InsuranceNewsNet Magazine - October 2015 by InsuranceNewsNet

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Get a behind-the-scenes look at the Sell While You Sleep product line in the exclusive interview with creator, Bill Levinson. PAGE 15

THE NVENTOR: How Bill Levinson’s Tech-Forward Products Sell Themselves and Are Changing the Industry One of the biggest buzz words behind the scenes in the insurance industry is “differentiator.” It’s what carriers build their products around, what IMOs build their marketing around, how GAs design their support and incentives, and what agents are not just requesting, but requiring from all of the above. It’s what has Bill Levinson blurring the lines between carrier, marketing organization, and agency – but these “blurred lines” aren’t themselves the differentiator of Levinson & Associates. Bill Levinson is literally inventing products that are unlike anything that’s been done before in the life space. In this Q&A, Levinson discusses the Sell While You Sleep product line, the tech-forward, exclusive platform that supports it, and how it’s not only growing businesses, but also reaching a new generation of consumers and agents. Q: What is “Sell While You Sleep”? A: It means exactly what it says. Basically, a client can go on the agent's website, run a quote, sign up online, get an approval and have their policy mailed to their doorstep or they can print their policy in real time without ever speaking to an agent. It was put together for agents to be able to sell and market insurance products through their website or social media pages or email blasting and literally sell while they sleep. Q: How did you get started creating Sell While You Sleep products?

just buy a policy right from the site without ever speaking to an agent.

if so, how do you decide what products to create next?

So we created and tested our first Sell While You Sleep product a few years ago, and we saw a lot of action from the consumers. The response from agents was they loved the concept, they loved the product, they loved everything about it. The only downside was that all the agents were saying, “This is great, but we need more products on the platform.”

A: Yes, we are developing new products as we speak, like Level Lightning Term, which is coming out soon. We listen to what the consumers are looking for and what the agents want to feature.

Q: How are you answering agents’ demand?

A: Why would I? If an agent wants to keep selling the way he or she always has, we still have all of our products available to sell face-to-face or over the phone. And I’m not expecting anyone to replace what’s already working. But having a sales platform like this, running on auto-pilot, will eventually be a necessity.

A: We’re now partnering with multiple carriers and we’ve expanded the product line to more than ten products. Today, consumers can buy a critical illness policy, cancer policy, an accident plan, term insurance, term with return of premium, term with living benefits, final expense and universal life, all through the Sell While You Sleep platform with no agent involvement. Q: How do agents get the word out and drive all these consumers to these online products? A: That’s the million-dollar question. The exclusive Sell While You Sleep platform includes a complete marketing platform, which includes social media integration – if an agent has no idea how to use Facebook, LinkedIn, Twitter, we help them get set up. We integrate SEO, train how to make online videos, write blogs and use them to drive traffic. We also have customized templates that agents can just add their name to for email blasts, and we have email lists available for lead

Q: Are you meeting any resistance to the Sell While You Sleep method?

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The Shocking Truth About Where Advisors Go Wrong in Their Presentations

you’re actually satisfied with the appointments you’re setting from your seminars — and the conversions you’re getting from your appointments — there’s a good chance you’re only earning one tenth what you could be! The truth is, many advisors are making one or more of seven common mistakes that turn off prospects and sabotage sales. How are even the most seasoned advisors falling into these traps? It’s because while they may be en in As se ewsNet N e c n expert sales people, Insura gazine a M their speaking skills come up short, and no matter how good the substance of a presentation is, it’s how it’s presented that really matters.If these statements have got you feeling a little uncomfortable, that’s a good thing. You should also be feeling excited, because you’re about to find out how you can increase your income by up to ten times. First, let’s do a crime scene investigation of your own presentation and find the clues to what’s killing your sales. Read on and think about which of the “7 Presentation Mistakes” you may be making. (Be brutally honest with yourself, because right now, this is only between you and you.)

7 PRESENTATION MISTAKES THAT ARE KILLING YOUR SALES 1. Not Using a Strong Introduction You need to be in a position of power the moment you start talking. Which means, you need to somehow establish yourself as an authority before you even begin. The best way to do this is to have someone else introduce you a certain way. Let’s face it — we don’t “take” power. It’s something we have to be granted by others. 2. Too Much Teaching Training complex ideas and jamming two hours of material into a 45-60-minute presentation causes confusion and can make you look a bit frazzled as you try to plow through concepts. And while it’s great when your audience walks away smarter and more knowledgeable, it’s even better when they don’t walk away. The reality is, your prospects would rather just be entertained — it’s called Presentaining™. 3. Using Outdated Strategies Today’s consumer is much smarter than the consumers of the 80s and 90s, for whom traditional presentation and communication strategies were developed. For example, your

prospects know they’re going to be sold to. Waiting until the end of your presentation to mention the offer just gives this “elephant in the room” ample time to stink the place up. 4. Not Engaging by Using Emotions Emotions trigger decisions to buy. Emotions turn a curiosity or a want to a need. To fire up emotions, you should be telling engaging stories, which is what your audience wants to hear anyway. Stop talking about features and start using stories to show the benefits of the benefits. Facts tell. Stories sell. 5. Not Using All Available Tools of Persuasion A presentation isn’t simply about what you say and what visual aids you use. You are placing your whole self in front of an audience, so you need to not only be aware of your overall appearance, but also use the extra opportunities, such as body language and tonality, to your advantage. There are also trial closing techniques and other “tools” that you’re probably missing. 6. Failing to Build Value People don’t value things that feel “cheap” — and “free” is even worse than cheap. If you’re immediately saying your strategy session is free without using any techniques to establish its value, not only will you get fewer takers, but those who do

schedule will have lackluster engagement when they attend. Your appointments need a strong introduction just as much as you do. 7. Being Short-Sighted Many presenters don’t think longterm. Yes, the goal is to book appointments or secure second appointments, but are you thinking beyond scheduling? There are ways you can plant seeds during your initial presentation that will help you all the way up to closing the sale and even beyond, like with referrals and ongoing business. So did anything strike a nerve? Odds are, several things jumped out at you. And that’s good. That means there is definitely opportunity for you to take your current numbers and multiply them tenfold. The reason you keep reading “ten times” and “tenfold” is because that’s exactly what happened to Presentainer™, Dave VanHoose when he discovered and implemented strategies we’re about to share with you. That’s right, his sales increased to 10x what they were before.

If you’re ready to see the solutions to these 7 problems, if you’re ready to see the same 10x-multiplying results, you can get started today with Dave VanHoose’s “Presentainer™’s Kit to Sell More NOW.” Get your FREE Kit instantly at FreePresentainerKit.com.

3 UNCONVENTIONAL TOOLS WILL HELP YOU SELL MORE NOW New! Presentainer™, Dave VanHoose has just released (for a limited time) a seminar-optimization kit that’s going to get some so-called seminar experts up in arms! — especially those who want something from you in return for what they think is the best way to present. Because, this is 100% FREE – even though we’ve been told we could easily charge (and get) $500 for the powerful resources and information it contains. And because it can increase your sales by up to 1,000%! (It’s happened plenty of times before.) We’re not going to hold anything back from you. Here’s exactly what’s in the kit: 1) The Presentainer™’s FIELD GUIDE to Sell More NOW Be able to sell anything to anyone at any time with the 11 Presentainer™ Principles revealed within this unusual resource. When you take action and start using what’s inside this handy guide, you’ll be able to profit immediately. 2) Influence in Action EXCLUSIVE Footage See for yourself Master Presentainer™, Dave VanHoose LIVE in action as he gets people running to the back of the room to invest with him while generating over a quarter of a million dollars in sales. In this special video, you’ll witness advanced communication techniques, trial closes and other influential messaging techniques. 3) Success By Design Blueprint You’ll want to make sure you have these 12 PROVEN elements for selling every time you present your message “on stage,” during a webinar, one-on-one… really in any communication that you want to move people to action. If you’re ready to see prospects running to the back of the room to schedule and ready to add up to 7 figures to your sales, then get this kit today and implement it tomorrow. (Seriously, don’t wait – while we’re used to ruffling feathers, we hope the backlash of this offer doesn’t force us to take it down early.)

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IN THIS ISSUE

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OCTOBER 2015 » VOLUME 8, NUMBER 10

ANNUITY

50 E xperts Warm Up to QLACs, But Will Consumers Buy Them? By Linda Koco Even with all the publicity surrounding this annuity product, it’s too soon to say whether the public will choose to invest in it.

54 F ixed Index Annuities: Protecting Against the Longevity Risk By Eric Taylor Fixed index annuities can make your client’s retirement savings work harder than conservative savings vehicles, while providing guaranteed income for life.

24 INFRONT

10 Planning for Success Pays Off for Clients and Advisors

FEATURE

24 How To Solve The Puzzle and Sell Your Practice

By Steven A. Morelli Clients need to pay more attention to longevity issues as they make a retirement plan.

By Linda Koco Selling your agency is a transition that takes several years and must be worked on and planned thoroughly. Agency owners who have been through the process share what they learned on the journey.

36 Mergers & Acquisitions: Special Sponsored Section In the special interview series, executives from two different companies weigh in on the topic of mergers and acquisitions.

HEALTH

58 H ow Same-Sex Marriages Affect Health Insurance, Benefits By Hector De La Torre Now that same-sex marriage is legal across the nation, couples need your advice to help them select the right insurance and benefit options.

LIFE

42 Cash With App: The Importance of Getting Conditional Receipt By Ted Jenkin One simple step can make the difference between having coverage in force or not having coverage.

INTERVIEW

12 The Future of Life

LIMRA’s CEO Assesses the Industry’s Condition Robert A. Kerzner, president and CEO of LIMRA, is in the unique position of knowing carriers, producers and researchers. In this interview with InsuranceNewsNet Publisher Paul Feldman, Bob discusses the main disrupters for the life insurance industry and how to turn them into positives for companies and producers.

44 When the Life Insurance Gift Becomes a Beautiful Gesture

InsuranceNewsNet Magazine » October 2015

By Louis Shuntich When your clients gift a life insurance policy while they are still alive, they have the opportunity to see the benefits of their generosity.

FINANCIAL

64 Keep Your Client’s Investment From Turning Into a Money Pit By Bryce Sanders Real estate investment involves a lot more than buying and selling properties. Here is how to keep your client from getting burned.

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How to Create a Great Income Planning Strategy Discover field-tested strategies to help you close more sales and increase your practice’s profit.

ALSO IN THIS ISSUE OCTOBER 2015 » VOLUME 8, NUMBER 10

72 THE AMERICAN COLLEGE: The Fraud Triangle Can Be an Ethics Crystal Ball

Check out just a few of our wealth-preservation strategies • How to explain the “leveraging effect” an income benefit can provide - with $1 doing the work that asset allocation would require $2 or even $3 to do • Show prospective clients a strategy to manage two of retirement’s greatest risks: longevity risk and sequence risk • Realize the power of the income allocation theory and why it works

BUSINESS

68 Roll Out a Welcome Mat That Keeps Clients Coming Back By Mike Capuzzi Don’t just thank your clients – appreciate them, help them and wow them.

INSIGHTS

70 MDRT: Some Clients Aren’t Worth Chasing By David L. Alarid The best prospects are the ones who truly are interested in protecting their families and their businesses. Those who aren’t serious about working with us aren’t worth our time.

By Julie Ragatz When three conditions are present, even well-intentioned individuals can be led to commit fraud.

74 N AIFA: 5 Key Steps Before You Sell DI By Corey Anderson Taking these steps now will help you develop a disability insurance policy that best meets your client’s needs.

76 LIMRA: Group Benefits Meetings Are Missing the Mark With Employees By Kimberly Landry Group meetings are a popular way of discussing benefits with employees, but few workers seem to find much value in these sessions.

EVERY ISSUE 8 Editor’s Letter 22 NewsWires

Learn it all in just 48 hours as we hand deliver the unique strategies that can jumpstart more profits and help set your practice up for long-term success.

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40 LifeWires 48 AnnuityWires

56 HealthWires 62 FinancialWires

INSURANCENEWSNET.COM, INC.

3500 Market Street, Suite 202, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe EDITOR-AT-LARGE Linda Koco SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford PRODUCTION EDITOR Natasha Clague VP MARKETING Katie Hyp CREATIVE STRATEGIST Christina I. Keith AD COPYWRITER John Muscarello CREATIVE DIRECTOR Jake Haas

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Copyright 2015 InsuranceNewsNet.com. All rights reserved. Reproduction or use without permission of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail editor@insurancenewsnet.com, send your letter to 3500 Market Street, Suite 202, Camp Hill, PA 17011, fax 866-381-8630 or call 866-707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, Ext. 115, or reprints@insurancenewsnet.com. Editorial Inquiries: You may e-mail editor@insurancenewsnet.com or call 866-707-6786, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.innmediakit.com or call 866-707-6786, Ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 3500 Market Street, Suite 202, Camp Hill, PA 17011. Please allow four weeks for completion of changes.

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15 INN 10.15

WELCOME LETTER FROM THE EDITOR

The Gathering Shuffle

“D

on’t I look like Steve Morelli?” “I don’t know you,” the old man said as he reached up to pat down hair that had brightened into a brilliant silver since I saw him last. “You were born in Providence. You went to the University of Rhode Island. You were in the Navy AND the Marines.” “I don’t know how you know those things. Go. Leave. Go,” he said, shooing me with one hand as he adjusted the covers of his bed with the other. “Look at this,” I said, pointing to the gap between my front teeth. “Don’t you remember this, Dad?” He squinted at me as he felt for his glasses on the nightstand. I handed them to him and he studied my face as I stood by his bed. “How did you do that?” he asked the imposter as he pointed to the space between his own front teeth. That was the first glimmer of recognition after nearly an hour of patiently throwing out facts like darts through a fog. He still thought I was an imposter until hours later when it finally sank in. Once again that afternoon, he studied my face. “What happened?” he said, looking at me but touching his own hair. 8

“You mean my gray hair?” I said in mock offense. “You mean I got old?” He barked a laugh and said, “Yeah!” “Tell me about it, guy,” I replied with a smile and an eye roll. That was the first time he laughed that day in March. Now that I think about it, it might have been the first time I had seen him do that since he had his stroke in 2010. That was the last time I saw him, when I went out to Los Angeles from Pennsylvania to help him transition. That January, his landlady had called me after she found my number on his desk. She didn’t know whose it was because Dad had woken up in the hospital speaking gibberish. In the limited time that I had out there in 2010, I helped assess his ability to live on his own and then find an assisted living facility. Dad had regained some of his power of speech while I was there, but he was still trapped in the mind of a child. He had to sign over control to a son he hadn’t bothered to talk to for 35 years. Maybe it was just luck that he called me out of the blue about a year before his stroke. But I think he would have preferred to have faded into the ether as he had with everyone else who loved him his entire life. Earlier this year, I returned to help him with another transition. After his stroke, dementia, breaking his hip, along with other

InsuranceNewsNet Magazine » October 2015

maladies, he has surprised even his doctors by reaching 86. He had been in this facility for five years and his meager finances were running low. Dad would never understand that the place that he called home would kick him out if he could no longer pay. He just knew that he wanted to stay, no matter how I explained it to him. He had been an auditor before he retired, but none of this was adding up for him. He is now in a more affordable place that provides better care in a far more modest setting. To tell you the truth, the place seems more homey and inviting to me. After some resistance, Dad settled in. Last week, the facility’s new owners called to say they were reassessing their prices for services. Soon, I expect to appear by my father’s bed yet again as an apparition that spirits him to a new, strange place. This is the fate of more and more of my fellow middle-agers, dealing with relatives who far exceed their expected years, in many stages of debilitation. When our mothers and fathers were our age, they attended their parents’ funerals. We instead get to guide them along a long, painful journey through escalating levels of expensive care leading to the last beep-beep-beep in an intensive care unit. As grim as that sounds, it can be a time of rich revelations for everyone involved. This is certainly an era of discovery not just for us as individuals but for all of us as a society. This is the dawning of the age of longevity. In this month’s issue, we have an interview with LIMRA’s CEO Bob Kerzner and an InFront column featuring new information from the researchers. Both of those articles boil down to the question of what to do about longevity. The “problem” of living longer is not just an equation of balancing dollars and years. It also requires a clear-eyed view of what those years look like. This is becoming a new duty of retirement advising. Back on the East Coast, as I remind my mother of the names that used to be close at hand and the location of her favorite Macy’s, I am mindful of the moments we have. I’m taking mental notes as my parents walk down their paths, hopeful that I will find those jottings when I need them most. Steven A. Morelli Editor-In-Chief

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7/15

INFRONT TIMELY ISSUES THAT MATTER TO YOU

Planning for Success Pays Off for Clients and Advisors he latest LIMRA research T shows that retirement planning needs a dash of tough love. By Steven A. Morelli

he latest research from LIMRA verifies a troubling consumer trait that advisors might have long observed: People are worried about the wrong things. Consumers worry about inflation, whether Social Security will still be around, and other factors involving the economy and public policy. Certainly those are big issues, but consumers cannot do much about them, and these issues are not the biggest threats to retirement security. The true villains are many, but they have a common denominator. They all have longevity as the root. People don’t have a real appreciation for not only how long they will live but also the real impact of getting old. For example, three out of four non-retirees are worried that pensions and Social Security will not be sufficient for their retirement, according to LIMRA. They might be right, but probably not for the right reason. Here’s another impressive number: One out of four healthy 65-year-old men will live to 93. The lucky one out of four women will chug on to age 95. The survey didn’t ask whether people believed they would live that long, but the odds are good that far fewer than 25 percent thought so. That is a key takeaway for Jafor Iqbal, the assistant vice president for the LIMRA Secure Retirement Institute and the architect of an ambitious report on retirement income. “When we talk about the average life expectancy, people know that it’s age 85 or thereabouts,” Iqbal said. “But average life expectancy is a really unwieldy term to use because average life expectancy means that roughly 50 percent of the people would be living beyond that average life expectancy.” So, although a 65-year-old might think they are being responsible by planning their retirement to last another 20 years, they have really good odds of being woefully 10

Summary of Retirement Risks Risk Category

Issues

Detrimental behaviors

Immediacy

Level of control

Can risk be mitigated?

