Crafting Successful Product Portfolios for 2010 and Beyond

March 2, 2010Timothy C. Pfeifer, FSA, MAAAPfeifer Advisory LLC

Our Panel Offers Two Distinct Perspectives on Future Products

Consultant’s Perspective: Tim Pfeifer

Direct Insurer Perspective: Phil Polkinghorn

Our focus will be the future of life insurance andannuity products, over the next five to ten years.

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Primary Drivers of Product Portfolios of Future

1. Aversion to risk2. Doubts about value of

active management3. Increasing role of

technology in commerce4. Accommodating product

and tax regulatory environments for income, LTC

5. Tougher financial regulation and sales practice regulation

6. Concerns about inflation

7. Willingness to flatten sales compensation

8. 50-70 year old core clientele

Profitability Dynamics of the Future

Depends on risk-free rates, but most lines sold through independent channels will

be 10% businesses

Greater profitability potential in low-to-mid

market for customers/agents

Successful efforts to de-heap upfront commissions key to unlock more profit

Capital expectations have continually increased, and

not likely to decline

Selling Dynamics of the Future

Growth in sales requires re-oriented sales force

Greater comfort with Internet, Online sales

Adoption of external marketing principles

Middle Market versus Affluent

• more women, African American, Hispanic, Asian presence

• greater pool of intelligent new hires

• only straightforward products, but model still needs improvement

• smooth purchase decision, promote “free”, relationship building and branding

• target both, but distinctly different challenges

Regulation of the Future

+ -• Favorable tax elements, particularly surrounding income, LTC

• Disclosure and suitability

• Interstate Compact-speed, not creativity

• Increased focus on securities treatment

• Principles-based elements (Term) • Principles-based elements (VUL, VA)

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Biggest unknown is Federal vs. State (primarily financial regulation)

How Will Products Get Done in the Future?

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Fewer Products

More Modularity

Greater Upfront

Evaluation

Increased Focus on

Efficiency-to-Market

versus Speed-to-

Market

Execution vs.

Creativity

Aim for True

Distribution

Partnerships

What Products/Concepts will Drive the Headlines Between Now and 2020?

8

Single most important factor is level of mid-term interest rates

Need for Portfolio Balance

Providing income guarantees inside and outside of traditional insurance products

Many patents, but less protection

Thumbs Up:• Term• Indexed Life• Inflation-linked• Rebound of VA guarantees

Thumbs Down:• Fewer VA Subaccounts• Variable UL• Steeply heaped comp• Longevity Insurance in present form

Mixed Results• Combo products• Competitive simplified issue• NLG UL