During the ’80s many producers experienced a decline in the value of their renewal
accounts. Renewals on universal life tend to be lower than on traditional cash value
policies. Both increased replacement activity and the proliferation of new products have
produced a
general decline in persistency. Some producers have suffered substantial decreases in
renewal compensation from the termination of pension plans. Interest rates have
increased to a new plateau, resulting
in application of a higher discount rate to anticipated future
compensation.
A number of producers derive substantial income from sales of products such as single
premium policies and mutual funds, where there are no contractual payments in the
future. These sales do not generate future compensation, unless there is a contractual
provision for asset-based compensation.
A recent trend is the use of levelized compensation on certain products. Continuation of
this trend would reverse the decline in the value of renewal accounts, since levelized
compensation defers first year compensation to renewal accounts. Many companies have
a strong need to reduce distribution costs by levelizing compensation, but competition for
the producer acts as a powerful deterrent. (22.)