Longevity/ Mortality Risks

»»Outliving assets »»Death of spouse

»»High withdrawal rates »»Non-coverage of spousal benefits

Low

Yes

Investment Risks

»»High withdrawal risks »»Sequence of return risk »»Interest rate risk

»»Investing too conservatively or aggressively »»Sub-optimal Social Security claims »»Timing the market

High

Moderate

Yes

Inflation Risk

»»Inflation

»»Assuming too low of a rate of inflation in retirement

High

Low

Yes

Health-Care Cost Risks

»»Out-of-pocket medical costs »»Prescription drug costs »»Long-term care costs

High

Moderate

Yes

Public Policy Risks

»»Reduction in Social Security benefits »»Reduction of Medicare benefits »»Tax increases

Moderate

None

Source: LIMRA Secure Retirement Institute

Probability of 65-Year-Olds Surviving to Select Ages

unprepared. They might be aiming for age 85, but that is in the middle of the pack. They stand a 50-50 chance of living longer. If longevity is the key issue, consumers are far too focused on risk factors outside their control. “They think that public policy risk is No. 1,” Iqbal said. “They are worried about whether the government will be reducing their Social Security or Medicare benefits or raising their taxes.” Consumers can do little about those issues on a macro scale. But they can use those concerns to spur on their own savings, because it is becoming more apparent that they are on their own. “There is an understanding right now that retirement is now a personal responsibility,”

InsuranceNewsNet Magazine » October 2015

the researcher said. “Ten thousand people are reaching age 65 every day. Pensions are being cut each generation. That is strengthening the message that you need to save because all the other traditional methods are going away.” Once consumers absorb that insight, they will need help in dealing with the insecurity and then building dependable security. Advisors most likely know the key risks to their clients’ retirement security, such as health-care costs. But advisors might be wise to acknowledge their clients’ fears while steering them toward their most significant issues. “Advisors probably think market risks, health-care risk or longevity would be the most important things that the retirees or

PLANNING FOR SUCCESS PAYS OFF FOR CLIENTS AND ADVISORS INFRONT pre-retirees should address,” Iqbal said. “But retirees and pre-retirees are not there. They want to take care of the other things first.” That means helping clients see the real picture. For example, many Americans just assume they always will have the option to work. But how they feel about working at age 55 or 60 is not the same as they will feel at age 70. LIMRA research shows that people often retire earlier than they expect to. “Our data shows 50 percent of the retirees have to retire earlier than they had planned,” Iqbal said. “It is not determined by them. That is another misconception that I think that we should emphasize whenever we talk about retirement.” People also will not have the mental faculties that they assumed they would. One in six 70-year-olds will have some dementia. Retirement planning often is pointed at one number, the magic one that will supposedly ensure security. Advisors and online sources have a selection of formulas and rules that add up to a lump sum to accumulate. Although saving money is vital, focusing all the planning on a number might not be so healthy, Iqbal said, adding that it could lead

to disappointment. Instead, a formal retirement plan puts clients at ease. “We don’t put enough emphasis on a real retirement plan,” he said. “Instead, we say that if you have saved $500,000 or $1 million or $2 million, you are safe and you are good for retirement.” That number is different for each individual, and good advisors factor that into the calculation. But there are many contingencies that are difficult to factor into a number, such as needing assisted living earlier in the retiree’s senior years. That is why Iqbal and others are urging the investment and insurance industry to focus more on a full plan, rather than solely on accumulation. “It is unique for every person and every household,” Iqbal said of a formal plan. “Clients should get an advisor to really figure out with them what their retirement lifestyle will be, their financial objectives, and set their retirement goals. That’s what we’re calling the formal retirement plan.” The research showed the plan not only puts the financial pieces in place, but also brings a peace of mind. “A plan really makes sure that a custom-

er gets that extra confidence in their retirement,” the researcher said. “We have seen that when confidence goes up, clients also feel very, very satisfied with their advisors because they think that the advisor has done a wonderful job.” Iqbal said that over the next few years, insurance and investment advisors will be hearing much more about how to speak with clients on broader retirement planning and how to structure those plans. When they have a formal plan, three out of four clients follow it. Research shows planning pays off not only for consumers but also for advisors. The relationship improves, and the client also wants to move more assets to the advisor, Iqbal said. “So all of the things are coming together.” Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@ insurancenewsnet.com.

October 2015 » InsuranceNewsNet Magazine

LIMRA’s CEO

Scouts the Industry’s Best Prospects

f the life insurance industry has a guru who can foretell the industry’s future, it’s Robert A. Kerzner, president and CEO of LIMRA. Every year he strolls the stage as he sounds the keynote for the life insurance research organization’s annual meeting, which will be in Boston later this month. And even though LIMRA is an association of insurance companies, Bob doesn’t mind injecting a little tough love into his presentation to his members. After all, Bob has been among his audience. Before he joined LIMRA in 2004, he was the head of the individual life division at Hartford Life, where he had a 30-year career. He is in the unique position of knowing carriers, producers and researchers. In this interview with Publisher Paul Feldman, Bob discusses the main disrupters for the life industry and how to turn them into positives for companies and producers. He also tells how LIMRA’s research shows that the U.S. Department of Labor’s fiduciary rule may make consumers less rather than more secure.

InsuranceNewsNet Magazine » October 2015

THE PULSE OF LIFE INTERVIEW

Robert A. Kerzner, president and CEO of LIMRA

October 2015 Âť InsuranceNewsNet Magazine

INTERVIEW THE FUTURE OF LIFE

Forces of the Future

FELDMAN: What topics are the most pressing for the industry right now? KERZNER: I always consider the four major forces of the future: demographics, regulation, technology and external forces. Demographics and regulation have been the biggest drivers of change in our business. But technology is really the agent that creates the environment for change. I don’t think we’ll necessarily address external forces in this interview. When you think about demographics, you realize the face of America is really changing. The fundamentals are all different. Fewer people are marrying, or they’re marrying later. They’re buying houses later. Women are gaining more of the say in financial affairs, especially as they become more and more the key wage earner in many households. Minorities are becoming the majorities, and they have different spending patterns and priorities. So everything that we know is different, and that is going to drive change. FELDMAN: Is the regulatory aspect more difficult these days? KERZNER: There is no question that it is more complicated than it’s ever been. There are more people trying to have a say in who’s saying what about which products. Frankly, whatever happens with the Department of Labor’s fiduciary rule, it’s going to be more difficult to give advice. At the same time, we know that people who have advisors are more likely to save. We’re hearing that it’s “too confusing” to buy life insurance, but the fact of the matter is all of the regulatory regimes are requiring more and more paper and more forms to be signed. What I tell regulators all the time is the data suggests this will make it harder and harder for people to trust us and to make purchases. FELDMAN: This business is always in flux, but we seem to be seeing more changes than usual. Would you agree?

Regulation & Legislation

Technology

External Forces

Major Driver of Growth/Change

Unknown

The Change Agent

Possible Disrupters

Legislative Changes Create New Markets

How We Engage

Interest Rates & Investment Climate

How We Become More Effective

Globalization

Focus on Retirement Risk

OR Rules/Regs Make It Hard to Do Business

change. The Internet, smartphone technology in general, will just change everything, and it’s one-by-one disrupting older business models. Airbnb is disrupting the hospitality business. Uber, the taxi business. Doctors are beginning to treat patients long distance by TV monitors. In the nottoo-distant future, we will be printing things we would have previously gone to the store to get. This is the world we’re living in. Consumers’ expectations are rising. Consumers want what they want when they want it. We can’t somehow believe we are going to be exempt from this radical change. We have got to embrace technology to improve how we get more messages to more consumers. There will be more roboadvice and people are just going to rely more on technology as part of the buying regimen of our products. FELDMAN: What trends are you seeing in insurance distribution?

KERZNER: Right now, this is an industry in massive transitions. Companies at the senior level are thinking about how not to be disintermediated, and I believe the producers really need to be thinking more about that, too. We really are living at a time of extreme 14

Demographics

InsuranceNewsNet Magazine » October 2015

KERZNER: Companies are really thinking different about how to better leverage technology, big data and predictive analytics. And they’re using it in some cases to provide producers better leads, actually showing them the best prospects and who has the highest proclivity to buy. Companies are really doing big things to get to consumers who have not traditionally bought or who might want to buy in a very different way. In Brazil, one carrier opened an online store to write small face policies. In fact, their results surpassed their expectations. But now they’ve made what they’ve learned available to their producers to allow them to set up their own online store. So producers are benefiting by what the carrier learned by going direct. I also see carriers building broader engagement, especially with middle-market clients dealing in amounts that are perhaps too small to be cost-effective for producers.

71%

Americans who did research on life insurance online in 2015.

ONLY 38% DID IN 2006

Since 1972

1-800-375-2279

just buy a policy right from the site without ever speaking to an agent.

if so, how do you decide what products to create next?

A: Yes, we are developing new products as we speak, like Level Lightning Term, which is coming out soon. We listen to what the consumers are looking for and what the agents want to feature.

Q: How are you answering agents’ demand?

Q: Are you meeting any resistance to the Sell While You Sleep method?

I had a seasoned agent with a huge book of business seek Levinson & Associates out just because we have the Sell While You Sleep platform. He was facing a dilemma that many agents are facing – his clients were referring their children and grandchildren and he didn’t know how to relate to them or how to sell to them. They kept asking if he had a website and how to get quotes online. That’s when he said, “I need to change” and called Levinson & Associates. Now he’s got everything on auto-pilot. A website, social media, and he constantly drips on his email list. We made sure everything was up and running for him. And he still goes out with his rate book and yellow legal pad and old school methods, sitting with clients at their dinner table. Sell While You Sleep isn’t replacing the way he maintains the relationships he already has. It’s helping him build more. It’s adding to his business, expanding his clientele and his income, and it’s all happening while he sleeps. •

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Look for Levinson’s upcoming feature in the November issue’s Tech Guide. October 2015 » InsuranceNewsNet Magazine

INTERVIEW THE FUTURE OF LIFE For some companies, that’s meant selling burial insurance directly. For others, it’s expanding their capability in the voluntary benefits. It even means one carrier in the U.S. is trying to sell life insurance at kiosks. In China, that’s beginning to get real traction and it’s been very successful. When you think about innovation, what John Hancock has done with the introduction of their alliance with Vitality and using the Fitbit to be able to provide ongoing discounts and rewards to consumers, this really is unique. It’s the first thing we’ve done to try to really create a long-term relationship with a customer. This high degree of creativity shows companies are really willing to change and to recognize that the marketplace is different. For producers, beginning to think more about “How does my practice have to change in light of all of these things” is something that we have to keep talking about. FELDMAN: What kind of changes do you see most advisors needing to make to get to these levels? KERZNER: I think they’re going to have to leverage what their company and other carriers are doing so that there are more prospects being pushed to them. It also means leveraging technology in other ways to use some of the new tools that are more of a gamification approach to educate consumers, not just send them boring texts. It means having other people via social media referring people to them. But it even means Skyping so that they can talk with more people in a given day. FELDMAN: Technology is impressive these days. You can talk to hundreds of people in webinars, for example. But few producers are utilizing that type of technology. KERZNER: Exactly. But I’ve also met some young producers who are using technology to get clients all over the country because they have a unique specialization. Others are learning the value of teaming, of working with others who have different skills than they do. And not just sharing clients, but sharing revenue. There are a lot of things, but it’s recognizing how different the world is and how much they need to change. 16

NEW ADVICE MODEL

Forces & Influences on Choice MIXED MODEL

Fee-Only Advisors

Commission-Based

Contact Centers Virtual Advice

Driving Customers and Prospects to Action:

Influencers:

Family, Friends, Internet, Social Media, Media/News, Advertising, Educational Programs

PERSONAL BIAS & EXPERIENCES

Company Websites – Web Searches, Advertising, Cross Selling, Referrals

DIY

Online, Direct, Retail

FELDMAN: You mentioned kiosks as part of distribution. Have any companies successfully rolled that out anywhere in the U.S.? KERZNER: There is one that doesn’t choose to discuss it broadly, where it’s being tested in banks, and I think you will see others in the not so distant future. My own belief is that if someone’s in the waiting room waiting for their child to be born, that’s an ideal buying time. Why isn’t there a kiosk in the hospital in the waiting room? It’s the way any other product would be brought to market — where it is most liable to be top of mind. FELDMAN: You mentioned roboadvisors. What impact do you think they will have? KERZNER: Despite all the news coverage, our research shows that few consumers, fewer than two in 10, even know that these platforms exist. That said, I do think that this kind of tool is going to gain more and more acceptance. I think we’ll be in a world where a Siri-like tool will give basic advice. Many of the questions that people have are fairly simplistic and they can be answered that way.

InsuranceNewsNet Magazine » October 2015

PERSONAL BIAS & EXPERIENCES

But to our earlier discussion, how could an advisor use that to their advantage as part of their practice and not necessarily have it disintermediate them? One of the things we’re sharing with you is a grid of “the new advice model.” And what you’re going to see is down the bottom a lot of clients start out wanting to be DIY, do it yourself. Our research indicates that as they try to understand life insurance or how much they need to save, it can be confusing. Along the way they decide they really need help. Carriers need to better capture those people as they are looking. Whether that help is a call center or it’s a commission-based or a fee-only advisor, it depends on what the person wants. We need to catch more of those folks with questions and refer them at the right time to someone who can give them the right advice. FELDMAN: We’re seeing a lot of growth in the advisor population, specifically in the RIA field. Do you think that’s going to have an effect on insurance sales? KERZNER: I hope a good effect, but I’m not overly optimistic. Based on history, they’ve not traditionally sold a lot of life insurance.

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Show Me The Money By 2040 there will be 82 million retiree in the U.S. Show Me TFinancial he Money Assets by Age and Retirement Status INTERVIEW THE FUTURE OF LIFE

By 2040 There Will Be 82 Million Financial Assets by Age and Financial Assets by Age and Retirement Status No one in HH retired Retirees in the U.S. In trillions Retirement Status Projected Number of Retirees

$6 $6

In trillions

3.0

Retiree population (millions)

$5 $5

$6 66.4 million in 2025 $5

2.0

1.5 1.5

82.1 million in 2040

(in trillions)

2.5 2.5

$4 $4

$17.8 T

$3 $3

$17.8 $2T $2

1.0 1.0

48.6 million in 2014 $3

0.5

$1 $14.8 T $1

0.00

$0 $0

65 Age 70 75 80 Age of retiree$0

Partially retired HH All in HH retired

No one in HH retired Partially retired HH All in HH retired

100

Source: LIMRA Secure Retirement Institute analysis of U.S. Census Bureau population projections

Source: LIMRA S ecure Retirement Institute analysis of U.S. Census Bureau population projections.

