Steering Through?
By Kate Kinkade, CLU, ChFC

According to our monthly news coluumn insurer ratings are going to go dddown in 2009; carriers will be reducing expenses significantly; insurers can’t borrow money to grow right now; insurer capital is down; regulation will get tighter; and business is expected to be down in 2009. But the news also includes reassurances that the insurance industry is better off than the rest of the financial world and it will adapt with new products and markets. And if the industry does that, it will be better off and the regulation will be good overall. Whew! Go ahead; read it again. I had to. Basically, our financial world is not pretty. It is affecting producers and the carriers we all represent in a myriad of ways, but we are better off than people who work in banks and broker dealers.

More importantly, our industry is steering through it. Guaranteed return products are more popular today (shocking!) and we have them. The carriers’ steering issue is making them attractive without going broke or having enough capital and courage to make them attractive at the cost of current returns to gain long-term market share. That’s steering; they’ve hit the ice but they are controlling the spin of the wheels.

Developing products for the retirement income market was a great idea even before last year, but it is a huge opportunity today; many people suddenly have half as much set aside as they did in 2007 and they need to make up the difference. (At least those who still have their jobs.)

Carriers already have products for this market and they will be developing more. Steering, steering -- the ice may be slippery, but we can get through safely. As to regulation, the industry has been trying to get federal regulation for years. If this last “crisis” pushes us into federal legislation, any additional scrutiny will be more than likely offset by the advantages to large insurers, especially international insurers.

None of this is surprising if you understand the nature of our products and our markets. The insurance industry has survived any number of economic and structural challenges -- usually coming out stronger, but always changed. I believe that this is because we are in an industry that requires a product to be sold as opposed to being purchased. While insurance companies are strong financial institutions, at the end of the day, they don’t survive unless someone buys their products.

There is an argument that a carrier can live on investment returns alone, but that has never been the case. Carriers have to sell products to stay healthy. And their products are generally not sought out; they are sold.

Insurance, annuities, and even pension investments are sold through persuasion and education. There are no grocery shelves here. That being the case, the successful players in our industry have long learned how to steer. We create what is required to meet the needs and wants of the world we are dealing with. Regulations may change; tax laws may change; the economy may change; and we figure out who needs what and how we can build it or sell it in the new environment.

Until people are back to work, banks are lending, and businesses are healthy, we will be challenged just like everyone else is. But we can steer through this as an industry and as producers, to stay in place and be strong at the end of the cycle. It is likely that what we have at the end of the cycle will be different than what we had before, but that is part of the steering. We need to talk about what that world may look like and what we can do to prepare for it as well as considering how to share wisdom on how to steer through this period. There has never been a more important time to be involved with other professionals, whether that is association meetings, study groups, or carrier conventions. This is not the time to worry about who sells more, but to share creative ideas about our direction as an industry and as producers.

The issue is to be steering consciously as opposed to ending up wherever the ice takes us.