DOL Rule Spurs Innovation, Alliances Among Carriers
July 28, 2017 by Warren S. Hersch
The Department of Labor fiduciary rule is having wide-ranging impacts on life-annuity carriers. The most notable effects include a dampening of otherwise positive sales trends, the advent of new products and portals, as well as corporate alliances and acquisitions that carriers are spearheading to secure a competitive advantage.
The source of these conclusions: Scott Hawkins, VP of insurance research at global investment management firm Conning, which has released its 2017 annual study on life-annuity carriers’ distribution and marketing initiatives.
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A key theme of this year’s study is the growing impact of carriers’ digital distribution initiatives — including new “digital agencies” backed by AXA, MassMutual, Protective and other life-annuity manufacturers — designed to produce productivity gains, cost efficiencies and new sales.
Cross-currents in sales
In respect to the last, “headwinds” from the DOL rule are particularly evident, says Hawkins. But despite an expected decline in sales of certain products, notably fixed indexed annuities now subject to the rule, he notes that market conditions for life and annuities sales are “modestly favorable” for the year ahead.
Counteracting the rule’s negative impact on the annuity side are the growing number of consumers looking to pensionize their retirement savings; and improving interest rates, which allows for higher crediting rates on products. Helping to fuel life insurance sales are, in addition to more competitive crediting rates, reduced unemployment and a burgeoning number of millennials who are starting families.
“We also are seeing the emergence of digital agencies and accelerated underwriting, which make the buying process easier,” says Hawkins. “These initiatives also help to cut costs, making the products more affordable, especially for term life insurance.”
Product initiatives
Hawkins says the DOL’s fiduciary rule, the first phase of which kicked in June 9, has prompted several carrier initiatives. Prominent among these is the rollout of fee-based annuities that align with a streamlined version of the best interest contract exemption (dubbed “BICE lite”) available to level fee advisors.
Example: Symetra, which unveiled this week two fee-based fixed indexed products to compete head on with carriers — AIG, Allianz, Great American, Lincoln Financial, Pacific Life, Nationwide, Voya Financial, among others — offering FIAs on a fee chassis.
Carriers, he adds, are also leveling commissions across like-products to help producers align product recommendations with the rule’s best interest standard. Taking their cue from the carriers, a restructuring (and, in some cases, jettisoning) of commissionable compensation is also underway at insurance intermediaries, including broker-dealers and independent marketing organizations.
“Some broker-dealers changed or reduced their commissions, then ratcheted them back up, while others retained existing arrangements,” says Hawkins. “It was interesting to note their discussions about whether commissions versus asset management fees are a better deal for certain consumers, especially those that are holding [investments] for long periods.”
The fiduciary rule has influenced product development of not only fixed indexed and variable annuities subject to the BICE (which, absent changes, takes effect January 1, 2018), but also, intriguingly, conventional fixed annuities. Hawkins says, that several insurers, including American Equity and Midland National, have introduced guaranteed minimum withdrawal benefit (GMIB) riders to make their products more attractive under a post-DOL regime.
Wheeling and dealing
The fiduciary rule has impacted more than product. Hawkins points to insurers’ divestiture of broker-dealer channels within the past year. Among the deals: AIG’s 2016 sale of its Advisor Group unit to Lightyear Capital, a private equity firm, and PSP Investments, one of Canada’s largest pension managers. Also in 2016, Transamerica finalized the sale of its broker-dealer unit to John Hancock.
The DOL rule has also helped spur M&A activity and alliances, in part to give life-annuity carriers and producers access to key technologies. Case in point: automated digital advice tools or “robo advisors” that can help financial professionals continue serving less profitable clients under a DOL regime. Hawkins cites several deals — Northwestern Mutual’s acquisition of LearnVest, TIAA’s buyout of MyVest and (last January) John Hancock’s partnership with NextCapital — as indicative of the trend.
“I expect more such alliances,” says Hawkins. “They offer an avenue for establishing relationships with potential customers, but we haven’t yet seen a clear connection to increased insurance sales.”
Carrier-initiated digital initiatives flagged in the Conning report encompass also the rise of “digital agencies” or web portals offering streamlined application-processing for term insurance. Among the insurer-backed companies offering accelerated, no-fluids/no-exam underwriting are eLife, Fabric, Haven Life, Ladder, Quilt, and SoFi.
As reported, this activity has moved into the mobile space with the launch of Tomorrow Ideas, whose mobile can generate a free will and trust, in addition to simplified term insurance. Nine major insurers — American General, Assurity Life, Banner Life, Mutual of Omaha, Principal Financial, Prudential Financial, Protective Life, Sagicor Financial and SBLI — plan to sell term products through the app.
“The front-engines of these digital solutions interface with customers and insurers are providing back-office support, services and products,” says Hawkins. “They offer a way to further penetration into the middle market, especially the third and fourth quintiles of [underserved] consumers.”
The next iteration of these offerings, he adds, will likely incorporate pricier permanent life insurance products. As carriers gain experience with streamlined underwriting, face amounts available on policies could also increase.
