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Key Trends in the Life Insurance Industry

Key Trends in the Life Insurance Industry. STEVEN M BUMBERA, CLTC Financial Services Professional Agent, New York Life Insurance Co Sea Girt, NJ (888) 695-5565 sbumbera@ft.newyorklife.com www.bumbera.net. Today’s Agenda. About me and my involvement with NAF Insurance 101

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Key Trends in the Life Insurance Industry

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  1. 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 sbumbera@ft.newyorklife.com www.bumbera.net

  2. 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

  3. 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

  4. Insurance 101

  5. 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

  6. Key Industry Segments • Health • Medical • Dental • Disability • Liability / Malpractice • Reinsurance • Life • Long-Term Care • Property / Casualty • Auto • Home • Specialty (specific industry, kidnap/ransom)

  7. 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

  8. 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

  9. 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

  10. Longer-Term Industry Trends

  11. 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)

  12. Life Insurance Industry Trends • 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)

  13. Life Insurance Industry Trends • 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)

  14. Life Insurance Industry Trends • 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)

  15. The Financial Crisis’s Impact

  16. 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)

  17. 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)

  18. Consumer Confidence in All Financial Institutions Has Declined 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) 00381341 CV (Exp.03/09)

  19. 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* Savings as a Percentage of Disposable Income * Source: Money Magazine 00381341 CV (Exp.03/09)

  20. 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)

  21. What It Takes to Succeed

  22. 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

  23. 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

  24. Questions? Q STEVEN M BUMBERA, CLTC Financial Services ProfessionalAgent, New York Life Insurance Co Sea Girt, NJ (888) 695-5565 sbumbera@ft.newyorklife.com www.bumbera.net & A

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