Product Evolution: How Long Do Products Stay on Top?
by Harrah Wang, Product Analyst
Nothing lasts forever. Remember how quickly the VCR became obsolete as soon as DVD players came on the scene? Technology since then has come a long way because things change, and change helps push innovation. The life insurance industry is no exception. People constantly innovate to make new and better products, and no product stays at the very top forever. But how often does this happen and how quickly do the best offerings shift out of the top illustrating spot in their marketplaces? In order to observe this kind of product overturn, we took a common scenario and investigated how fast top products moved out of the number one position in the last four years in some common life insurance product lines.
The place where we observed the fastest turnover rate in its top players was term, which is likely because reprices occur fairly often. Thirty-year term was the most turbulent in this sphere, 10-year term was the least, and term durations in-between saw somewhere in the middle. Thirty-year term products usually held on to their peak positions for just over two months during the last four years. Meanwhile, the best 20- and 10-year term offerings typically doubled that, lasting between four and five months. When considering the term market as an aggregate of all the varying duration products, this arena saw the top players typically lasting for about three months.
The no-lapse guarantee market has been under siege for a while now due to the low interest rate environment. With a few exceptions, most top market offerings in this arena have historically had a longer run out, which lasted for about a year until a competitor overtook the lead position. However, recent events have created quite a bit of waves in this market. In the last three months, we have seen near-constant pricing increases thanks to the added pressure on interest rates and financial volatility produced by these uncertain times.¹ We expect that this trend will continue as we move into the second half of 2020.
Protection Indexed UL
In recent years, one of the most dominant trends in the protection indexed universal life (IUL) market is the shift in focus towards a stronger primary guarantee. Due to this shift of focus away from purely pricing to the lowest possible premium, many top players in this arena have not observed as many product overturns as the other markets we considered. However, a few carriers chose to double down on the low premium play like John Hancock and Nationwide, both of which held onto the top spot for over a year. Generally speaking, most peak protection IULs managed to hold on to their low-premium crown for at least six months. Products illustrating under more conservative assumptions saw the least amount of turnover, and only three products claimed the most competitive spot over the four-year time span.
Accumulation – Indexed UL
Most of you are probably already aware of how much attention accumulation-oriented indexed products have received, with various evolutions due to catalysts like regulatory action and multipliers. It is interesting to note that this arena has been one of the heaviest areas of development in life insurance. Accumulation IULs have had the largest increase in products in our benchmarks over the last four years, compared to other product lines (around a 40% increase). Much of this innovative attention has primarily focused on multipliers and the optimistic income illustrations. This multiplier trend started in the beginning of 2017 with Pacific Life’s Pacific Discovery Xelerator IUL, which dominated the market for well over a year. After that, John Hancock’s Accumulation IUL and Lincoln Financial’s WealthAccumulate IUL have continuously been jockeying for the top spot in this domain. On the other hand, accumulation IULs under conservative interest assumptions have seen very little change of hands since 2016. Only three products laid claim on the top spot since that time. For the past two years, Prudential’s PruLife Index Advantage UL has claimed the title under lower interest assumptions with its rather unique product structure.
While we can clearly point to some instances where number one market offerings lasted a long time, it is much more common for top products to be replaced in a relatively short time span, given the long term nature of life insurance contracts. All in all, the majority of products do not seem to stay on top for more than half a year in the industry. With term, the frequent reprices help push players in and out of the most competitive position. No-lapse guarantee offerings have been more stable historically, but current volatile conditions make that position much more tenuous. Meanwhile, aggressive product development on Accumulation IULs have led to an explosion of new offerings in the space, but only a few carriers have captured the top spot from an illustrated income perspective. Navigating your way through this ever changing life insurance terrain can be quite a challenge. LifeTrends is here to help you stay on top of all these changes, developments, trends, and more.
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¹ See last month’s article, “Interest Rate Interplay: A Chief Actuary’s View” for a full discussion of how low interest rates impact the life insurance industry.