The Effect of Low Interest Rates and High Inflation on the Insurance Industry

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Beyond the Challenge is a podcast where executives in the insurance and financial services industry share their insights and experiences. Hosts Kevin and Sandy Dougherty talk with today’s top business leaders about what keeps them up at night and the biggest opportunity organizations can capitalize on today. We encourage you to listen, share, and subscribe to our program.

Kevin and Sandy Dougherty each have over 20 years of experience in insurance and financial services, corporate leadership, and executive search. They’re the owners of Global Corporate Solutions and Global Corporate Leaders. Global Corporate Solutions partners with organizations to gain efficiencies and contain costs. Global Corporate Leaders partners with organizations to enhance and evaluate talent.

Beyond the Challenge podcast is sponsored by Exactuals, perfecting payments and the data driving them.

Welcome to Beyond the Challenge. Here are your hosts, Kevin and Sandy.

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Sandy: Today we’re talking with Chris Blunt, president and CEO at F&G Annuities & Life, about the trends, challenges, and opportunities he sees for the insurance industry. Chris, can you tell us a little bit about yourself and how you got into the industry?

Chris: Sure. So, Sandy, thanks for having me on. So, I’m President and CEO of Fidelity & Guaranty, as you said, and, prior to that, I spent about 30 years in financial services initially, in the wealth management business. I was a financial advisor with Shearson Lehman Brothers, they would be Morgan Stanley, did a brief stint in management then spent about 17 years in asset management and had the opportunity to move into the insurance industry when I joined New York Life back in 2004. 

Kevin: Chris, all sectors face challenges, but for the insurance industry, the list seems especially long. Many carriers seem to be struggling to stay relevant while others are embracing new technology, reimagining distribution channels, and developing strategic partnerships. What do you see as the future of distribution for the industry?

Chris: Yeah, I think it’s a few things. I would probably use the word “hybrid,” meaning I think the challenge our industry face is our products and solutions need to stand the test of something that could be consumed directly by a consumer. But that doesn’t mean that consumers are not gonna choose to have advice and guidance and so I think this debate in the past of “Is everything gonna go direct? Are things gonna still go through an advisor?” I think the answer is you see both of that today in our business so we need to make sure we’ve got products and services that are simple enough to consume directly, but knowing that the vast majority of clients are still gonna want the advice and guidance of a good financial adviser.

Kevin: Do you see the entrance of Google and Amazon in the insurance marketplace changing the way carriers see distribution?

Chris: I don’t think so. I mean, the reason that I say that is, again, if you go back to the premise of what we do, we provide products, but products without guidance or some context for where those products fits is gonna be pretty limited, and I think for years, we’ve been predicting that the whole world will go direct and there are certain products that I think do lend themselves for some direct distribution, simplified term insurance, for an example, would be an obvious case, but I think a lot of the solutions that we’re bringing are only appropriate in the context of an overall plan. And so I don’t see this necessarily game changing. I think they could be interesting lead sources for advisors there today and I think that’s something that’s going to continue. 

Kevin: Great answer. Appreciate that. How do carriers find their competitive advantage and keep it going? 

Chris: That’s a great question and you might say that’s the billion-dollar question, Kevin, right? It’s how do you do that? And one of the few things I remember from business school, because, sadly, it was such a long time ago, was the Michael Porter Competitive Strategy course and this idea that if you can’t define what your sustainable competitive advantage is, you’ve got a real problem and you better go find one. And in our case, we think it comes down to a couple pieces. One are just longstanding distribution relationships. We have some relationships that are 25 years old and that’s a hard thing for competitors to replicate. The other is the partnership that we have with our investment manager who’s a very large originator of credit. So, for us, it’s sort of a twofold advantage. For other carriers, it might be completely different. It may be some proprietary technology that they have or some unique insights around customer experience. I think the key is to be able to define that and make sure that the investments you’re making in your company are focused on those areas where you actually have a differentiated advantage. You know, I see where companies get into trouble sometimes, it’s either trying to be all things to all people and, therefore, not really leaning into what’s a true sustainable strength for them.

Sandy: What do you see as the main barriers to growth and innovation for carriers today?

