bumbera naf presentation 7 1-09

2009 Institute for Staff Development

Students Today, Leaders Tomorrow

Key Trends in the Life Insurance Industry

STEVEN M BUMBERA, CLTC

Financial Services ProfessionalAgent, New York Life Insurance Co

Sea Girt, NJ

(888) 695-5565

[email protected]

www.bumbera.net



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



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



Insurance 101



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



Key Industry Segments

Life

Long-Term Care

Property / Casualty– Auto

– Home

– Specialty (specific industry, kidnap/ransom)

Health– Medical

– Dental

Disability

Liability / Malpractice

Reinsurance



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



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



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



Longer-Term Industry Trends



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

00381341 CV (Exp.03/09)




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)

00381341 CV (Exp.03/09)




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 stranger-owned 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

00381341 CV (Exp.03/09)




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

00381341 CV (Exp.03/09)



The Financial Crisis’s Impact



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

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

00381341 CV (Exp.03/09)



Consumer Confidence in All Financial Institutions Has Declined

00381341 CV (Exp.03/09)

Pct. of consumers with an “extreme amount” or July Oct Jan Apr “quite a bit” of confidence in… 2008 2008 2009 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)



Consumers’ Response to the Financial Crisis

Sharp rise in the personal savings rate to a 14-year high

94% of consumers say the recession will have a lasting impact on the way they handle their finances*

00381341 CV (Exp.03/09)

Savings as a Percentage of Disposable Income

* Source: Money Magazine



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”

00381341 CV (Exp.03/09)



What It Takes to Succeed



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



Preparing for a Life Insurance Career

First and foremost, a “people” business– 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



Questions?

QQ

AA&&

STEVEN M BUMBERA, CLTC

Financial Services ProfessionalAgent, New York Life Insurance Co

Sea Girt, NJ

(888) 695-5565

[email protected]

www.bumbera.net

bumbera naf presentation 7 1-09

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awareness of life insurance

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