$14.8 T $8.4 T

$8.4 T

<2 5 25 -2 9 30 -3 4 35 -3 40 9 -4 4 45 -4 9 50 -5 4 55 -5 60 9 -6 4 65 -6 9 70 -74 75 -7 80 9 -8 4 85 -8 90 9 -9 4 95 +

Retiree population in millions

3.5 3.5

Age of HH

Source: LIMRA Secure Retirement Institute analysis of 2013 Survey of Consumer Finances, Federal Reserve Board, 2014

Source: o LIMRA Age f HSHecure Retirement Institute analysis of 2013 Survey of Consumer Finances, Federal Reserve Board, 2014 What I hope will be the change agent is Some are going to want RIAs to give more about consumers in a way that we ha- 5 simplified issue. I’ve talked aboutSource: this them fee-only but are go- ven’t. I don’t think it has to disintermediate LIMRA Sfor ecure Retirement Institute analysis of 2013 Survey oadvice, f Consumer Finances, Federal others Reserve Board, 2014 5 It gets customers who want to years, but we’re very close to seeing many ing to want something very, very different. producers. more companies make it easier for people They’re going to want people to be able to buy differently, but I think when you look at to buy on a simplified issue basis. I think talk to them in a different way about re- our research only one in five consumers says we can take some of the sting out of the tirement. As in, “How do I rehab my home that they would consider buying life insurprocess for RIAs. so that when I do retire as I get old I can ance through a retail outlet. I certainly think that after the DOL fidu- still live there?” But when you look at Costco I think ciary standard rule, whatever happens, more When we look at what’s on the minds that’s a very different business model than folks will be looking to be RIAs. But I also of retirees, financial issues don’t hit the Walmart. First of all, they have 64 million believe that there is going to be a whole new top three or four with many, many people. members in the U.S., but they also have a type of advisor coming out of all of this. And So I think advisors are going to have to be unique relationship with their customers. that advisor is really one who provides very highly specialized, and some will be RIAs It’s a big data play because they know lots different specialized advice. in the fee advisor part of that model. more about the buying habits of their cusWe have to recognize that there is this Life insurance is important. It’s a first tomers than a retail producer would know massive migration of dollars unlike any- asset class when the first person dies. It’s about their customers. So I think it’s rething we’ve ever seen in history. And al- something that’s important because with- ally a good example of migration of data though life insurance is something we out that life insurance there may not be and relationships to create a very different know people need more of, for the first enough money in the pool to last through sales opportunity. time in history, people are much more retirement. So, yes, I hope more advisors Similarly, New York Life has had a longconcerned about living too long than dy- that are RIAs and investment-only will standing relationship with AARP to proing too soon. As this money starts to shift, start to see life insurance as part of a com- vide its members with life insurance. But what is going to be on people’s minds will plete retirement package. now, AARP members who believe they be different. need advice can also ask for help from an Let me give you an example: We believe FELDMAN: Walmart and Costco have approved New York Life agent. there’s about $17.8 trillion in households been trying really hard to get into So, like the model I discussed earlier, where no one has yet retired. There’s an- life insurance sales for a long time. It they are leveraging a relationship to find other $8.4 trillion with people who have doesn’t look like a successful model an interested buyer, but the client can then retired and about $14.8 trillion with peo- yet. Is there an opportunity there or do say, “I don’t want to go direct. I need adple who have partially retired. you think it’s just hype? vice.” Then a career agent has a lead that Most of those assets are held by peothey wouldn’t have had. ple who are 55 and older. In the next de- KERZNER: I don’t think it’s hype, but I think So this is what I mean about working cade, these people who have been very it’s one more way that we may deliver prod- with carriers to better leverage their ability worried about investing are going to be uct over time. It won’t be a major distribu- to find customers in a very different way. much more worried about how to make tion system in the next three to five years, their money last the rest of their lives in but it can be part of a solution of how to get FELDMAN: What are your thoughts retirement. This is one of those significant to some middle-market customers. on Google’s efforts? They’ve recentdemographic shifts. It’s also the industry learning a little bit ly entered into the auto insurance

InsuranceNewsNet Magazine » October 2015

More on this Topic:

Mergers & Acquisitions Special Sponsored Section Being a business owner is complicated in any industry, and owning a financial services business comes with a unique set of considerations, especially when it comes to future planning. In the special interview series on the following pages, executives from two different companies, Partners Advantage and AgentLink, weigh in on the topic of mergers and acquisitions. They offer their cautions and advice on everything from succession planning to obtaining alternative funding for business growth.

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Mergers & Acquisitions • Special Sponsored Section

FEATURE DO YOU HAVE WHAT IT TAKES FOR ADVANCED SALES?

Grow Big or Get Out: [HOW TO]

Why and When a Merger or Acquisition is Right for Your Business

he life insurance industry has seen dramatic structural changes over the past 30 years, and Scott Tietz has been present for it all. Since 1982, Tietz has been an agent, a sales manager, a home office regional executive, and a home office general manager. In 1993, he formed Partners Advantage Insurance Services, which has grown into not only one of the most successful IMOs in the country, but also a leading authority on mergers and acquisitions. In this Q&A, Tietz reflects on his extensive experience with mergers, acquisitions and strategic partnerships to share what every business owner needs to know on the matter. Q: When should a principal look into a merger or a sale? A: When they realize that they can’t compete any longer. When they realize they’re losing agents or staff to larger agencies. Because they can’t compete and they’re not willing to take a pay decrease, put more money into the agency or to pay agencies or agents more money when it’s what other people are doing based on production numbers. If they’re not willing or can’t do that, they are going to find themselves, down the road, losing a marketer, then losing another marketer, then they’ll lose their top agents, and pretty soon they’ve gone from $250,000.00 of income to $75,000.00 and at that point, they’ve got nothing. They’re just holding on to a job. Other times, they’re not having fun anymore. They’re afraid of the new regulations or where the annuity world may be headed, and they’re ready to sell or merge now because they say it’s time to take money off the table.

Q: What about somebody who’s just looking to retire? How do they know it’s time to be done and let the company go? A: Most insurance professionals aren’t ready to be done. They’re loyal to their receptionist or their office manager. They like the idea of getting up and having a place they can go every day, and we work well with these cases. They can sell or merge. We can turn them into a consultant for two to five years, and we’ll keep an office open for them, and we’ll give them duties and roles, something they can do on a part-time basis so it keeps them active. Meanwhile, they’re taking up golf or whatever else they want to do with the rest of their life. We’re very good at working with these situations, because we really understand the mentality of retirement and giving up something you built over a 30-year period. Q: Besides retirement and fear of regulations, what are some other reasons why somebody would want to consider a merger or sale? A: One example is people whose companies didn’t grow to the size they wanted or who can’t give their staff what they had envisioned. So they sell or merge with us on the condition that their employees stay on for a two- to five-year period. They’re keeping their people, they’ve still got an important role. They may not be wearing nine hats anymore, they may be doing one or two things, but they’re still key to the success of the company, and they then have achieved that goal of being part owner of something that’s going to be big. Q: How have you earned trust from the companies who come to you for help? A: We’ve got a lot of experience both with companies we bought and others that we haven’t closed on for a variety of reasons.

Circumstances vary significantly from company to company, and each choice has its pros and cons. Seek additional professional counsel before entering into a sales or partnership agreement.

InsuranceNewsNet Magazine » October 2015

17331

Mergers & Acquisitions • Special Sponsored Section

PREDICTIVE PROSPECTING FEATURE We’re up front and honest from the beginning. We just lay it out and let them know what’s going on every step of the way, so if it’s not going to work, we want to make sure that’s identified early. Q: What’s done to ensure employees’ well-being? A: You know, when we talk to a company, whether they’ve got five, 10 or 20 employees, one of the first things I do is have them tell me about all the employees. I want to know all the good ones, and if they were stepping in today, buying their own company, who would they get rid of? It’s amazing how forthcoming they are. All of the employees we keep employed, we’ll keep them for at least six months. I stand up in front of every company we buy and say, “We are not looking for synergy by creating job loss here. We want to keep all of you if you do a good job. It’s going to be odd because your new company name isn’t ABC anymore, it’s now Partners Advantage. But, your benefits have probably just been greatly enhanced, and we’re going to give you credit for the time you’ve spent with this agency. In six months, we’re going to do a new reassessment, and as long as you’re fitting in, you’ll stay with this agency. Our goal is that we continue to grow this area out,” whether it be Cleveland or Orlando or Dallas. Q: If somebody is planning to have a merger or a sale, where should they start? A: Prepare themselves mentally for sale. So many people come in thinking they want to sell, and then once they really break it down and realize they’re not going to be in control anymore — that they’re not going to be running their company anymore — it’s just a difficult thing. The second thing that they need to do is really prepare their company for sale. Get all of their records together. Know your financials. If you’re running out of two or three or four bank accounts, get them all put under one. If you’ve got the sister-in-law who’s working for the company and who doesn’t do anything, who’s despised universally by all the other employees, get rid of the sister-in-law. If you’re in 16,000 feet and you need 2,000 feet, get rid of the 14,000. We can come in and do it all for you, but you’re going to add to your value if you clean up your own messes.

Now, there are things that can be done if that’s the case. We’ve got three different ways that we can get you your $5 million. We can give you $4 million up front, and there are some other ways that you can earn the additional $1 million or $1.5 million, or we can actually earn more money based on some things that you tell us. But, don’t stay fixated on a number. Q: When is it best to sell, to merge, or accept a partial buyout? A: If you know that you want to get out, you’ve got a family illness, you’re the right age, you’ve got plenty of other things to do, and you’re saying, “I’m completely done.” Obviously, then you want to completely sell out. If you’re not sure and you’ve still got some gas left in the tank, and you still want to be part of something big, merging is a great way to do it, and we give options. When we’re merging an agency into ours we’ll give all cash, we’ll give all stock, or we’ll do a combination of cash and stocks. You can still be an owner in the mother company and come to work every day and be really active. The partial buyout is perfect for somebody who says, “You know what? I love my company. I love my company name. I love being president of my company, but I still can’t compete. I can’t create the value-add and some of the other perks that the big agencies can do.” It could be that you’d grow so much faster if you just had the capital, but you can’t get a line of credit. These are the situations where we love to step in and buy 50 percent of their agency. And almost all the time when we buy 50 percent, the owner will make more money owning 50 percent than they did owning 100 percent.

Want to know how a merger or acquisition may fit with your business in the future? Get your free copy of Scott Tietz’s book, Mergers & Acquisitions 101 at

www.freeMAbook.com

Q: What are some of the mistakes that people might make whenever getting into a merger or acquisition? A: They come in with a fixed amount in mind. They want to get $5 million, but they’re worth just $4 million. October 2015 » InsuranceNewsNet Magazine

Mergers & Acquisitions • Special Sponsored Section

The “Relationship” Factor: The Unique Approach One Company Is Taking to Merge with or Acquire IMOs and BGAs

or more than twenty years, AgentLink, owned by the McDevitt family, has been an advocate and a one-stopshop for the independent insurance agent, having a firm presence in the southeast and offering multiple product lines, from life, to senior medical, disability, annuities, group benefits and more. Recently, this family-owned company out of Louisville, Kentucky has undergone a significant change: they brought in an outsider. Rich Tinsley, President of AgentLink as of April this year, was not only an “outsider” to the family, but also to the industry. However he was no stranger to mergers and acquisitions, the very skill set the McDevitt family sought him out for. Now, Tinsley is taking his acquisition/de novo expertise, which was responsible for hundreds of millions in revenue for skilled nursing facilities, and applying it to the strong culture and poise for national growth that AgentLink already has. In this Q&A, Tinsley explains how he’s making it work, and why it has everything to do with relationships.

Q: What was it like to join a family-run business? A: I started my career in my own family business. We had many different types of small companies that we ran, and I got involved in the buying and selling of those when I was in college, so I’ve touched all sides of mergers and acquisitions involving family businesses. With AgentLink, having someone who’s not family probably makes it easier for them to talk about tough concepts. When I’m in the room, we stay on topic and don’t bring in the typical family emotions or feelings. Before deciding to work with the McDevitts, I wanted to do my due diligence to learn what they’re like. What was their reputation, both publicly and professionally? How do they act towards their customers and employees? I got all positive responses — words like “integrity,” “honest,” “great people.” They carry that over to

AgentLink’s

8 Core Principles That Forge Our Successful Relationships

4 Pillars of Our Success

Q: How does your acquisitions experience in the industry of skilled nursing facilities translate to insurance? A: Whether you’re picking up five new skilled nursing facilities, or you’re picking up another general agency, it’s all about who’s coming with it. Both are service businesses, and it’s human service. One’s just selling a product, and one’s selling the service itself. You find a company’s critical players when you look into its revenue stream; how do they fill their patient beds every day? In the insurance business, a very similar question is: How does the agency get insurance written every day, are those people and those relationships coming with the company, and can you keep it going? The skilled nursing facility has hospital relationships that drive their census, and obviously a GA has agent and broker relationships, and those relationships with individuals drive their business. It’s all about people, relationships and culture. 38

InsuranceNewsNet Magazine » October 2015

4 Links to Our Success GoalCompassionate oriented

Loyal

Partnerfocused

Mergers & Acquisitions • Special Sponsored Section

the culture of their company, and we are a family. It’s not just the McDevitt family; we treat all of our working relationships as family, even the carriers. Q: AgentLink has four “Pillars of Our Success” and four “Links to Our Success” (see infographic). What role do these play in mergers and acquisitions? A: It’s the way we approach everything. For example, when I’m dealing with a potential seller, or their broker, we maintain integrity with the private information they disclose. Along with integrity, we do exactly what we say we’re going to do. As far as being goal-oriented, we are a “can do” company. When a broker or agent calls us with an issue, we try to say, “Well, let’s see if we can get it done. Give me a few hours or possibly a day, and I’ll call you back.” We don’t believe in saying, “No.” It’s, “Let me figure out how to accomplish that goal.” or “Maybe we can get there a different way.” The Pillars and Links to Our Success are also critical to making sure the people in a company being acquired are able to adapt to our culture. To merge cultures, we have to find what their culture is and make sure that they understand what ours is, and we want them to adopt ours. It’s always been very well received. Typically, since we have a well defined culture, it makes it easier for people to start connecting emotionally and mentally to our culture and our information. Of course that doesn’t mean that they don’t keep their own identity to some degree. It doesn’t mean that they can’t keep their own physical presence. It’s not like they disappear. They just have to merge into ours. If the two cultures can’t merge, it just doesn’t work. Q: What do you do to make sure a company grows after a merger and acquisition? A: We do a lot of different things. We’re buying them because they’re good at something, so we don’t necessarily want them to change what they were doing. We try to give the people more support and less distractions from the actual delivery or the actual relationship they have. So, if someone is in control of revenue, but they also help with back office, and we’re consolidating back offices, we try to give them the support they need so they can focus 100 percent on the way they best serve the company. We try to take things off their plate that don’t produce better relationships and better results for the clients, in hopes that both of those lead to higher revenue.

A: Think about an increasingly complicated industry regulatory scheme as a backdrop. The larger you are, the more economies that you have, the more resources you have to understand and follow the changes. Optimizing Companies and agenRelationships: cies want to join forces to have those resourcAgency es. It’s hard for a small Services five-person shop to have Agency Services is an the same resources they’d AgentLink solution that allows the independent have by using us as their insurance agent to do GA or IMO. what they do best, So, regardless of a mergprospect and build er, partnering or joining relationships. Meanwhile, an organization like ours AgentLink takes care of the behind-the-scenes helps pool resources so work, such as renewals, each person gets more acclient communication and cess. As we’ve seen over support — and removes the last couple years, the the need to refer prosmore chaotic the industry pects or risk losing a favorite account to a is, the more questions we competitor. get. That goes for both the carriers asking us about our distribution lines and trying to understand what will work and not work, as well as our agents and brokers trying to keep up with the changing landscape and understand what they can and can’t do. I think you’re going to continue to see some of the large agencies try to connect with other agencies to achieve a bigger scale. That’s similar to what we’re doing, right? Except we’re just not a retail business. AgentLink is trying to acquire other GAs or IMOs, and simultaneously trying to grow our network of agents and brokers so we have a larger footprint and more resources to spend those agents, brokers and otherpartners, including carriers.

Are you a principle at a BGA or IMO that’s looking to achieve greater access to resources and further growth along with a strong, positive culture through a merger or acquisition? Learn more today — and see if you qualify for a free business valuation — at

www.AgentLinkGrowth.com

Q: How are strategic mergers and acquisitions good for the insurance industry as a whole? October 2015 » InsuranceNewsNet Magazine

LIFEWIRES

Individual Life Premium Up 8% in 2Q The second quarter proved to be a good time for folks to buy life insurance, with individual life premium increasing 8 percent during that time, according to LIMRA. Even better, the second quarter marked the fourth consecutive quarter of individual life premium growth, with positive numbers in every product line except variable life, LIMRA said. In the first half of 2015, strong whole life and indexed universal life sales resulted in a 7 percent increase for overall individual life insurance premium, the highest mid-year growth since 2010. Total policy count rose 6 percent in the second quarter and 5 percent year to date. Indexed universal life (IUL) was the primary driver of overall universal life sales growth, increasing 24 percent in the quarter and 18 percent year to date. IUL now represents 53 percent of UL and 20 percent of all individual life premium sold during the first half of the year. UL represented 38 percent of all life sales in the second quarter. Universal life new annualized premium was 13 percent higher in the quarter, compared with prior year, resulting in a 10 percent increase in the first half of the year. Whole life new annualized premium jumped 12 percent in the second quarter and improved 11 percent in the first half of 2015. WL now represents 35 percent of the total life market. Term sales growth was modest but was on a positive trend for the third consecutive quarter. Term new annualized premium increased 1 percent in the second quarter and improved 2 percent year to date. Term’s market share was 21 percent in the second quarter.

