Seeing Beyond the “Smoke and Haze”

New York
If life insurers can look beyond “the smoke and haze” of current economic conditions and focus on “powerful macro-economic forces,” they stand ready to meet the needs of consumers, according to John Strangfeld, chairman, president and CEO of Prudential Financial, Inc., Newark, N.J.

Strangfeld was one of a panel of life insurer leaders who discussed what the industry needs to do to meet changing times and fulfill consumer needs. The panel was the lead session for the annual Standard & Poor’s Corp. Insurance Conference held here from June 8-10.

Demographics and Social Security benefits that will be a smaller proportion of the funds needed to ensure retirement are among the factors that leave life insurers well situated to help meet consumer needs with products and services, according to Strangfeld.

Retirement security is “just as important as health care but there is not the same instinctive reaction,” Strangfeld told the several hundred S&P conference attendees.
John D. Johns, chairman, president and CEO with Protective Life Corp., Birmingham, Ala., agreed that there is opportunity but said that insurers must adapt to changes in our society. For instance, Johns said that the profile of the typical family is changing. The “Ozzie and Harriet” family is being replaced by non-traditional families, according to Johns. Half of American children live in non-traditional families, he continued.

Other factors such as the increasing concern over the solvency of states and municipalities may change the demographics and where people move tempered only by the fact that homes that are “underwater” because of a decline in the value of housing might force people to remain where they are, he said.

What life insurers can provide, according to Ted Mathas, chairman, president and CEO of New York Life Insurance Co., New York, is “stability and certainty.” There is a strong opportunity to bring back “bedrock principles” such as the cash value of life insurance because of the “institutional trust and longevity behind them.”

But, according to Protective Life’s Johns, the industry has done a “fairly poor job of meeting the unmet needs of the marketplace. There needs to be a focus on innovation and differentiation. There is too much commoditization. Products all look the same.” As an example, he cited his daughter’s desire to buy life insurance on the Internet. Johns said that he tried to explain that while she could make the initial contact on the Internet, it would be necessary to work with a company representative. “Her generation doesn’t want to buy life insurance the way we sell it.” The current generation doesn’t want current buying requirements such as medical underwriting, he explained to the S&P audience.

Other issues Johns raised included the need for life insurers to return to simplicity and reduce leverage. He said that some companies were too concerned that the reserving that they are required to maintain are too high and require too much liquidity.

Prudential’s Strangfeld said that longevity business is becoming a larger part of his company’s business mix compared with mortality business. When he listens to tapes of conversations with customers, he said that he realizes that “a high degree of complexity is not the solution for most of these people” and that in order to meet this need there must be more simplicity.

Another issue raised by Protective’s Johns was that there is “way too much financial leverage in this industry.” Simplifying businesses and making them more transparent would increase the equity value of insurance stocks, he said.

New York Life’s Mathas said that there has to be an expectation of less leverage because a 15 percent return is a “false world.”