scheduling a medical exam and providing bodily fluids are gone. Online databases, like prescription records and motor vehicle reports, are easily accessed by the carrier to help in the decision process.

Carriers are moving rapidly to electronic application tools for annuities as well, removing mail and faxing from the process altogether.  Moving from the “yellow pad” to the mouse pad both speeds up the application process and significantly reduces Not in Good Order (NIGO) applications, making the process far more efficient for both producers and carriers. The simpler and swifter the process is, the more middle market clients a producer can serve.

A Significant Opportunity

The middle market is offering producers greater opportunities than ever before. The growing number of retirees and pre-retirees seeking solutions, the expansion of combination products that address multiple needs, and the ease provided by technological advances have created an environment in which producers can serve middle market and mass affluent clients efficiently and cost-effectively. To benefit, producers must be prepared to offer guidance to clients and prospects and help craft retirement plans that can minimize key risks. Helping people understand the products and solutions available to them will enable producers to increase referral business and build their practices.