JAPANESE LIFE INSURER BUYS SYMETRA

The news that Symetra Financial would be bought by the Japanese life insurance giant Sumitomo Life marked the third time in about a year that a Japanese company bought a U.S. life insurer. Sumitomo Life announced it would buy Symetra Financial, the former life insurance business of Safeco, in a deal valued at $3.7 billion. The Symetra Financial transaction followed on the heels of the July 23 announcement that Meiji Yasuda Life Insurance would buy StanCorp Financial Group in a deal valued at $5 billion. Last June, Dai-ichi Life Insurance announced it would buy Protective Life as part of a deal valued at $5.5 billion. Analysts say the Japanese moves into the U.S. are no surprise as Japanese life insurance companies look to grow by tapping into the world’s largest insurance market.

NEW PRODUCT PROVIDES INCENTIVE TO QUIT

If your client needs another incentive to quit smoking, this could be it. Sentry Life and the National Association of Insurance Marketers (NAIM) have combined forces to offer Commit to Quit, a new term life insurance product designed specifically for cigarette smokers who want to live smoke-free. “Commit to Quit’s premiums are lower than those of most policies for tobacco users, but that’s only part of what makes it different,” said Steve Knez, senior director of individual life and annuities at Sentry. “It is structured to provide real incentives to quit smoking.” The premiums of traditional smokers’ policies are typically more than twice those of nonsmoker policies. Commit to Quit offers level premiums that can be 20

DID YOU

J. Houston has been elected KNOW Daniel president and CEO of The Principal

Financial Group. Source: Principal Financial Group

InsuranceNewsNet Magazine » October 2015

QUOTABLE After you are gone, it is a love letter to your family. — Richard W. Kagawa, an advisor from Huntington Beach, Calif., answering the question, “What is the value of life insurance?”

percent or more below premiums offered by other life policies rated for tobacco use. Commit to Quit achieves these lower premiums by reducing the death benefit in later years if the insured continues to smoke. However, if the insured quits tobacco entirely, no benefit decrease occurs. The policy is also convertible to permanent life insurance without a medical exam.

METLIFE AGAIN SEEKS DISMISSAL OF SIFI DESIGNATION

MetLife has asked a federal judge to dismiss once and for all its designation as a systemically important financial institution (SIFI), a move that would lead to less regulatory oversight of the company, according to court documents. The Financial Stability Oversight Council (FSOC) labeled MetLife a SIFI last year because of its global reach and its interconnection to the U.S. and world financial system. In an initial response, MetLife argued in January that the designation is unwarranted. A SIFI designation subjects the company the company to oversight from the Federal Reserve and “enhanced prudential standards,” according to the FSOC. But MetLife said meeting another layer of regulatory standards would drain the company of more resources and capital that should instead be used to serve customers, distributors and shareholders. In July, the FSOC filed documents reiterating its position. MetLife is one of four nonbank companies designated as a SIFI. Other nonbank companies are Prudential, AIG and GE Capital.

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AssuranceTM is issued by Oxford Life Insurance Company®. Refer to Oxford Life Insurance Company®, policy form ICC10-OL400 and state specific variations where applicable. Not available in all states.

October 2015 » InsuranceNewsNet Magazine

LIFE

Cash With App: The Importance of Getting Conditional Receipt any clients forgo paying the first M month’s premium with the application because they see it as a waste of money to float their cash with an insurance company for a few months. But doing so could have tragic consequences. By Ted Jenkin

his is a true story that may not be fun to discuss, but it brings to light one of the topics that we in the insurance industry don’t discuss often enough. The topic is taking conditional receipt when we take an insurance application from our clients. This notion of “conditional receipt” means that as long as the insured is going to receive the policy anyway, the insurer is obliged to cover a claim should one occur between the time the application is received and the time the policy is officially in place. Remember — if the insured is denied coverage throughout the typical underwriting process, the insurer could nullify the conditional receipt even if you collected a premium. So why should you care about this as part of your practice? A tragic situation regarding conditional receipt is what brought this subject to my attention. A business owner had a wife and three children. As with most business owners, he spent most of his time driving top-line revenue and trying to figure out how he could minimize his federal taxes. While he focused on the business, his wife spent her time raising their three children, all whom were under the age of 5. It’s never easy having a discussion with anybody — let alone a business owner — about why they need life insurance. This especially can be true with business owners because they may view life insurance only as an extra line item that takes away from earnings or from other expenses they deem necessary in the business. Most business owners dread the life insurance conversation as much as they dread shopping for a new car, because they usually 42

feel as if the insurance agent is ready to pounce on them to make a big sale. But I have yet to hear a surviving spouse tell me that their husband or wife bought too much life insurance. This business owner eventually was convinced by his agent to buy life insurance. A 20-year term insurance policy is all he would sign up for at the time, and the underwriting process began. No conditional receipt was taken by the agent at the time, and the client went through the entire process head to toe. At the end of the process, the insurance company offered the client a Table Four rating based on the application and underwriting. When the client received the information back from the agent, he promptly stated that the cost of the policy was way too expensive and rather than complete the transaction, he would work on his health over the course of the next year. Approximately a year and half later, the business owner decided to engage again with the insurance agent to apply for life insurance. He still wasn’t convinced by the agent that he would need more than a 20year term insurance policy. Once again, the agent didn’t take conditional receipt

InsuranceNewsNet Magazine » October 2015

when the application was submitted. The client went through the entire underwriting process again, and the insurance company came back with a standard rating for him. After the client received the information back from the insurance agent, he began to mull over how much coverage he actually would need. He initially applied for $2 million in coverage, but he was debating whether he would drop coverage to $1.5 million or $1.75 million or just keep the $2 million he originally had applied for. This process of indecision lasted more than 30 days. About a week later, the agent got a peculiar email from the wife of the business owner. She asked, “Do you know if my husband had any life insurance through your company?” What an odd question, he thought. Why would she ask that now, when she had been largely uninvolved in the process from the beginning? After a few exchanges of emails and phone calls, the insurance agent learned that the client had passed away. At the age of 39. The agent’s heart fell to the bottom of his stomach. The most unfortunate part of the situation was that there was no “conditional

CASH WITH APP: THE IMPORTANCE OF GETTING CONDITIONAL RECEIPT LIFE receipt” in place when the policy went up to the underwriters. Although the amount can vary, insurers will bind up to $1 million with a conditional receipt. The specifics are listed on the agreement inside each application, so read it over carefully when explaining to clients. Even if the client is turned down, some companies will still automatically cover up to $250,000 if the client is eligible for temporary coverage. Even though the business owner was approved for the insurance as standard, no benefit could be paid to the family because the policy had not officially been delivered and the owner had not signed off on it. Just think about how the situation may have turned out if the conditional receipt had been taken by the client. This is where the term “conditional receipt” becomes a very important part of the conversation that most clients glance over when they apply for life insurance. In fact, most agents glance over it as well. This is because it is difficult to sell life insurance, and when an obstacle such as

collecting a deposit premium is the reason someone doesn’t sign up, it is easy for us to say it’s all right not to attach the conditional receipt. When you take an insurance application, there naturally will be a period from the time a client signs the application until the date the application actually gets approved. In between those dates, the carrier will have to conduct a phone interview with the client and likely take a blood sample and some other tests, depending on the amount of insurance the client applies for at that time. Typically, the insurance company will ask for certain records from all of the client’s physicians so the company can do the best job possible in ascertaining what rating your client should get for the life insurance. At the time of the application, you have the option to submit the first month’s premium or submit no premium at all. That is the real final analysis. It’s up to you to convince the client that this is incredibly important as part of the underwriting process. If you don’t get that initial premium, could you put your client in a tragic situ-

Let’s

together.

ation as the family described previously? Could you even open yourself up to professional liability? Much like insurance at a blackjack table in Las Vegas, many people simply forgo paying this amount with the application because they see it as a waste of money to float their cash with an insurance company for a few months. However, I would recommend that you always submit an initial amount with the policy if you are serious about the insurance, because you can never know what unforeseen circumstances could arise between application and delivery. This small amount could make a huge difference for your clients should something prematurely happen to them, so consider insisting on “conditional receipt” the next time you take an application for life insurance. Ted Jenkin is the co-CEO and founder of oXYGen Financial, a financial advisory firm in Atlanta. Ted may be contacted at ted.jenkin@ innfeedback.com.

Helping clients achieve their dreams is your priority – and supporting you in that effort is ours. An affiliate of Securian Financial Group, Minnesota Life is one of the nation’s largest life insurance companies.1 Learn why so many financial professionals trust us as their partner of choice. Call our Life Sales Support Team today: 1-888-413-7860, option 1.

m 1

For more information about our ratings, please see our website at securian.com/ratings. Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Securian Financial Group, Inc. www.securian.com 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2015 Securian Financial Group, Inc. All rights reserved. F82624-17 8-2015 DOFU 8-2015 20952

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public.

October 2015 » InsuranceNewsNet Magazine

LIFE

When the Life Insurance Gift Becomes a Beautiful Gesture here may be circumstances T in which your client’s unneeded life insurance policy can be used to help someone else. Here is what you and your client need to know before transferring ownership of the policy. By Louis Shuntich

he French phrase “beau geste,” or beautiful gesture, was the basis for P.C. Wren’s 1924 novel Beau Geste about the decent thing to do. It also describes the opportunity presented to those who have life insurance that they no longer want and may want to give to others in greater need. The extent of that opportunity is demonstrated in a 2008 survey by the Life Insurance Settlement Association, which 44

showed that Americans age 65 and older give up around $112 billion in life insurance benefits each year by surrendering their policies or letting them lapse. This may be due to a number of reasons, including that the insured:

» Purchased a policy as a source of supplemental retirement income that is no longer needed.

» Owns a policy purchased for them when they were a child, but it is no longer needed.

» Is subject to changes in tax law making the policy’s original purpose obsolete.

» Bought the policy in connection with a business that no longer exists.

While the insured might consider giving the policy to a charity, a more likely recipient would be an adult child with a family of their own and a need for cash to buy a home or to pay college tuition. Certainly, the insured could simply name the child as a beneficiary and let them wait to receive the death benefit. But if the policy has a substantial cash value, it could be used to

» Has retired and no longer needs to insure income. » Purchased a policy with a beneficiary who has predeceased them.

InsuranceNewsNet Magazine » October 2015

» Has other life insurance policies and is now overinsured.

Gifting the Policy

Why a People-First Approach Works for Securian Financial Group products, and where possible, passing those enhancements on to our inforce clients, not just new clients. In 2006, we launched Eclipse Indexed Universal Life. Since then, we have made over 17 enhancements, and all of them are available to existing policyholders. We have not only earned our clients’ loyalty, but that of our distribution partners as well. All this has helped us become the number one provider in planned premium sales for accumulation IUL in 2013 and 2014.2

Q: In a market that is continually changing, what do customers currently need and how are you helping solve that need?

erving 15 million clients with over $1 trillion of insurance inforce, Securian Financial Group is one of America’s largest providers of financial security through insurance, retirement plans and investments. Securian Financial Group has a proven track record of focusing on its customers’ needs, and paid out $4.7 billion in statutory benefits in 2014.¹ In a rapidly changing industry, Securian – through its Minnesota Life and Securian Life (a New York authorized insurer) insurance companies – has become one of the fastest growing individual life insurance manufacturers. In this Q&A, Senior Vice President Bob Ehren reveals how Securian’s consumer-centric and forward-thinking approach has positioned the company for future success.

Q: How has the end client affected Minnesota Life’s goals and product development?

Ehren: Our mutual heritage dates back to our founding in 1880, and our principles haven’t changed. You must focus on people first. You must understand their needs and goals, and those of the financial professionals who serve them. We are here to protect the hopes and dreams of the people we serve, and that means staying committed to our inforce policyholders throughout their lifetime. We demonstrate this commitment year after year by continually enhancing our

Ehren: Customer expectations are always changing, due in large part to their experiences in other industries. They need flexibility and options, and they need life insurance solutions that keep up with their changing lives. That is why we focus on product innovation. It started with our early entrance into the indexed universal life space, and continues with product features such as the Income Protection Agreement and our new protection-focused variable product, VUL Defender™. Innovation has always been our differentiator, but it is also important to remain customer-centric. By leveraging our strengths, building capabilities for the future, and remaining agile to adapt to change – we will strive to increase customer satisfaction, positioning us well for the future.

Q: You mentioned changing expectations. What steps is your company taking to focus on the shifting digital world?

Ehren: Digital capabilities are quickly evolving and both clients and advisors want solutions that enhance their experience. From sales and marketing to service, carriers are implementing tools and technologies to enhance how they interact with their audiences. We are no different. Our strategic approach includes development of a digital platform, mobile strategies, social media, improved web experience, and using customer intelligence tools. 84 percent of customers say a positive online experience increases their trust of a brand

and likelihood to buy3, and 40 percent learn about insurance online or on a mobile device4. We will be a part of that. Our goal is to provide an experience that is intuitive, consistent, personalized and available any time. These changes will only accelerate, with the potential to dramatically impact our businesses.

Q: Besides technology, what else should this industry as a whole focus on?

Ehren: Technology is a pressing opportunity, but you cannot afford to lose focus on the fundamentals. For instance, our underwriting vision is to build deep relationships with our partners and provide competitive, customer-focused decisions with accuracy and a timely application process. We strive to ensure decisions are competitive every time, holding ourselves to a high standard of giving the best offer, the first time. And our underwriters live this vision daily. We proactively review internal processes and seek places to enhance the underwriting experience, and we continually benchmark impairment areas to identify where improvements are possible. Through this, we’ve reduced Attending Physician Statements ordering by approximately 28 percent and increased our competitive benchmark metrics. These are just a few areas we are focusing on to drive success, as an organization and as a partner of choice for our advisors and clients. Change is the only constant and we are strategically placed to exceed our clients’ expectations. To learn more about Minnesota Life and Securian Life, contact our Life Sales Support Team at 1-888-4137860, option 1. 1 2014 Securian Financial Group Annual Report 2 LIMRA 2013-2014 Confidential Sales Surveys, 4th Quarter. Ranked by Planned Recurring Premium for 30 participating companies. Planned recurring premium may differ by reporting company meaning results could change if company reporting methods are changed 3 Liveperson, “The Connecting with Customer Report,” November 2013. 4 CEB TowerGroup Insurance, Multi-Channel Sales & Service: Why Insurers Must Respond and How to Execute the Strategy, May 2013.

Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Variable life insurance products contain fees, such as management fees, fund expenses, distribution fees and mortality and expense charges. The variable investment options are subject to market risk, including loss of principal. Policyholders could lose money in these products. Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. Variable products distributed by Securian Financial Services, Inc., Member FINRA/SIPC. 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2015 Securian Financial Group, Inc. All rights reserved DOFU 8-2015 19539 October 2015 » InsuranceNewsNet Magazine

LIFE WHEN THE LIFE INSURANCE GIFT BECOMES A BEAUTIFUL GESTURE meet the child’s current need for funds. One of those needs might be for the child to use the gifted policy’s cash value to acquire coverage on their own life. To accomplish that, the child could surrender the gifted policy and use the cash value to buy a new policy, or they might do an exchange with an insurer for a new policy on their life. If the child took the exchange route, the transaction would not qualify as a tax-free exchange under the Internal Revenue Code, since the insured under the old and the new policies would not be the same. This means that if there were any gain in the old contract, it would result in taxable income to the child. Similarly, if the child simply surrendered the old contract for its cash value, they would have to recognize taxable income if there were gains in the old contract.

Avoiding the Estate Tax

A point worth noting when considering whether to keep or gift a policy is that by retaining ownership of the policy, the insured will cause the death proceeds to be included in their gross estate. This means that if the insured’s gross estate, including the death proceeds, exceeds the federal estate tax applicable exclusion ($5.43 million in 2015), it could generate an estate tax liability. However, when the policy is gifted to the child or to a trust for the child’s benefit, the estate tax would be avoided providing that the insured lives for more than three years after the gift was made.

Gift to an Irrevocable Life Insurance Trust

That raises the question of why the insured might consider making the gift of the policy to a trust instead of directly to the child. The answer is that a trust would give the insured greater certainty as to how the funds would be used. This might be important if the child is not good at handling money and the insured knows someone who can act as a trustee to apply the policy’s cash values or death proceeds wisely on the child’s behalf.

The Gift Tax

When making a gift to the child or to a trust for the child’s benefit, the insured must consider gift tax exposure. The extent of that exposure depends on the 46

The meaning of the life insurance gift will be enhanced by your client living to see the benefits of their generosity. fair market value (FMV) of the policy at the time of the gift, according to U.S. Treasury Department regulations. For newly issued policies, the FMV is the cost of the policy. In the case of single-premium or paid-up contracts, the FMV is the single premium that the issuing company would charge for a comparable contract. Finally, for premium-paying policies, the FMV is the interpolated terminal reserve plus unearned premiums. In any case, ask the issuing company for an Internal Revenue Service Form 712, on which the company will report the gift value. The good news is that, in making a gift of the policy, the insured may offset the amount of the gift with their gift tax annual exclusion of $14,000 in 2015 ($28,000 if they are married and elect to split the gift with their spouse). Further, to the extent that the amount of the gift exceeds the insured’s annual exclusion, it will be offset by the insured’s gift tax applicable exclusion of $5.43 million in 2015.