Chris: I think it’s always been the same thing, Sandy, which is just complacency. You know, I think if you think about it, our industry, for quite a while, has had really in many ways a monopoly on the use of the guarantee word. You know, banks offer guarantees, insurance companies offer guarantees. That’s really about it in our space that can legally make guarantees. I think because of that, there’s been too much of a reliance on the product being the end game, meaning if you just build, you know, a high functioning annuity, for example, well, that’s good enough and clients will put up with maybe a clunky customer experience or a process that takes too long between the decision and the delivery of that final product. And so I think that’s been probably the biggest. It’s just a mindset and an area of focus. I think most carriers now have figured out that it’s just not enough to have a good product. You have to have an overall experience that measures up to some of the better consumer companies out there.

Sandy: So how do carriers actually embrace innovation and transformation?

Chris: Well, it’s probably biased, given my role, but I do think it has to come from the top. I think you have to set a culture where it’s expected. You have to reward people for trying innovative things. You have to be careful that you don’t punish every failure. I mean, if you expect perfection, the reality is people just won’t try many things. And so, you know, there’s areas where you need perfection, you gotta get the reserves set right, you need to have a good culture of compliance, but there’s a lot of areas where if you wanna innovate, you have to be open-minded to trying some things and doing a little bit of experimentation.

Sandy: So, what is F&G doing to stay relevant?

Chris: I’d say it’s two things. I think the first is investing in people. We’re very focused on culture. It’s been a core strength of ours. We’ve hired a lot of folks and so we’ve heard several hundred people just in the last two years alone so trying to lean into what is the underpinning of your culture and how do you maintain the type of culture where good people wanna work. If you think about it, we have very few patents in our industry, certainly not enforceable ones, and so, at the end of the day, if we attract the best and the brightest and we create a culture where they like coming to work, where they’re focused on the job and not office politics, if you will, over time, you’ll adapt, because markets change. Today, we make products that weren’t even thought of years ago. Markets change, rules and regulations change. I think that’s been the biggest one for us. And then secondarily, we’ve made some big investments in technology. So, you know, in our case, about an incremental 100 million dollars over the last three years, which, for us, is a very big number, to try to make sure that we’ve got the tools and technologies that will allow those smart people to spend time on things that are productive and adding value for customers.

Sandy: You talked a little bit about low interest rate earlier so how do you see the low interest rate in rising inflation affecting the current and future products?

Chris: That’s a very tough environment. You know, I’ve joked a few times that, you know, the last time inflation was a concern, I was listening to Led Zeppelin on my 8-track player so that dates myself, but it’s really true. If you think about it, it was the mid-70s and the late 70s and so you probably need to be well into your 70s or, more likely, your 80s to have managed money or been in our business during a high inflation rising interest rate environment. So, I think the biggest change is for people to change their mindset because most of us have managed either companies or managed money in periods of rates simply falling so I think that would be one. So, it will have a huge impact on how people think about their investment portfolios. We spent a lot of time with our investment partner, Blackstone, on what does inflation mean to the investments that we have today and the types of investments we wanna make over the next couple of years. And then, similarly, for product design. You know, what is the implication on that? What are client’s expectations going to be? Is this gonna crimp their buying power sufficiently that we need to think about different ways to design products for customers? So I think it’s gonna be quite far reaching.

Kevin: Chris, what do you see is the next new product within the life and/or annuity marketplace?

Chris: I would say a couple of things. I think it’s gonna be more process than product. And what I mean by that is I don’t think most customers right now are saying, “Well, if I just had some more products, you know, I could really solve all my financial needs.” I think we’ve buried them in product and, frankly, a lot of products are probably overly complex, which can be intimidating to clients. I think we will see more innovation, frankly, around process, meaning how do those products fit in the context of a portfolio? You know, Sandy asked a good question about inflation and interest rates. Well, I would argue, in a rising rate environment, the only sane way to own fixed income or bonds is to own it in the general account of an insurance company, right? Because, otherwise, you’re gonna see the value of those bonds go down as rates rise. You could see forced selling in the context of a mutual fund. So, I think a lot of advisors now are positioning fixed annuities, for example, as a bond surrogate in an overall investment portfolio. So, it makes a lot of sense, it’s logical, it’s intuitive for clients but it’s not easy to do today. You can’t seamlessly, in most cases, fit an annuity the way you could maybe fit a bond mutual fund. So I think some of the innovations will be breaking down some of those barriers that make portfolios look a little more piecemeal and have them play together in a better way. Selfishly, I think products like RILA, registered index-linked annuities, it has just a lot of legs to it. Because if you think about it, we’re finally giving clients what they always wanted is some metes and bounds on what their returns can be. So many clients say, “I’m risk averse,” it doesn’t mean that they’re not open to losing some money, they just don’t wanna get wiped out, like perhaps they were in 2008, 2009. So being able to say to a client, “Well, here’s the upside you can have if you’re willing to accept 5 percent downside, here’s the upside at 10 percent downside.” I think it’s a little bit of a holy grail, you know, what investors have wanted. It was just, “Give me some sense of parameters of what the upside and the downside is on my investments.”

