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Brad's Bits
The Ghost of Triple-X Past?
Email:
bradh@onlyfinancialgroup.com
Much has been said about
Triple-X. This was regulatory change adopted by each state through the efforts
of the NAIC. These changes that became effective January 1, 2000 created a
firestorm of controversy. Debates have continued since this new law went into
affect about who really benefits from it, the consumer or the insurance
carriers.
The regulation change was
spurred by the term wars of the last few years and the carrier insolvencies of
the late 1990s. Carriers cut rates in an effort to become competitive. Their
ration for cutting rates was that by gaining market share their profitability in
the future would more than offset any potential loss on the front end due to
artificially low rates. The policies in question were guaranteed level term
contracts. Right or wrong, the NAIC rationed that without the ability to
increase rates, as these contracts offered a warranty against that happening,
carriers in their future years not realizing projected market dominance would
become insolvent and fall into receivership.
To battle this potential event
the NAIC mandated that insurance companies carry additional reserves for any
contracts that guaranteed rates beyond 5 years. While under the guise of
protecting the consumer with these changes, many felt that this would do nothing
more than shift the risk of coverage (i.e. cost) squarely to the consumer. They
would either pay more in premiums for the guaranteed rate product or take the
cheaper non-guaranteed version and assume the risk of potential rate hikes later
on. The good news is this played out pretty much the way the whole Y2K event
unfolded, a huge buildup of concern and then a silent non-event. A few carriers
took immediate action and had significant rate hikes, but on the whole, pricing
has remained competitive and in some instances has come down.
Price
Bubble?
What we are in right now might
be characterized as a bull market of insurance premiums. Perhaps it’s our
version of a price bubble. For 75 years term rates have been going down.
Regardless of the threat that Triple-X may have extended, how much further, or
more importantly, how much longer can prices remain at current levels? This
year we have begun to see more carriers make the hard decision to increase
rates. Some disguise their rate hikes through underwriting adjustments aimed at
tightening standard issue requirements. Either way, we are beginning to see a
trend that indicates more rate hikes are in the offing.
This may be the delayed impact
of Triple-X. It makes sense in a way. If select carriers had hinged their
success to market share dominance it would take a while to see the effects.
Common sense tells us that at least some would fail in the endeavor, and
in so doing, will be forced to increase rates on newly issued contracts or face
insolvency. The cynic in me thinks that those that were successful, will claim
hardship as well, and happily increase rates along with the pack. Profitability
has never been a shortcoming of the insurance industry. I say that with
satisfaction as we are charged with the protection of families. We better be
profitable.
“Lock in” Rates Today
All this leaves the direct
response industry with the opportunity of a lifetime. We are properly
positioned with the right carriers and skills to offer term coverage at
historically low rates—rates that will likely not be seen again. Tell every
prospect about Triple-X and it’s impact on their future premium. Encourage them
to “lock” their rates in NOW and lock them in for the longest period offered.
If they think 20 years is long enough (and you think they should consider a 30
year guaranteed period), explain how the rate hike at year 21 through 30 will be
so much more than the rate they’ll have if they “lock” it in today. They can
always drop the coverage at year 20, but they’ll have the option and the best
pricing to decide at that time.
If you find yourself leaving
voicemail, explain how Triple-X has affected recent changes in rates. Suggest
to your prospect that if their coverage went up just 10% (Let’s say they asked
for 20 year product at $700 per year) in the coming weeks or months, that’s
another $1400 they’ll have to spend. Suggest that if they act now there
still may be time to “lock” their rates in at these historically low levels.
Most folks appreciate knowing
the backdrop of events connected with their buying decisions. It gives them the
reason to make the decisions they want to make and places you in a “trusted
advisor” role. From a professional viewpoint you’re obligated to educate the
consumer about their choices and Triple-X. If they come to understand Triple-X
later through another agent and are alarmed that their coverage or guaranteed
period isn’t long enough, whom do you think they’ll buy the new coverage
through? Take the time, build the rapport, and educate all your prospects about
Triple-X.
See you in Denver…………….
Brad Howard, Director
Only Financial Group
866-INS-ONLY ext 108
bradh@onlyfinancial.com
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