Transfer for Value

One word of caution in making a gift of a policy is to be careful if the policy is subject to a loan. If the loan exceeds the donor’s basis (premiums paid), the transfer will result in taxable income to the donor. Further, if the donee keeps the policy until the donor dies, the death proceeds will be subject to the transfer for value rule. That would make the death proceeds subject to income tax to the extent that they exceed the donee’s basis in the contract. To avoid this problem, if there is a loan on the policy, the donor should pay down the loan so that it is less than premiums paid before making the gift to the donee.

InsuranceNewsNet Magazine » October 2015

Wealth Replacement Trust

Another possible use for a surplus policy would be to fund a wealth replacement trust. This would be the case where the insured has made or wants to make a substantial gift to charity but is concerned that the gift would leave family members feeling deprived of their inheritance. To deal with that problem, the insured could set up an irrevocable life insurance trust and transfer the policy to the trust. That way, when the insured dies, the trustee can collect the death proceeds and use them for the benefit of the family according to the terms of the trust.

Terminating a Cross-Purchase Buy-and-Sell

Life insurance that is acquired to fund a cross-purchase buy-and-sell agreement may also be a candidate for transfer upon termination of that agreement for reasons such as the termination of the business or its sale to an outsider. In such cases, the policy likely will be transferred to the insured for use as personal coverage. Of course, the ownership of the policy by the insured will cause the death proceeds to be included in the insured’s gross estate for federal estate tax purposes. As previously noted, however, that problem may be avoided by having the insured transfer the policy to a family member or a trust providing that they live for more than three years after the transfer. In any case, the transfer for value rule will not be a problem because the transfer is to the insured and that is one of the exceptions to the application of the rule.

Transferring a Corporate Policy

There are a couple of situations in which

a company might want to transfer a corporate-owned policy to the insured. Here are some examples. A company may acquire a key person policy and want to transfer it to the insured at retirement. This could be a reward for service to the company and may be useful to the insured as a supplemental retirement benefit if it involves a cash value policy. A corporation may purchase a policy on a shareholder to fund an entity purchase buy-and-sell agreement and then be sold to an outsider, making the buyand-sell funding unnecessary. In either of these situations, the policy might be useful to the insured for family financial security or for estate planning purposes. The good news is that, while the distribution of the policy may be taxable income to the insured to the extent of the policy’s fair market value, the death benefit will not be subject to the transfer for value rule because the transfer is to the insured.

Making a Clean Break

As a part of the process of helping your client see the advantages of transferring their policy, you should make sure to explain that only the new owner: » Will receive any correspondence from the insurer about the policy. » Can request any policy changes. » Will receive any funds as a benefit under the contract. The meaning of the French phrase “beau geste” carries with it the notion that the gesture, while beautiful, is accompanied by unwelcome or futile consequences. Certainly, that kind of result appears in Wren’s novel, but it is unlikely to occur with your client’s gift of their policy. Moreover, the meaning of the gift will be enhanced by your client living to see the benefits of their generosity, which makes the gesture all the more beautiful. Louis S. Shuntich, J.D., LL.M., is director, advanced consulting group, with Nationwide. He may be contacted at louis.shuntich@ innfeedback.com.

October 2015 » InsuranceNewsNet Magazine

ANNUITYWIRES

$60B $50B

Annuity Sales Cross $60B Line In 2Q

$40B

$30B

Second quarter annuity sales were 10 percent higher $20B than in the first quarter, but down 3 percent from the prior year, according to LIMRA SRI. Second quarter annuity sales totaled $60.2 billion. What makes the sales total significant is that quarterly annuity sales have reached the $60 billion mark only five times, said Todd Giesing, LIMRA SRI senior business analyst. “However, last year’s sales were particularly strong and lower interest rates played a role in undercutting this year’s growth,” he added. Fixed index annuity sales were $12.5 billion, the second-strongest quarter in history. However, the best sales quarter for FIAs occurred in the same period of last year, resulting in a 4 percent decline for the second quarter 2015. Year to date, sales of FIAs equaled $24.1 billion, down 1 percent compared with the prior year. Variable annuity sales have been stronger in the second quarter than in the first quarter for the past 11 years. This was the case this quarter as well. VA sales jumped 11 percent from first quarter. But VA sales were $36 billion, 1 percent lower than prior year. Year-to-date, VA sales were down 3 percent to $68.4 billion.

PENSION BUYOUTS SET SALES RECORDS IN 2Q

Sales of group pension buy-outs reached $3.8 billion in the second quarter — a record for second quarter sales dating back to the early 1990s, according to a LIMRA Secure Retirement Institute sales survey. Pension buy-out sales tend to be seasonal, with most of the activity occurring in the fourth quarter. Sales increased more than 700 percent in the second quarter of 2015 compared with the prior year, due in part to Kimberly-Clark’s group annuity conversion effective June 1. For the past five years, the first two quarters of the year have seen an upward trend of pension buy-out activity. In the first half of this year, 107 plan sponsors have converted their defined benefit pension plans into group annuity contracts. That tops the previous number of 95 contracts in the first half of 2012.

NEW PRODUCTS FALLING INTO THE MARKET

New annuity products are falling into the market like leaves on a windy day. Here are some of them: DID YOU

KNOW

$63K

American National Life launched two new fixed index annuity products, ASIA PLUS 7 and ASIA PLUS 10. Each annuity product provides up to six potential interest crediting strategies to fit a client’s interest and needs. ASIA PLUS 7 and 10 provide the opportunity to earn interest based on the performance of the S&P 500 Index without the client being directly invested in the index. These annuities provide the opportunity to earn a higher interest rate than fixed annuities. Jackson National launched LifePay, the company’s first lifetime income benefit option within the Jackson AscenderPlus Select fixed index annuity. The new feature, available for an additional charge, offers contract holders the flexibility to start or stop income payments as needed, as well as the opportunity to manage longevity risk and increase growth potential. Jackson AscenderPlus Select with LifePay will replace the current Jackson AscenderPlus Select contract. Securian Financial Group has launched a new guaranteed minimum accumulation benefit (GMAB) to help clients potentially grow their retirement assets without

The total median household savings in retirement accounts is $63,000. Source: Transamerica Center for Retirement Studies

InsuranceNewsNet Magazine » October 2015

QUOTABLE Clients are seeking guarantees. — Linda Sonterre, director of individual annuity product development for Securian

risking their initial investment. Securian’s SureTrack Plus 90 may be a good fit for clients who are at least 10 years from retirement and looking for market participation with a base guarantee. SureTrack Plus 90 is available for use with select variable annuities for an additional cost. On the benefit date, clients are guaranteed a contract value that equals their total purchase payments or 90 percent of the highest anniversary contract value, whichever is greater (adjusted for withdrawals). The Fidelity Insurance Network began offering three qualified longevity annuity contracts (QLACs) for sale inside qualified retirement accounts. The annuities are issued by three national carriers — Principal Financial Group, Guardian Life and MetLife.

METLIFE TACKLES TEACHERS’ RETIREMENT

They taught us everything from cursive writing to how to figure a square root — but who will teach the nation’s educators how to prepare for retirement? MetLife wants to show the nation’s teachers how to achieve a successful retirement and expand their knowledge about retirement planning throughout their careers. The company has launched a “MetLife 3 R’s to Retirement” campaign. A cornerstone of this initiative is to broaden awareness among K-12 educators of their employer-sponsored retirement plans and the new tools available to them at 3r.metlife.com. Tools provided on the website can help educators assess their savings and align their progress with their overall retirement goals.

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October 2015 » InsuranceNewsNet Magazine

ANNUITY

Experts Warm Up to QLACs, But Will Consumers Buy Them? A cademics and other experts are seeing the value of QLACs in retirement planning, but market data is not conclusive on whether consumers are buying them yet.

Figure 1: Young Households with Workplace Retirement Benefits Are Half as Likely as Near-Retirement Households to Have a DB Pension DB and DC plan coverage among households covered by an employer-sponsored retirement plan, by age of head of household, 2013 71.5%

69.6%

By Linda Koco

60.7%

he new qualifying longevity annuity contracts (QLACs) sure have had a nice ride. In one year’s time, they’ve received the federal government’s blessing and a lot of publicity from the media. In addition, nearly 10 carriers already have rolled them out. But is anyone buying them? Most experts agree it’s too soon to say. It takes time for carriers to reach advisors and potential customers and educate them about QLACs. Now comes the Employee Benefit Research Institute (EBRI) with some information about the value of QLACs that may help boost marketplace interest in them. According to a new study from the Washington researcher, the use of QLACs inside of 401(k)s produces a “significant increase” in retirement readiness. This is for people in the “longest relative longevity quartile,” which is EBRI’s term for people with the longest life expectancy based on family status, gender and age. Since increased retirement readiness translates into increased likelihood of not running out of money, that’s a positive for QLAC ownership. Here’s a refresher: A QLAC is a type of deferred income annuity. It can be purchased inside defined contribution (DC) plans, such as 401(k)s, and also inside individual retirement accounts (IRAs).The annuities allow owners to defer their annuity income payments for many years, up to age 85. Under federal rules released last year, owners are exempt from having to take required minimum distributions 50

59.7%

57.1%

42.9% 39.3%

28.5%

25-34

40.3%

30.4%

35-44

45-54

55-64

TOTAL 25-64

AGE OF HEAD OF HOUSEHOLD DB with or without DC

DC Only

Source: N. Rhee and I. Boivie, 2015, "The Continuing Retirement Savings Crisis," NIRS, Washington, DC.

(RMDs) from their QLAC at the nor- was higher — it ranged from nearly 3 mal RMD age of 70.5. This can wait percent to 6.5 percent. And the increase until QLAC Retirement income Income begins. Gen wascost higher fromand Over the Xers last century, sharingstill with — employees The Employee Security Act of 1974 for providing benefits incomeThe remained steadfast percent to as6.7monthly percent. greater (ERISA) established minimum funding practices for pensions 3.5 features of publicincreases pensions, and helped mitigate some of the in theBoost private sector. While ERISA does not apply to public percentage The in Readiness for to the younger 12 adequacy risk for retirees by assuring that their income would pensions, most sector employers developed that a strong groups The boost inpublic retirement readiness are largely a function of their last as long as they lived. Public pension systems use their large appreciation for the value of prefunding pension obligations. EBRI researchers detected is noteworlarger 401(k) balances as a multiple of numbers of participants to work to their advantage in two Reporting standards from the Governmental Accounting thy sinceBoard the(GASB) people liveprefunding. the lon-As a earnings, according the study. ways that address retirementto security risks. First by pooling Standards also who encouraged gest understood Theto obtain scenario that produced assets better investment results, and alsothose by looking result,generally by 2000, publicare pension systems reached to morehave than 100 at the longevity of the whole purchase pension population; help to percent funding inneed aggregate, regulation or numbers the greatest forwithout theirfederal retirement involved of these a 1013 generate predictable costs and benefit cash flows. oversight.to money last a very long time. year laddered in-plan QLAC. Another In one scenario that EBRI ran, the ear- scenario that EBRI ran, involving anly (and thus oldest) baby boomers in the other type of in-plan QLAC purchase, longest relative longevity quartile would showed even higher increases, as high 4 National Institute on Retirement Security experience an increase in retirement as 16 percent (for Gen Xers with a 30 readiness ranging from nearly 2 per- percent premium discount). cent to 4.5 percent if they were to own The findings are based on today’s hisa QLAC. The higher percentages reflect torically low interest rates. If rates go up, the presence of premium discounts. the results would be “even more favorThe increased readiness for late able,” said Jack VanDerhei, EBRI research (younger) boomers in the same quartile director and author of the report.

InsuranceNewsNet Magazine » October 2015

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October 2015 » InsuranceNewsNet Magazine

longevity annuities are especially valuable. Abraham estimates longevity annuities are especially valuable. Abraham estimates

Senior Advisor to the Secretary of the Treasury and Deputy Senior Advisor to the Secretary of the Treasury and Deputy

ANNUITY EXPERTS WARM UP TO QLACS, BUT WILL CONSUMERS BUY THEM?

Table Table 6. 6. Monthly Monthly Annuity Annuity Beneﬁt Beneﬁt Amounts Amounts at at Various Various Commencement Commencement Ages Ages Commencement Age Commencement Age

Deferral Period Deferral Period

Premium Premium

65 65 70 70 75 75 80 80 85 85

0 0 5 5 10 10 15 15 20 20

$100,000.00 $100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00

Monthly Benefit Monthly Benefit Without Death Benefit Without Death Benefit

With Death Beneﬁt With Death Beneﬁt

$546 $546 686 686 1,035 1,035 1,729 1,729 3,352 3,352

N/A N/A $630 $630 861 861 1,218 1,218 1,719 1,719

Source: A large U.S. life insurance company estimates of Longevity Annuity beneﬁts purchased with a $100,000 premium to an institutional Source: A large U.S. life insurance company estimates of Longevity Annuity beneﬁts purchased with a $100,000 premium to an institutional Guaranteed Income Builder. Guaranteed Income Builder.

Merits of the Product

signed for sale inside of IRAs will need EBRI said it did the study to assess the to keep that distinction in mind when ability QLACs toInstitute provide an the EBRI findings because 22 of National oneffective Retirementreading Security 22 National Institute Retirement Security longevity hedge for boomersonand Gen there may be subtle but important difXers. ferences. Most QLAC rollouts to date Due to the long income deferral peri- have been for the IRA market. od in QLACs, their premiums can be “a Still, the simulations showing that small fraction” of a single premium im- QLACs can increase retirement readmediate annuity with a similar monthly iness may be reason enough to give benefit, EBRI pointed out in its report. QLACs careful scrutiny. It’s a factor to That, plus the deferral of RMDs, has consider when evaluating whether to been widely touted as a reason consum- add QLACs to the retirement planning ers might elect these annuities. quiver. Another often-mentioned attraction Another factor to consider is conis that the products establish an in- sumer attitudes toward such a product. come stream to help meet late-in-life On that score, earlier EBRI research expenses. found that people are definitely interIt’s too early to know how the de- ested. For instance, 47 percent of those mand for QLACs and the insurance who think they might live to at least industry’s supply of QLAC options will age 85 were interested in purchasing a modify the market for longevity annu- QLAC-type product. Even 41 percent ities, VanDerhei wrote. of people who believe that living that Also, from a public policy perspec- long is only “somewhat likely” said the tive, “the question of how to increase de- same. mand for this product to a point where a significant percentage of new retirees Another Vote of Confidence will have this type of longevity hedge Another surprising source endorsed remains largely unanswered,” he added. longevity annuities, but almost begrudgingly. It’s surprising because the Usefulness for Advisors National Institute on Retirement SeSince the products are so new, indus- curity (NIRS) is not known for raving trywide experience data on QLACs about annuities. does not yet exist. The EBRI findings These contracts “may make sense for may therefore help fill the data vacu- some small defined benefit plans,” said um, especially for advisors who are try- Diane Oakley, executive director of ing to decide whether, when and how to the Washington nonprofit researcher, recommend the products. in an issue brief. NIRS focuses on reThe study looked only at scenarios search and education about retirement involving QLACs in the 401(k) market. security, particularly regarding public Advisors who are reviewing QLACs de- pension plans (such as for government 52

InsuranceNewsNet Magazine » October 2015

workers). To annuity professionals, these words may seem like limited or constrained approval of these specialized fixed annuities. However, considering that the comment comes from a top executive at NIRS, and that NIRS is not known as an advocate for using annuities in defined benefit (DB) pension plans, the annuity industry may find the statement valuable — a positive view of fixed deferred income annuities from a pension expert. Oakley took care to distinguish use of longevity annuities inside of certain DB plans from use of fixed annuities with DB plans in general. “While fixed annuities provide a stream of predictable, stable income to retired workers,” she wrote, “their lower investment returns can significantly add to the cost of providing retirement income.” But where longevity annuities are concerned, it’s another story. “Given their ability to capture a large share of the economic value of an immediate annuity at a fraction of the cost, some DB pension plans might find value in longevity annuities,” she said. “Smaller public pensions might use them as a cost-effective way to transfer tail-end mortality risk to an insurance company.” InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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Investment and Insurance Products: Not a Deposit—Not FDIC Insured Not Insured by any Federal Government Agency—No Bank Guarantee—May Lose Value ICC13 MKT13-4 October 2015 » InsuranceNewsNet Magazine

This article supersedes a draft version that was inadvertently published in the September print edition of InsuranceNewsNet.