Kevin: Chris, what is your opinion about the future of insurance regulations and compliance as we know it today?

Chris: Yeah, I mean, today, it’s pretty fractured, as you know. I feel for financial advisors because, you know, you’ve got the NAIC rules which dictate most insurance products, then you’ve got Reg D I and, you know, if you’re selling registered products, a different set of rules, and now the Department of Labor inserting itself on IRA rules and so, you know, in the old days, when I sat down with you, I may have had one conversation as your advisor. I generally had one set of rules that I was expected to abide by. Now, depending on what we’re talking about, I could have three or even four different rules that I need to think about. So it’s complex. My hope is, and I do think, eventually, it may take a long time, we’ll see some harmonization of those rules, but one thing’s really clear, you know, the expectations are just gonna go up, meaning, you know, there will be stricter, more fiduciary like standards regardless of the type of advisor that you are today. And that’s not necessarily a bad thing. I actually think that’s a good thing. I think the industry is fully supportive of treating clients in their best interests. You know, where things get contentious is how does one define that and are regulators trying to decide in advance which products are good, which products are bad, what type of compensation I think is where it gets complicated. 

Kevin: What type of strategic partnerships do you see working best for carriers?

Chris: That’s a good question. Obviously, there’s different types of carriers so it depends very much on what their core products are, but two areas that seem to have been quite productive. One is anything around client experience. And as I said before, going back to the history of our industry, it’s never been a strong suit. You know, if you said, “Well, who’s got the best end customer experience?” you generally didn’t come up with a list of insurance companies on your list of organizations. So I think those have been really smart partnerships. We’ve made some partnerships of our own there of folks who just get up and think, first and foremost, what’s it like to be the end consumer of this product? So some of it’s a mindset, some of it has to do with technology. So I’d say that’s one. And then the other is a lot of innovation around underwriting. How do you use data in a good way? How do you use data in a way that’s non-discriminatory but is really just trying to make the process faster and more efficient? That’s another area we’ve leaned into. We’re growing pretty rapidly in the middle market for life insurance. And there, in particular, people just don’t have patience for a long, clunky underwriting process. And in many cases, they’re even willing to pay a little bit more to just streamline that experience. 

Kevin: What do you see as the biggest opportunity for the insurance industry over the next three to five years? 

Chris: Yeah, I might highlight two. I think one that the industry has identified for years and, frankly, just hasn’t executed on is this insatiable demand in the middle market for life insurance products. A lot of that is just the number of licensed agents has gone down pretty much every year, I think, for 20 years, and yet the demand for guidance, the demand for protection has gone through the roof. So I think there’s a number of us that are very focused on that segment, but that is still the Wild, Wild West, just meaning there’s huge opportunity, there’s massive demand, there’s an opportunity for lots of carriers to be successful there but you have to have a strategy to reach them. So I would say that’s one. And then the other is, while it’s been uneven, the wealth creation in this country is just stratospheric. So, you know, there’s just a lot of money out there looking for a home. A lot of that is right now sitting in bank deposits so that’s probably the most immediate opportunity. I think banks are just drowning in deposits and you have a lot of people who are looking for a higher return but not quite ready to go fully into stocks or bonds. And so I think for products like fixed annuities or indexed annuities, I think the next few years are gonna be just full of opportunity there.

Sandy: What is the best decision you made that had a positive impact on your career?

