In Practice May 19, 2009

Consumers Prefer Buying Insurance In-Person

A new survey found three-quarters (75%) of consumers who own an insurance product prefer to buy life products from an agent or another trusted source, such as an employer or financial adviser.
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Overall, nearly three-quarters (73%) of U.S. consumers prefer buying insurance products through agents and other trusted sources. However, younger and higher-income consumers are more inclined to purchase products via the Web than through an agent and are more inclined to switch insurers, according to a release of the findings of a survey by Accenture, a consulting and outsourcing company.

The survey found that 39% of consumers aged 18 to 24 and 28% of consumers in the higher-income bracket with incomes above $60,000 would prefer to buy insurance products online versus with an agent.

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“The promise of the Internet is strong, yet insurers have lagged behind other industries in harnessing it to improve customer acquisition and retention,” said Michael Costonis, director of Accenture’s Insurance practice in North America, in the release. “Insurers have an opportunity to attract younger and higher-income consumers to more straightforward products via the Web. Distribution needs to match customer’s needs and insurers need to take a targeted approach for younger and higher-income consumers.”

About one-quarter of consumers said they do not feel they have adequate information about the impact that the economy will have on their life policies, and the same number said they are interested in receiving more information regarding their life insurance, according to the results. Of the more than three-quarters of respondents (79%) who said they are not considering purchasing a new life insurance product in the next 12 months, 80% said they see the benefit of purchasing a new product but don’t plan to purchase.

Accenture commissioned a survey of 1,005 U.S. citizens at least 18 years of age who own at least one insurance product. The online survey was designed by Accenture and conducted by Lightspeed Research in April.

 

Data & Research May 18, 2009

SPARK Institute Makes a Case for 401(k)s

Seems as though lately everyone wants to 'fix' the 401(k), but a new whitepaper suggests a different take.
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The SPARK Institute issued a white paper, “The Case for Employer-Sponsored Retirement Plans – Coverage, Participation and Retirement Security,” that it said “defends 401(k) and similar workplace retirement plans that have been criticized recently based on misunderstandings and misconceptions.’
“Alarmed” Bells
According to the whitepaper, the SPARK Institute is “alarmed by any proposal that appears to give IRAs preferential treatment based on misconceptions about them and, in some instances, based on the successes of 401(k) plans,” notably in the area of automatic enrollment.
The whitepaper notes that “the proposed mandatory IRAs would appear to create a system similar to the ‘403(b) plan system’ prior to the IRS and Treasury adopting rules and regulations requiring greater employer involvement in the operation of those plans,” and goes on to note the experience of those programs where “employees could open up retirement savings accounts with virtually any investment provider of their choosing.” It goes on to note that, “as a result, there were challenges in monitoring 403(b) plans which resulted in violations with respect to contributions and withdrawals,” and that “the use of a mandatory IRA would result in some of the same issues that faced 403(b) plans prior to January 1, 2009, including a lack of education for participants, higher fees and the inability to monitor compliance with regulations because of the limited role of the employer.” The paper goes on to note that “Congress and regulators made 403(b) plans more like 401(k)s with respect to oversight and monitoring. However, the proposed mandatory IRA system would likely create the next unsupervised, loosely managed and hard-to-regulate retirement system, and mimic the concept that was just fixed in the 403(b) world.”
Recommendations
The SPARK Institute believes that all American workers should have access to retirement savings accounts, but cautions that “…the current voluntary system should be maintained so that employers, particularly small businesses, can devote their resources to starting and maintaining their businesses and creating jobs before they are forced to provide certain employee benefits.”
In the paper the SPARK Institute goes on to cite its support for mandatory automatic enrollment of employees as a method to increase participation in workplace savings plans, as well as mandatory automatic escalation of employee contributions “…so that, when combined with Social Security, they will provide appropriate income replacement at retirement.” It also calls for changes in design that help workers “avoid taking distributions of the money they have in their accounts before retirement, appropriately diversify their savings through asset allocation, protect their savings from market volatility, particularly as they get closer to retirement, provide a steady stream of income throughout their retirement, and minimize the risk of outliving their savings.”
The SPARK Institute is a voice in Washington for the retirement services industry. Collectively, its members serve over 62 million defined contribution plan participants.

The white paper is available at www.sparkinstitute.org/comments-and-materials.php.

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