ANNUITY

Fixed Index Annuities: Protecting Against the Longevity Risk F ixed index annuities make your client’s retirement savings work harder, providing growth potential and principal protection. By Eric Taylor

hile advances in modern medicine and healthier lifestyles are leading to longer lifespans and more time spent in retirement, these advances are creating another reality: the distinct possibility that some Americans could outlive their money. According to the Social Security Administration, one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. With the average retirement age at 63, increasing life expectancies mean retirement could last 20 or even 30 years for many clients. Longevity risk, which is the risk of outliving retirement savings, could result in a lower standard of living for your clients and increase the likelihood that your clients’ retirement years may fall short of their expectations.

private-sector companies provided defined benefit plans, according to the U.S. Bureau of Labor Statistics. In addition, the current replacement rate of Social Security is about 40 percent of preretirement income, a rate that the Social Security Administration projects will continue to decline.

A Solution

Some financial professionals point to a greater allocation to stocks, given current market volatility and relative liquidity, as a good option to offset longevity risk. Stocks, however, do not have downside protection. For example, if a client needs to liquidate a portion of their holdings during a stock market decline, they might have less money available to them than expected and fewer shares remaining to make up for the loss over time. What’s more, the options that do offer downside protection — such as bank certificates of deposit and money market accounts — come with interest rates that do not keep up with inflation, resulting in the potential for a loss of purchasing power. Fixed index annuities (FIAs), on the other hand, can help combat longevity risk by making retirement savings work harder than other traditional conservative financial products with the added ability to turn on guaranteed income for life. Certain FIAs offer strong growth potential relative to other fixed income alternatives while your client waits to start income. In addition, they offer optional guaranteed withdrawal benefit income riders (for an additional cost) that

52 percent of consumers did not save enough money prior to retiring, and 77 percent believe they have insufficient protection from the possibility of outliving their income.

The Challenge

According to Genworth’s survey “The Future of Retirement Income,” 52 percent of consumers did not save enough money prior to retiring and 77 percent believe they have insufficient protection from the possibility of outliving their income. Further contributing to longevity risk is the decline of traditional sources of income. In 2014, only 8 percent of all 54

InsuranceNewsNet Magazine » October 2015

include withdrawal factors guaranteed to increase every year the client defers income. In some cases, there is flexibility in starting and stopping income withdrawals as client needs change, which is important as financial responsibilities and expenses change as the client ages. For example, Diane, 55, is a hypothetical customer concerned about principal protection and outliving her savings. After speaking with her financial professional, she decided to use $100,000 to purchase an FIA that includes an income rider, at an additional cost. With this FIA, her money is protected from downturns in the index. Some of the optional income riders calculate the guaranteed withdrawal income off of the contract value, eliminating the complexity of a “benefit base,” and have features such as an increasing withdrawal factor in the deferral stage. The FIA with income rider that Diane chose has these features. While she defers taking income withdrawals, her withdrawal factor is guaranteed to increase every year. At her scheduled retirement age of 65, Diane’s withdrawal factor would be 7.55 percent. This results in guaranteed income of at least $7,550 per year. What’s more, with some newer product and rider designs, any interest credit that increases her contract value would result in even more guaranteed income for life. For comparative purposes, let’s measure this approach against a money market account insured by the Federal Deposit Insurance Corp. According to Bankrate.com, the best-paying money market account, as of the time of this writing, is yielding 1.11 percent. Minus today’s inflation rate of 2.1 percent, this nets a return of -.09 percent. If you apply that same metric to Diane’s FIA contract, her opportunity to equal or outpace inflation during this unusually low period of inflation with interest credits linked to gains of a market-based index is substantially higher.

FIXED INDEX ANNUITIES: PROTECTING AGAINST THE LONGEVITY RISK ANNUITY This will help her maintain her purchasing power over time. Her FIA also provides income for as long as she lives; even the best money market account available cannot guarantee income that will last for life. Annuities, while not generally designed to be fully liquid until after a surrender charge period, allow for withdrawals up to a certain percentage of the contract value (often 10 percent of the contract value). So if Diane needs to make a withdrawal for an unforeseen event, she can typically do so after the first year. In addition to the growth potential, principal protection is another important factor provided by index annuities as it pertains to protecting against longevity risk.

An index annuity’s contract value won’t fall below the original principal amount if there is a performance decline in the index to which it is linked. This means clients are receiving the same principal protection they would be provided via a money market account, but with the added benefit of growth potential (net of the rider fee) any time there is a positive change in the index. Finally, a limited number of carriers offer renewal cap protection via a bailout provision, which gives contract holders an “out” if the carrier sets the renewal cap below its specified bailout rate. In effect, the bailout creates a renewal promise by the carrier to help ensure that renewal caps or rates are higher than the guaranteed minimum

Fixed index annuities, on the other hand, can help combat longevity risk by making retirement savings work harder than other traditional conservative financial products with the added ability to turn on guaranteed income for life.

during the surrender charge period. For financial professionals and their clients, it provides a measure of confidence in the product’s future upside potential. Longevity risk is a growing concern as life expectancies continue to increase. In response, consumers are demanding safe but growth-oriented solutions that will give them guaranteed income and protection from market declines, something index annuities are wellpositioned to do. Eric Taylor is national sales manager for annuities with Genworth Financial. Contact him at eric.taylor@ innfeedback.com.

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October 2015 » InsuranceNewsNet Magazine

HEALTHWIRES

Health Advisors Were Busy During Open Enrollment After all the problems experienced in getting consumers enrolled in health coverage during the first open enrollment season, things had nowhere to go but up. And they did. The second time around was better than the first as far as open enrollment period was concerned. That’s the word from health insurance brokers who helped consumers sign up for coverage in the second enrollment season under the Affordable Care Act (ACA). In addition to seeing a smoother sign-up period, most brokers reported their business had increased during the second enrollment season, according to Kaiser Family Foundation research. Brokers reported helping almost twice as many consumers apply for coverage through the marketplace compared with outside the exchanges. Sixty percent of brokers reported their non-group sales increased since the marketplaces opened. However, two-thirds of them said it takes more time to sell a policy than it did in the pre-ACA days and more than half said the revenue they earn per policy is less. Despite that, 40 percent of brokers surveyed said they earned more income overall from non-group commissions than they did prior to implementation of the marketplaces. On the flip side, 40 percent said their overall commission revenue has dropped and 20 percent said their overall non-group commission income is about the same. Nearly all the brokers who registered to sell health insurance through the ACA marketplaces in the first enrollment season in 2013 returned for the following sign-up period. Of those brokers who signed up consumers during both enrollment periods, 79 percent said the second enrollment season went more smoothly than the first. The main reason for the easier sign-ups in the second year? It’s because the marketplace websites worked better than they had for the initial enrollment period, according to the majority of brokers. The exchange marketplace wasn’t the only place where brokers sold health coverage. More than three-quarters of brokers surveyed said they sold policies outside the marketplace as well.

SOME STILL HAVING TROUBLE PAYING FOR PRESCRIPTIONS

The cost of prescription drugs continues to bedevil some Americans. About a quarter of those who take a prescription drug say paying for their medication is difficult. The struggle to pay for prescriptions is even higher among those with low incomes (33 percent), those currently taking four or more prescription drugs (38 percent) and those who are in fair or poor health (43 percent). These are among the findings from the Kaiser Health Tracking Poll, which looked at prescription drug costs. The new poll DID YOU

KNOW

found that seven in 10 people surveyed support each of these four potential policy changes that would make prescriptions more affordable. » 86 percent support requiring drug companies to release information on how they set prices. » 83 percent support allowing the government to negotiate with drug companies to lower prices for people with Medicare. » 76 percent support limiting how much drug companies can charge for high-cost drugs for illnesses such as hepatitis or cancer.

The number of Americans without health insurance dropped by 7 million since 2014. Source: National Center for Health Statistics

InsuranceNewsNet Magazine » October 2015

QUOTABLE Insurers are working more closely with health systems and saying, ‘Let’s manage population health together.’ — Mark Cherry, analyst with Decision Resources Group, a health care data firm

» 72 percent support allowing Americans to buy prescription drugs imported from Canada.

COMPANIES PUT THE BRAKES ON HIGH-DEDUCTIBLE PLANS

The trend of employers passing on a greater share of health care costs to their workers seems to be easing up, according to the National Center for Health Statistics. The center’s survey of more than 100 large employers shows that fewer of them will adopt high-deductible health plans (HDHPs) next year. One reason for this is that companies are waiting to see whether Congress will repeal the “Cadillac tax” on high-cost health coverage, which is imposed on individual health premiums greater than $10,200. Taking a wait-and-see approach on adopting HDHPs would keep employers from having to move workers into coverage requiring them to bear more of the costs. The Cadillac tax was a key feature of the Affordable Care Act (ACA), designed to drive down overall health care spending by curbing generous plans that encourage people to use more services than necessary. The tax is a 40 percent levy on family plans that cost more than $27,500 and individual plans with premiums above $10,200. It applies only to the portion of the cost that falls above those thresholds, which is tied to inflation. About 33 percent of employers will offer HDHPs as the only option next year, just a percentage point higher than this year, according to the employer survey. While about six in 10 workers had deductibles of less than $1,000, according to the Kaiser Family Foundation, high-deductible plans carry costs of $1,300 or more.

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HEALTH

How Same-Sex Marriages Affect Health Insurance, Benefits With same-sex marriage now legal throughout the U.S., couples have a number of options to wade through regarding health coverage and other insurance issues. Here are some insights to help you get them off to the right start. By Hector De La Torre

he wedding season was especially busy this summer following the Supreme Court ruling in the Obergefell v. Hodges case, granting all same-sex couples in the U.S. the right 58

to marry. For example, applications for marriage licenses in Orange County, Fla., rose 33 percent per week on average in July, and this trend has continued across many parts of the nation. For insurance professionals, the rise in new marriages presents an opportunity to discuss insurance and benefits options with current and prospective LGBT clients who are newly married, who are preparing for marriage or whose marriage is now federally recognized. Itâ&#x20AC;&#x2122;s crucial to note that many of these clients still may be facing complex situations regarding their mutual financial

InsuranceNewsNet Magazine Âť October 2015

and insurance decisions. Even after the same-sex marriage ruling was handed down, more than half of affluent samesex couples said they believe they still have unresolved financial matters as a result of being in a same-sex relationship, according to a UBS Wealth Management Americas survey. Ultimately, these couples will review their benefits options in this new environment. Insu ra nce professiona ls should know that the full impact of the Obergefell v. Hodges ruling on the insurance and workplace benefits ecosystem is still evolving. Here are some insights to

HOW SAME-SEX MARRIAGES AFFECT HEALTH INSURANCE, BENEFITS HEALTH help you conduct informative conversations with LGBT clients:

» Elimination of domestic partner

benefits – Accord i ng to a recent pol l conduc ted by t he Societ y for Human Resource Management, many employers t hat prev iou sly of fered benefits for domestic partners may be dropping those benef its, essentially forcing same-sex couples who are part of a domestic partnership to marry in order to retain benefits through their workplace. If this is the case for your clients, ask for their approva l to contact their employer to better understand their domestic partner benefits and any exceptions. If there isn’t an option to retain domestic partner benefits, it’s important to help your clients understand exactly what their benefits options are as an individual (not eligible for joint coverage) versus as a married couple, so they can make an informed decision on how to approach their benefits under the new guidelines.

This is an opportunity for you to facilitate financial conversations with your newlywed clients – your clients look to you to help them navigate the myriad insurance, benefits and financial choices. » Marriage triggers opportunity for

health insurance enrollment or plan change – Newly married couples who choose to enroll in coverage through the health care exchanges have an enrollment period of 60 days after their wedding to do so, as marriage is considered a qualifying life event outside of open enrollment. However, LGBT couples who were previously married in their state but whose

marriage is now federally recognized fall into a gray area regarding their eligibility to apply for health insurance through the exchanges outside of open enrollment. It’s possible that the U.S. Department of Health and Human Services (HHS) may open a special enrollment period for same-sex couples who fall into this category, so it’s a good idea to monitor the HHS for announcements on this subject.

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Please accept this FREE GIFT from us, so we can show you the value we invest in our agents as they serve the senior market. Download it today at www.ChooseWholeLife.com. October 2015 » InsuranceNewsNet Magazine

HEALTH HOW SAME-SEX MARRIAGES AFFECT HEALTH INSURANCE, BENEFITS

» Benefits options for LGBT couples

are in flux following the same-sex marriage ruling – Newlyweds are often excited to join their names, bank accounts and other important aspects of their lives, but it might not always make sense for spouses (and any dependents) to join under one individual’s insurance or benefits plan right away. Walking your clients through all of their options as a couple or as individuals is even more important for LGBT couples as you navigate some of the loopholes that still exist while employers, insurance and benefits providers update their options following the June Supreme Court decision. As you consult with newly married LGBT clients, there are several other tax, health care, retirement and benefits concerns you should understand and flag. Joint tax filing to qualify for tax credits is one. Remind your newly married clients to take advantage of tax credits

for which they are eligible. Prompt them to discuss how they will file their taxes, and remind them they must file jointly in order to qualify for the premium tax credits and lower out-of-pocket costs on private insurance plans offered through the health care exchanges. It’s a good time to prompt clients to conduct a comprehensive estate plan review. You may want to discuss establishing health care directives as well as updating wills and other estate planning documents. Additionally, encourage your newlywed clients to update their beneficiaries on their financial and insurance accounts. Consider referring your clients to another professional in your network for any areas that fall outside of your expertise or qualification. Understand that marriage duration requirements are factors in planning. Note that newly married couples intending to apply for federal retirement benefits (such as Social Security or veterans

JHere’s ustWhat MClients arried? Will Need to Consider

Once the excitement of the big day is over, same-sex couples have a number of items they will need to review. Here’s a rundown: Find out the specifics of their company’s health insurance and benefits plan, and whether it makes sense for one spouse to enroll in the other’s plan.

1 2 3 4 5

Newly married couples who wish to enroll in health coverage through the exchanges have to do so within 60 days of their wedding. They also may enroll anytime during the next open enrollment season, which begins Nov. 1. Couples will need to take advantage of tax credits for which they are eligible. Couples will need to establish or update their health care directives, wills and other estate planning documents. Newlyweds also will need to update the beneficiaries on their financial and insurance accounts.

benefits) based on a spouse’s work record should be aware of marriage duration requirements for many retirement and benefit programs. In some cases, a couple must be married for a certain period of time before a spouse or surviving spouse can apply for benefits under these provisions. This is an opportunity for you to facilitate financial conversations with your newlywed clients. Ideally, couples already have discussed their debt history, spending habits and financial goals, but it can be difficult for couples to know where to start with these conversations. Encourage your clients to have an open discussion of their individual debt, credit scores, goals for large purchases such as a vehicle or home, and ideas about making financial decisions jointly and independently. When it comes to health insurance, help your clients consider how they will set aside emergency funds to cover deductibles, prescriptions or other health expenses that may arise unexpectedly. Your clients look to you to help them navigate the myriad insurance, benefits and financial choices that arise after they say “I do.” The excitement of a new marriage may mean they need a reminder that these decisions need their attention, so it’s best to be proactive and reach out to existing and prospective clients to schedule an appointment a few months after their big day. The insurance landscape is ever evolving, so understanding and communicating about the impact of court decisions like the recent marriage ruling on your clients’ insurance and financial options is a great way to strengthen your relationship with your clients. Hector De La Torre is the executive director of the Transamerica Center for Health Studies, a nonprofit focused on helping consumers and businesses navigate the health care landscape. Hector may be contacted at hector.delatorre@innfeedback.com.

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LIFE INDUSTRY

ALERT

SPONSORED

How Well Is the Life Insurance Industry Managing Data? In the insurance industry, there’s plenty that can go wrong during the sales process. Agents might worry most about making it to the close and getting the sale, but there are plenty of problems that can develop after a policy is sold. Last month, a feature entitled, “Life Insurance Industry Held Back by Lack of Standardization and Automation” appeared in a special sponsored section of this magazine. While the feature focused mainly on inefficiencies and their cost, it merely hinted at the hotbed of risk that exists after a policy is sold — risks, which center on the transfer of data and funds, that arise during the servicing of transactions. The movement of funds — whether purchasing a policy, paying a premium or paying a claim — sets up opportunities for checks to be lost in the mail, which could have a number of repercussions such as delayed processes, lost time and resources, missed market opportunities, damaged business relationships, even the potential for consumer identity theft. As personal information is being gathered and shared, vulnerability to hackers and cyberattacks comes into play. Personal privacy can be compromised, company reputations damaged, and fines mandated for improper handling of medical and other sensitive information. Other post-issue risks can mean missed sales or missed opportunities for carriers and distributors who can end up disgruntled when they discover too late that an agent they’re working with isn’t properly licensed to sell a product they want to deliver. Additional headaches arise when financial advisors are pressed to compile reports on their clients’ portfolios and find themselves on a wild goose chase to obtain basic policy information. In order for financial advisors to better serve their clients, they need a more complete picture of their portfolios at their fingertips. A paucity of accurate data can also cause a compliance risk when advisors are left in the dark and unable to supervise critical information. What is the solution to mitigate these risks? Carriers, distributors and brokerages often have processes in place, but these processes are not implemented industry-wide so their effectiveness is curtailed by a lack of standardization. For example, if two companies have processes in place to monitor licensing but each monitor in different ways, attempting to share data can be like having a conversation in two different languages. Similarly, something that is sent in a secure manner isn’t necessarily received in a secure manner.