Chris: Yeah, I think that one’s pretty easy and I mentioned earlier that I spent the first 17 years of my career in the asset management industry. I was hired by New York Life but I was hired in their asset management division. And, in 2007, the then brand new CEO, Ted Mathas, was anointed to be the next CEO and reached out and asked me to come join his leadership team and, at the time, it wasn’t an easy decision because I had invested almost 20 years in a certain industry where I knew everybody, I had a certain amount of expertise. Candidly, my friends in the asset management side thought I was, you know, stupid for even thinking about it. You know, insurance is boring, you know, it’s a very big company, et cetera, et cetera. In hindsight, it was just a great move. I learned a ton. I learned a ton working for Ted. I learned about an industry that I just think is fascinating that I would be hard pressed to ever wanna leave this business. And so I think if there’s a learning in that, you know, sometimes you have to take a chance, sometimes you have to move out of your comfort zone, and know a really good opportunity when it comes along. I think, for me, while I did debate it, was it smart to leave the industry I’d invested a lot of time in? You know, I sort of ultimately concluded you don’t get opportunities like that very often where a new CEO asks you to be part of building something. So, yeah, I would say that was sort of a game changing career decision for me.

Sandy: I think it worked out well. 

Chris: Yes.

Sandy: What advice would you give to somebody looking to get into the financial services or the insurance industry?

Chris: The first one would be do it. I mean, I’ve talked about this before. It’s an awesome industry. You know, if you think about it, we don’t need two years to retool a factory when we come up with a new idea or a new product so it’s incredibly innovative industry. The long-term supply and demand dynamics are fantastic. People are just dying for advice and guidance. They’re dying for some form of guarantees in a world that’s pretty uncertain. And the supply is still fairly limited so I think there’s some great career opportunities in this business. And then the other is, you know, a little bit of what we’ve just talked about, be open-minded. Don’t define your career as the next vertical promotion. Sometimes, it’s a move sideways. Sometimes, it’s taking a chance and moving in a different direction. So, you know, I think if you’re intellectually curious and you’re not afraid to work hard and kind of a creative person, it’s a wide open field.

Sandy: With all the disruption in the industry and in the world, what keeps you up at night?

Chris: Yeah, I think the biggest one is the one we talked about before, it’s culture, meaning, you know, we pride ourselves on our culture. People love being at F&G, they tell it’s the number one reason they joined us, that’s the number one reason they stay, far ahead of comp and benefits and all the other things that you need to be competitive in these days. But, you know, we all know that can be fleeting. So I worry about — we’ve hired a lot of people. Half of our employees joined us during the pandemic. That’s a pretty crazy stat. So I think we’ve hired great people. In fact, I know we’ve hired great people, but it’s a weird environment now. You know, everybody’s not in the office every single day and so this is what I spend probably the most time with my management team on is, really, what are we doing to foster culture? How are we encouraging people to get together periodically but not force them all back into the office every day? Because I think we know that’s not a winning formula. So that’s really the big one. I think we continue to get that right, continue to have a great culture and a company where people really enjoy coming to work. We’ll figure the rest of it out. 

Sandy: In regards to your culture, how is F&G working with diversity and inclusion with all those new hires that you have coming on?

Chris: Yeah, it’s something that I’m probably most proud of and I told our board this. We’ve gone literally in the last year from about 33 percent of our officers, which we define as VPs and above, being women to 43, so not quite half where it should be, if reflected population factor, I think it should be 52% female, but big progress there so we’re quite proud of that. And then, similarly, people of color has gone from I wanna say 16 percent to 20 or something along those lines. And I think you have to view it as an opportunity, which it is, right? I mean, today, America is more diverse so if you’re trying to be successful in any of these markets, you need to have perspectives from all over the country and different types of backgrounds. And then the other thing that I would say is, as you know, it’s a lot more than just representation. It’s diversity of thought. It’s perspective. Can you create an environment where people can respectfully disagree? You know, that’s becoming increasingly challenging in our country but I think we’ve done a good job of that at F&G. So, yeah, I think if you want the very best talent, you gotta cast a wide net and then you have to ask yourself, “Are we doing the things we need to do where everybody sees a fair opportunity to succeed at the company?”

Kevin: Chris, thank you for your time today. It’s been great to hear your thoughts on how carriers can stay relevant and the opportunities you see in the industry for the next few years.

Chris: Well, thanks for having me, Kevin and Sandy, really appreciate it.

(outro)

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