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
– Dental
 Long-Term Care
 Property / Casualty
– Auto
– Home
– Specialty (specific
industry, kidnap/ransom)
 Disability
 Liability / Malpractice
 Reinsurance
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 strangerowned 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
“quite a bit” of confidence in…
July
2008
Oct
2008
Jan
2009
Apr
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
• Agents
• Sales management
– Product
• Product development
• Product management
• Actuaries
• Marketers
–
–
–
–
Underwriting
Compliance
Investment management
Corporate infrastructure
• General management
• Customer service
• Technology
• Finance
• Human resources
2009 Institute for Staff Development
Students Today, Leaders Tomorrow
Preparing for a Life Insurance Career
 First and foremost, a “people” business
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–
–
–
–
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
Agent, New York Life Insurance Co
Sea Girt, NJ
(888) 695-5565
sbumbera@ft.newyorklife.com
www.bumbera.net
Q
&
A
2009 Institute for Staff Development
Students Today, Leaders Tomorrow