A Solution Exists

The most powerful solution would be life-industry-wide standardization and automation of data and fund processes, and the solution provider does exist — they’re just not universally adopted, yet. These solutions are coming from The Depository Trust & Clearing Corporation (DTCC), a financial industry infrastructure that, through its subsidiaries, established and facilitates standardization and automation for annuities, mutual funds, equities, derivatives and other asset classes, worldwide. The company also makes its offerings available to the life insurance industry. Once widespread adoption occurs, many common industry problems that have overstayed their welcome can become issues of the past, just as they did for the annuity space when that industry segment adopted DTCC’s standardization and automation.

Solutions Available Today for Life Insurers Postions & Valuations POV allows carriers to send distributors point-in-time policy details for an accurate view of their book of business for investment and reporting purposes. Commissions COM delivers commissions information and can settle payments same day, allowing agents to be compensated faster. Settlement Processing for InsuranceSM STL automates subsequent premium payments and systematic transfers between brokerage accounts and carriers. It eliminates manual-process-related risks such as misrouted funds. With STL, checks no longer disappear in the mail, wired funds are eliminated and money moves virtually overnight. Licensing & Appointments LNA brings speed, efficiency and accuracy to the data flow necessary between carriers and distributors to exchange essential licensing information. Financial Activity Reporting FAR enables carriers to provide distributors with daily financial transaction information, providing a comprehensive and accurate picture of client accounts. In addition to its ongoing goals to continue setting insurance standards, DTCC also anticipates new data requirements and helps to fulfill regulatory data mandates.

Potential for risk permeates the life insurance industry. With such a volume of electronic data and money moving about, there are seemingly infinite ways for something to go wrong. Considering any time a product may not make it to the market, or an agent wants out of the business, or a consumer doesn’t care to purchase life insurance at all, it often comes down to the existence of, the stigma of, the avoidance of, or regulations in place because of risk. “The framework has been built by DTCC to establish standards; now we need to work with insurance companies and bring these advantages to the entire industry,” says Kristie Thompson, Principal at Edward Jones. “DTCC offers the best solution to help us manage the large influx of data we receive and transmit on a daily basis, and that allows our Financial Advisors to conveniently access policy information so they can provide the best level of service to our clients.”

Drive Standardization Join DTCC and help reduce risk in the life insurance industry. Learn more today at www.dtcc.com/standardizelife or email insurance@dtcc.com.

October 2015 » InsuranceNewsNet Magazine

FINANCIALWIRES

Employers Worry About Retirement Readiness Many of those who are working nine-to-five or slogging through the graveyard shift wonder whether they ever will be able to retire. It turns out that their employers have the same concern about them. Nearly four in 10 employers say less than half of their workers are financially well-prepared for retirement, according to a LIMRA Secure Retirement Institute survey. The retirement readiness of their workforce is of such concern to them that 80 percent of employers said an important success measure of their company’s retirement benefit is whether their employees are ready to retire. To that end, 96 percent of employers, in their role as plan sponsors, measure employee retirement readiness. More than half use an evaluation tool supplied by their plan provider and 42 percent use employee surveys as a measure. Nearly all employers (92 percent) have discussed retirement readiness with their advisors and plan providers. Two-thirds of the time, the plan providers are the ones who have initiated this discussion.

EVEN THE WEALTHY ARE CONCERNED ABOUT RETIREMENT

IRA ASSETS EXPECTED TO APPROACH $12T BY 2020

Despite having far more assets than the average saver, nearly 70 percent of affluent consumers told a LIMRA SRI survey that maintaining their lifestyle in retirement was a top financial goal. Although more than 80 percent of the affluent are confident they will be able to live their desired lifestyle in retirement, only four in 10 are “strongly confident,” despite having substantial assets. Reasons for their concern include market volatility, rising inflation, living more years in retirement and unexpected events. This particular study looked at Americans at three asset levels: $500,000 to $999,999, $1 million to $3.5 million and $3.5 million-plus. Who can help relieve this retirement anxiety — an advisor, of course! The study found that those who work with an advisor to develop a formal written plan to manage their assets receive a boost in retirement confidence. Among those with written plans, 54 percent said they were “very confident” about living their desired lifestyle in retirement. Yet only half of affluent consumers have a formal written plan.

70% ?

DID YOU

KNOW

Total individual retirement account assets are expected to grow steadily, hitting the $11.7 trillion mark by 2020, according to new research from Cerulli Associates. Baby boomers are expected to fuel this growth as they continue to roll over their defined contribution assets, according to Shaan Duggal, Cerulli research analyst. “As the baby boomer generation ages, much of this rollover activity will be due to account consolidation as these individuals plan for their retirement income needs,” he said. “A greater number of millennials are contributing to Roth 401(k)s, which will become a sizable rollover opportunity in time.”

9 IN 10 EMPLOYERS WANT TO KEEP OLDER WORKERS ON THE JOB Despite the perception that employers want to push their older workers out the door, a new LIMRA SRI study found that the vast majority of employers are taking specific action to help older workers stay on the job. Two-thirds of employers in the study offer flexible hours, while 42 percent offer flexibility on where employees

THE AVERAGE RETURN ON AN INITIAL PUBLIC was 20with percent of college graduates enterOFFERING the workforce this year. The average increase in the first day (or “pop”) is 13 percent.

student loan debt that averages $33,000 each.

Source: Renaissance Capital Source: Prudential

InsuranceNewsNet Magazine » October 2015

QUOTABLE I often mention to our clients that I have yet to see a Brink’s truck full of money following a hearse at a funeral procession. — Curt Knotick, owner of Accurate Solutions Group in Butler, Pa.

work, such as working from home or other locations. Other adjustments include job training/reskilling and job sharing. Why make these accommodations for older workers? A more mature workforce is good for business. Eight in 10 employers said their organizations lose experience, institutional knowledge and leadership when an older worker leaves. These shifts in the labor force affect a company’s benefit plan design. Among the challenges cited by employers were increased health care benefits costs. Half said they plan to absorb the costs into the business while four in 10 will pass on cost increases to employees.

LIFE EVENTS OFTEN COMPEL AMERICANS TO RETIRE EARLY It has been said that life is what happens to you while you are making other plans. Where retirement is concerned, life often gets in the way of making plans. According to a new Nationwide Retirement Institute survey, 83 percent of recent retirees started taking their benefits earlier than their full retirement age and those who do receive 49 percent less than those who claim benefits later. More than half (61 percent) of recent retirees polled said they left the workforce earlier than they planned because a life event forced their hand. Early retirees said they began collecting Social Security early because they needed the money (38 percent), because of health problems (30 percent) or because they lost their job (24 percent). Despite plenty of confusion on the best way to maximize benefits, only 17 percent of all respondents worked with a financial advisor who provided them with advice on Social Security. However, that’s up from 12 percent last year.

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FINANCIAL

Keep Your Client’s Investment From Turning Into a Money Pit O wning property has been a traditional path to wealth. But returns in real estate don’t happen overnight. Here is how you can keep your client from making a costly mistake. By Bryce Sanders

inancial advisors are terrific at presenting financial solutions to clients, putting them on the path to addressing their investment goals. Clients often are tempted to look in other directions, especially those offering the potential to make big money quickly. One day your client says, “I’m thinking of taking my money and putting it into real estate.” What should the advisor know about this investment alternative? 64

What’s the appeal?

Owning property has been a traditional path to great wealth. The Forbes list of the 400 wealthiest people in the world shows 27 made their fortunes in real estate. From John Astor, who built the Waldorf-Astoria Hotel in the 1890s, to Donald Trump today, wealth and property have gone together. Unlike securities, which exist as flashing lines on a computer screen or figures on a monthly statement, real estate is tangible. You can see it and touch it. You can use it as your primary home or as a vacation home. Property can be improved. Buying the worst house on the best block reinforces the broker’s mantra of “Location, location, location.” Land can be subdivided.

InsuranceNewsNet Magazine » October 2015

Houses can be built or rebuilt. Land could be rezoned for commercial use, increasing its appeal to future owners. They aren’t making any more of it. Although 36 percent of Colorado is owned by the federal government, places like Orange County, California, are almost completely covered by asphalt and houses. Waterfront property is in short supply. Statistics bear out real estate’s investment credentials. The price of new homes has increased by an average of 5.4 percent annually from 1963 to 2008. Even better, real estate is considered a noncorrelated asset. Small wonder acknowledged savvy investors like the Yale Pension Fund reported in 2013 that about 20 percent of its assets were invested in real estate. Rents traditionally rise over time as well.

Does this family represent your Leases run for a set period and a new rate is set based on prevailing market conditions. One of the drawbacks of fixed income investments such as bonds is that payments don’t increase even if living costs rise. Rents, on the other hand, are dynamic. The federal government considers rental property ownership as a business venture. Your client can apply certain expenses against the income earned instead of paying everything from after-tax dollars. There are tax advantages such as depreciation connected to owning income-producing property. Your client should consult an accountant because all situations are different. Finally, rental property can be an income-producing asset. The investor buys the property, finds a good tenant, collects rent and keeps the balance after expenses. But, of course, there are also drawbacks. It’s easy to make a case for income-producing property. Your clients are looking at the low interest rates the bank offers, and they find rental property attractive. What else do your clients need to know? 1. Think long term. “Don’t wait to buy real estate. Buy real estate and wait.” Making money in the real estate market often means the investor must hold on to the property for a long time. The takeaway: Investors seeking capital gains might be better off in the stock market. 2. Liquidity. It’s hard to beat the stock market for getting at cash quickly. Actively traded securities are priced daily. The spread between bid and offer is small. The industry standard of T+3 means a sale on Monday provides a check on Thursday. The takeaway: Selling real estate usually takes a long time. 3. Leverage. Few people make all-cash purchases in real estate. They usually take out a mortgage tied to a specific property. The bank determines whether it will lend on that property and if it will lend to you, which takes time to arrange. If the property declines in value, the bank still wants its loan repaid. The takeaway: Everyone despises the mortgage approval process. It’s slow and filled with delays.

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FINANCIAL KEEP YOUR CLIENT’S INVESTMENT FROM TURNING INTO A MONEY PIT 4. Closing costs. Both the financial services industry and the insurance industry strive for transparency in pricing. For a client who objects to paying 1-2 percent to buy a stock, the 5 percent real estate commission structure can be an eye opener. Add in taxes, appraisals and other fees, and the costs mount. The takeaway: How much does your client need to spend in fees in order to buy the property? 5. Ownership costs. Rental income looks attractive. Investors accept they must pay mortgage interest costs. Owners also have property and school taxes, water and sewer rates, and trash collection and insurance costs to consider. The renter might assume some costs, but that decreases the amount of rent your client can charge. The takeaway: Your client must understand the ongoing costs when investing in property. 6. Fixer-uppers. Your client is buying a property with the potential of rental income. Is the property in good enough shape to be rented at the prevailing market rate? Does it require updated kitchens or bathrooms? Exterior or interior painting? These expenses come out of pocket before the first rent check arrives. The takeaway: Just because your client owns the property now doesn’t mean it can be rented without some work done beforehand. 7. Maintenance. The renter is paying to live in your client’s property. The renter expects everything to stay in good working order. Replacing appliances and airconditioning or heating systems, as well as performing general property maintenance, are the landlord’s responsibilities. To avoid those late-night calls from tenants, your client probably will need to engage a property management firm. The takeaway: Keeping up the property will cost your client money. 8. The bad tenant. Unlike renters, U.S. Treasury bonds don’t pay late, make partial payments, claim the check is in the mail or move out in the middle of the night. If your clients must go to court to evict a tenant, they must expect to incur legal fees and a period of time without receiving rental income. 66

Real estate is attractive, yet investors need to determine how hands-on they want to be with it. The takeaway: What happens if your client gets a bad tenant? 9. The empty house. The key word in “rental property” is “rental.” While a property sits vacant, the owner is not collecting income. Yet the owner still is responsible for those mortgage payments and monthly carrying charges. The takeaway: Income-producing property works best when it’s 100 percent occupied 100 percent of the time.

What are the alternatives?

Why is your client considering investing in property? Is it an income-producing asset in place of owning a bond, a certificate of deposit or an annuity? Is it because your client wants a vacation home? Are they seeking to diversify their portfolio? If they believe in real estate and want to spread their portfolio risk, your clients might consider investing in Real Estate Investment Trusts (REITS) or listed property companies. REITs are securitized portfolios of properties. Investors can invest in the residential, commercial or office sectors. Since the securities are listed on a major exchange, your client can borrow via margin lending or sell at the market price and receive a check within a few days. Your clients might like the idea of investing in a vacation home, but how often are they realistically going to use the property? Do they want to remain tied to one vacation location for years and years?

InsuranceNewsNet Magazine » October 2015

If their objective is to “own” a second home for a couple of weeks a year, they might consider “interval ownership,” today’s version of the timeshare. Several major companies with household names have entered this business. Your clients can use their property during their scheduled period or bank it and swap for a vacation in a different locale. A word of warning — timeshare units are notoriously illiquid when your clients want to sell. Real estate is attractive, yet investors need to determine how hands-on they want to be with it. When your clients choose to outsource their property’s day-to-day management, they are paying someone else to manage their property. This reduces their return. Find out what the true return might be and consider alternatives such as a stock portfolio following a total return strategy. What could you build for your client? Real estate may be a good fit for your client’s portfolio, but your client first must look at the big picture. What is their objective? What can they realistically expect? What are their alternatives? Help them make an informed decision. Bryce Sanders is president of Perceptive Business Solutions in New Hope, Pa. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com. Bryce may be contacted at bryce. sanders@innfeedback.com.

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October 2015 » InsuranceNewsNet Magazine

BUSINESS

Roll Out a Welcome Mat that Keeps Clients Coming Back A 30-day plan to make new clients feel as if they are a valued part of your practice. By Mike Capuzzi

uch like a welcome mat greets visitors to your home, all insurance agents should have something I call “welcome mat marketing” in place. This is a way of helping all new clients realize you’re different from your competition and making them feel special. Every new client is valuable and important, so nobody can afford to be complacent when it comes to marketing — specifically when it comes to extending a welcome mat to new clients. There’s a saying that most agents get a client to make a sale, but the astute agent makes a sale to get a client. The latter understands the lifetime value of a good client in terms of retention, incremental sales and referrals. Welcome mat marketing is the beginning of this important process. 68

A welcome mat marketing campaign is a focused multistep, new-client campaign designed with specific goals in mind. The campaign should consist of both online and offline communications for maximum results. In my experience, I would estimate that 95 percent of agency owners don’t even think about welcome mat marketing. You and your business will gain a huge competitive advantage when you implement such a program. Recently, I’ve experienced a welcome mat campaign that I would consider worth mentioning. It happened when my wife purchased a new Acura. Gone are the days when all the features a car had were a speedometer, a gas gauge and a push-button radio. Today’s new cars seem to require that you have a Ph.D. in order to figure them out, and the Acura MDX is no different. Acura realizes few new clients will read the owner’s manual, so they created a 30day campaign during which my wife received a short written tutorial right on her navigation system that appeared when she turned the car on. She either could take 20

InsuranceNewsNet Magazine » October 2015

seconds to read the tutorial right away or save it to read in the future. This is a smart idea for several reasons. Acura took the most important features for new car owners, chunked them into short, concise tutorials and “fed” them to us over 30 days, right where they knew we would be (the driver’s seat). The insurance business is no different, and I would challenge you to develop a well-thought-out welcome mat for them. The goals are to make your new clients feel welcomed and appreciated, to address any new client questions, and to show that your business is different from the competition simply because you care 100 percent about helping your clients with your policies and agency services. One big benefit of using a welcome mat campaign is consistency and compliance. When you set up a system the way I will describe it, you don’t have to worry about whether you told Mr. Jones the same thing you told Mrs. Smith, because the system is consistent with every new client (and if the need ever arises, you’ll

ROLL OUT A WELCOME MAT THAT KEEPS CLIENTS COMING BACK BUSINESS

The point is to treat every new client in your agency as if they’re a beloved grandmother. Thank them, appreciate them, help them, wow them.

framework described here is a great start. The best thing to do is map out the campaign and figure out your goal at each contact point. I like to lay out the campaign on paper or in some type of graphics program so I can see everything I want to do and need to create. Here are a few touchpoint ideas you can include in your welcome mat campaign:

fun, etc.). Thank the new client for their business, and remind the new client about the importance, of referrals for your business.

» Offer other product/service opportunities, and give them a “new client reason” to take action now.

Step 4: Figure out the number of touchpoints and what media you will use during the welcome mat campaign. I suggest you consider this welcome mat architecture for your agency:

» Day 20 – Personalized email – “Hope you like the gift I sent.”

» Share client success stories (and invite them to be your next one).

» Day 25 – Personalized email – “Do you have any questions I can answer for you?”

» Discuss your referral program and how they can benefit from it.

» Day 0 – New client start.

» Day 30 – Personal “just checking in” phone call from agency owner or agent.

» If you send a client newsletter, send them a first issue.

Step 5: Get your campaign in place with some type of automated marketing platform. For optimum results, your welcome mat marketing should be systematized and automated. This gives you the peace of mind of knowing every step of the campaign is happening 100 percent of the time whenever you get a new client.

» Give them an unexpected gift from you.

have evidence of what information was shared with the client). As you begin to craft your campaign, keep these important steps in mind: Step 1: Your first goal is to figure out why you want to create this campaign. What do you want to convey? What do you want to have happen? What information is important for a new client to have? Step 2: The second goal is to reduce any type of buyer’s remorse and to create clients for life. You can go a long way toward accomplishing this goal by creating a wellthought-out welcome mat campaign that reassures and validates your clients’ investment in your company. Step 3: Create a specific time frame during which new clients will hear from you on a scheduled basis. I suggest you consider a 30-day campaign with multiple online and offline touchpoints. The use of an automated marketing solution will enhance this process greatly.

» Day 1 – Personalized thank-you email with a photo of you and your staff holding up a thank-you sign or possibly a link to a generic video in which you thank the client for their business. Introduce the rest of your staff and explain how they can serve the client. » Day 2 – Personalized, handwritten thank-you card to new client. Consider including “how to refer” information in this mailing. » Day 5 – Personalized email outlining important agency processes, e.g., how to make payments, file a claim, etc. » Day 10 – Personalized “just checking in” email. Consider including other product and service information and benefits. » Day 15 – Personalized direct mail with unexpected gift (food product, something

Step 6: Set and and forget it -- for the time being, at least. I’m never a fan of simply forgetting about a campaign after it has been loaded into your automated marketing platform. All owners should revisit all their marketing from time to time to see whether tweaks are necessary. If this were my business, I would have an even more complex, behavior-based campaign in place that unfolds according to an individual’s interaction with your campaign. However, if all this is new to you, the

» Thank the individual for becoming a client, and reaffirm their wise decision to become a client. » Spell out ways they can contact you with questions, concerns or support issues. » Let them know the various ways you accept policy payments. » Introduce your staff and their areas of specialty.

» Allow them to self-identify as a client wanting more from you (e.g., other products, higher levels of service, etc.). If all the above has made you crosseyed, don’t fret, because you still can reap the benefits of welcome mat marketing by simply sending out a few personalized direct mail letters and getting on the phone. The point is to treat every new client in your agency as if they’re a beloved grandmother. Thank them, appreciate them, help them, wow them, and watch your business soar. Mike Capuzzi is CEO of Infotail Systems. Mike may be contacted at mike.capuzzi@ innfeedback.com.

October 2015 » InsuranceNewsNet Magazine

MDRT INSIGHTS

The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.

Some Clients Aren’t Worth Chasing E very advisor must know when it is worth fighting for a client or when it’s better to let them go. By David L. Alarid

’m fortunate enough to speak all over the country to insurance companies, new agents in my community, and organizations such as the Million Dollar Round Table and the National Association of Insurance and Financial Advisors. One way I get powerful messages across is through stories of real experiences that I’ve had in my business. This way of teaching is more memorable than simply stating a key element of the business. During my speeches, I focus a large portion of time to what I call the objections clinic, which is how I address the typical objections we receive from prospects. We go through scenarios of what to say when the client says, “I can’t afford it,” “I have it through work,” etc. Through these examples, advisors learn to think on their feet and learn whether to fight for a client or whether to let them go. I also share an anecdote from early in my career that is especially helpful to agents who are working to build their practice.

The Real-Life Experience: Difficult Prospects

At the beginning of our career, we work to build our client base and we seek any prospect we can find. I know I spent endless hours chasing people who didn’t recognize the need for life insurance. One example of this was a business owner I cold-called for many months, trying to schedule an appointment. When I finally secured the appointment, a senior agent, Brian, came with me. When we arrived, the business owner said he had forgotten about our meeting. Once we explained we were there to discuss life insurance, he jumped to ask if he could buy it that day. This sounded like good news, but the process wasn’t that simple. We asked him many questions necessary to determine which policy would best suit his needs. Once we determined the policy amount of $1.5 million, he signed the 70

application and within two weeks it was approved. It then became my responsibility, as the trainee, to set up another appointment to obtain payment. Unfortunately, at this step the business owner was not returning my phone calls to finalize the policy. After four weeks, Brian and I stopped in his office without an appointment, and with the policy in hand. When the owner saw us walk through the door, a look of regret washed over his face; however, he agreed to meet with us. He gave us a few typical reasons why he couldn’t buy the policy and asked us to come back in six months, promising to buy the policy at that time. Brian explained to the prospect why purchasing the policy that day would help him and would have no effect on the objections he recited. However, the prospect indicated he still wanted to wait. As we walked out — no finalized policy in hand — Brian handed me the portfolio and told me to file it and not follow up with the prospect. I heeded Brian’s advice and did not follow up.

The Lesson: Here’s Why I Didn’t and Why You Shouldn’t Either

As advisors, we have to ask people to be responsible and protect their families. However, if they don’t want to take the necessary steps and precautions to do so, then we can’t chase them. It was a great lesson I learned early in my career. Chasing becomes a waste of valuable time that could be better spent personalizing plans for those who are truly interested

InsuranceNewsNet Magazine » October 2015

in a policy. As new agents, we waste so much time pursuing individuals whom we believe are prospects and interested in purchasing protection. When instances such as my personal story happen, we realize these prospects don’t really want to work with us or set themselves up for financial protection. It is never a good sign when we care more about the prospect’s problem than they do. Find prospects who have character and who care about their families — and then work with them. These prospects will be the ones who care about setting up a plan that’s truly best for them, instead of just rushing through the process and signing on the dotted line. It’s easy to look for specific qualities in your prospects — such as money, need and positive health — but the most important quality to look for is character. Unfortunately, we can’t force individuals to set up a plan to protect their families and to establish a legacy if they don’t want to spend the time doing so. It’s important to identify non-prospects and remove them from your life and your business. David L. Alarid is a career agent with Securian Financial Group, as well as a qualifying and life member of MDRT with 27 consecutive years of membership. He also has achieved Court of the Table honors. David may be contacted at david.alarid@ innfeedback.com.

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THE AMERICAN COLLEGE INSIGHTS

With over 87 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

The Fraud Triangle Can Be an Ethics Crystal Ball B y understanding the conditions that lead financial professionals to commit fraud, their leaders can implement policies to deter unethical acts. By Julie Ragatz

f business ethicists had a holy grail, it would be a tool that would enable us to look into the future and predict when people were going to commit unethical acts. Although it is not exactly a crystal ball, the concept of the Fraud Triangle provides a unique road map to understanding the conditions that often lead well-intentioned individuals to commit fraud. The Fraud Triangle has three components:

With these three conditions present, even well-intentioned individuals can be led to commit fraud.

Pressure

The financial services industry places tremendous pressure on people to be productive. Success often is defined solely in terms of “hitting the numbers” or delivering solid financial results. Individual achievement, as well as the lack of individual achievement, is often very public. The perception of personal failure can cause people to struggle with losing face with their colleagues and friends. An advisor’s identity often is so wrapped up in their professional success that they have little to fall back on when this identity is under threat.

Opportunity

Financial services practitioners have an excess of opportunity to commit fraudulent acts, both toward their organization and toward their clients. Frequently, when we hire an expert, we don’t know what they don’t know. Moreover, people often trust their expert advisor simply because they selected that advisor. We all want to believe that we are good judges of character and have confidence in our ability to select the right experts. Finally, financial services practitioners often handle numerous financial transactions and have access to all kinds of sensitive finan72

cial information. All of these factors can increase the opportunities for financial services professionals to commit fraud.

Rationalization

Most individuals are heavily invested in the idea that they are ethical. This self-concept becomes hard to maintain when performing a corrupt act. Rationalization provides a way to resolve this tension. An important point about a rationalization is that it does not need to be a particularly good argument; it merely needs to be good enough to resolve the cognitive dissonance. This is one of the reasons that rationalizations often seem so flimsy when exposed to public view.

What Can We Do to Prevent Unethical Acts? RELIEVE THE PRESSURE » Promote cooper-tition. I really like the word “cooper-tition.” I first heard the term used by Dr. Bob Johnson, president and CEO of The American College, who uses

InsuranceNewsNet Magazine » October 2015

it frequently. Cooper-tition describes a philosophy in which teams can and should cooperate with each other and should help each other even as they compete. Some sales leaders believe that they can achieve stronger results by encouraging a sort of hyper-competition among employees. Not only does this increase the pressure to succeed, but it also can isolate individuals by transforming people who could be natural allies into adversaries, by making the work environment a zero-sum game in which the gains of one person come at the expense of someone else.

» Know your people. It is important to identify, as much as possible, those individuals who have a good network and those individuals who do not, and to watch the people in the latter group a little more closely. Fraudsters do not want their activities to be detected, so they often seek opportunities to act in relative isolation.

» Use examples to illustrate that it is possible to come back from failure.

THE FRAUD TRIANGLE THE AMERICAN COLLEGE INSIGHTS One failure does not mean that you will never succeed — sometimes one failure is just one failure. Guide others to learn from their mistakes and to use what they learned to make improvements and move forward. DIMINISH OPPORTUNITY » Establish strong internal controls. Only foolish leaders create temptations for their personnel by tolerating weak internal controls. Part of a strong ethical culture means that leaders impose policies that make it easier to do the right thing, and this means making it harder for people to engage in fraud.

» Increase the feeling of professional-

ism. It is important for leaders to emphasize that practitioners must be worthy of the trust their clients place in them. This can be partially accomplished by encouraging the adoption of professional values. This means talking frequently about professional values — integrity, objectivity, fairness, diligence and confidentiality — and the importance of applying them to daily practice.

» Educate clients. It can be very tempt-

“everyone is doing it” and that by acting ethically, you are losing out. » Expose rationalizations. Leaders should take examples of bad behavior and its rationalizations and discuss them with their team. Newspapers are full of potential illustrations of the kinds of excuses used to explain fraudulent activities.

DIMINISH THE FORCE AND POWER OF RATIONALIZATIONS » Treat people fairly. Employees often rationalize their own fraudulent behavior as a means of “evening the score” in response to perceived unfair treatment by the employer. It can be tempting, especially in tough economic times, to cut costs by removing actual or perceived benefits from employees. Sometimes this is necessary and appropriate, but it is important to be wary of the unintended negative effects.

A better understanding of the causal factors of fraud — pressure, opportunity and rationalization — can alert leaders to the kinds of circumstances that create potential footholds for fraudulent activity. Appropriate measures can then be implemented to reduce the opportunities to commit and conceal fraud. It is impossible to prevent unethical behavior completely, but awareness of the Fraud Triangle can provide the tools to help us fight the good fight.

ing to be the smartest person in the room. The best way to counteract this temptation is for leaders to create a culture that supports a robust program of client education. A climate of learning and open communication can minimize the temptation to deceive.

» Prevent a “cheating culture.” People

who follow the rules can be demoralized when they see others break those rules with impunity. A powerful justifier of fraudulent behavior is the feeling that

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Julie Ragatz is director of the Cary M. Maguire Center for Ethics in Financial Services at The American College. Julie may be contacted at julie.ragatz@ innfeedback.com.

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October 2015 » InsuranceNewsNet Magazine

NAIFA INSIGHTS

Founded in 1890, NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every congressional district in the United States.

5 Key Steps Before You Sell DI behind the question. Common motivators include “I had a health scare this past year,” “I am married and have a family and more responsibility” and “I don’t want to be dependent on others.” Each client’s motivation should require you to use a slightly different sales approach.

E very income protection plan you offer should consider your prospects’ life plans or goals. By Corey Anderson

he process of selling disability insurance (DI) starts long before you close a sale. Here are some key steps to follow even before you approach your prospect or client about their DI needs. Taking these steps now will help you develop a DI policy that best meets your client’s needs and increase your chances of making a sale that is good for both you and the client. Observe your prospects. Take time to observe your prospects. What are they like? What are their mannerisms? You can tailor your approach to a prospect based on the category they fall into. For example, is the prospect like an engineer or more like a salesman? An engineer typically will want details and will keep you on your toes. So deal with an engineer logically. A salesman typically will want more of the story behind the product, the price of the policy and a few reasons why they should buy from you. Find out what drives your prospects. Do they love cars or vacations, or do they wish to retire early? Or is it all about family? For example, I take pride in my family of six, with five of them depending on me to produce an income. But I would not approach a 25-year-old single woman in the same way I would approach someone like me. She might love exotic trips and fine food, compared with my burp cloths and shuffling kids in the minivan. My approach would be to find out more about the favorite places she has visited and her “bucket list” of places she would like to visit. Understand what drives your prospects, and then try to connect with them. Discover your prospects’ abilities. Remember that your prospects are not all about income. They have a unique talent or an ability that has allowed them to pursue a specific occupation and get 74

paid for it. Not all accountants are the same, and not all mechanics are either. So ask your prospects about their skills and education and how they chose, or were chosen for, their occupations. Many businesses invest hundreds of thousands of dollars to acquire, train and retain people with unique abilities. Help your prospects understand how special they are. This is important because a random group DI plan won’t protect someone’s “uniqueness.” Every income-protection plan you offer should consider your prospects’ life plans or goals so the plans you develop will be as unique as they are. Know how to bring up the topic of DI or how to respond to a DI query. The best way to bring up the topic is to say something like this: “I was reviewing the files of my favorite clients and noticed that we have not addressed this very important need of protecting your income to the fullest. I helped you plan for retirement and plan for ways to protect your family if you die prematurely, but we need to protect your ability to earn the large income you have, due to the unique craft you have. Money doesn’t buy happiness, but life without an income sure competes with happiness.” If your client asks you about paycheck protection, find out the motivation

InsuranceNewsNet Magazine » October 2015

Ask about their health early in the process. If you don’t address a weed or two in your lawn early, those weeds will multiply into a big problem. The same thing applies to your prospect’s health. Ask many questions early on to avoid bigger problems down the road, and seek to understand your prospect’s health. For example, you can inquire about the weekly chiropractor visits your prospect has for “routine” adjustments. This may require some form of spine exclusion. It is better to let the prospect know about the exclusion prior to showing them the price of the DI policy, and discuss how they could remove that exclusion down the road if they make some changes. It is better to know up front if they take a daily anxiety or depression medication now, instead of finding that out during or after underwriting. You can address this up front and discuss the mental/nervous exclusion that will be on the policy. It will make the experience better for all concerned — you, the client, the marketers for the various insurance carriers and the actual underwriting department. Proper questioning of health prevents surprises and more work down the road. A final note: Please take the steps I have described in this article before you even look at a policy illustration, and do not lead any client conversation with discussions about the price or the features of the DI contract. Corey Anderson received NAIFA’s 2012 Young Advisor Leader of the Year Award. He is a disability event consultant with Secura Consultants, Minneapolis, Minn. Corey may be reached at Corey.Anderson@innfeedback.com

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LIMRA INSIGHTS

More than 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.

Group Benefits Meetings Are Missing the Mark With Employees R esearch shows that employees may not be getting enough value out of group meetings to discuss workplace benefits. By Kimberly Landry

t one time, employer-sponsored insurance benefits were simple. These days, however, employees have more responsibility for their benefits decisions, so it is more important than ever that workers understand what they are choosing. The Many employees seem to find it difchallenge for employers and benefits car- ficult to learn about their benefits in a riers is to develop a clear benefits com- group setting. Among the reasons they munication strategy. LIMRA surveyed cited were limited time, rushed presentaemployees recently to find out which tions or discomfort with asking questions communication efforts work and which in front of others. As one respondent ones need improvement. noted, “You can ask questions, but to me it Three-quarters of employees sur- seems crazy to be asking questions in front veyed currently have the option of of everybody when what I’m really trying to attending some type of in-person in- figure out is just what’s best for me.” formational session during open enIn addition, the survey showed that rollment, such as a group meeting or a those who conduct group meetings often one-on-one meeting. Group meetings fail to discuss all of the benefits available are the most likely to be attended, mak- to employees. While more than eight in ing them an ideal ven10 employees who atue for conveying key “It seems crazy tended a group meetbenefits information ing said the core prodto be asking ques- ucts (medical, dental to employees. Our study found, tions in front of and vision insurance) however, that employwere covered, far feweverybody when ees may not be getting er remember any disenough value out of what I’m really cussion of ancillary these meetings. Only trying to figure products. 22 percent of employOnly 53 percent of ees who attend group out is just what’s employees who are meetings said they find best for me.” offered long-term disthese meetings very ability coverage said useful, ranking these meetings lower in that this benefit was mentioned during usefulness than most other forms of ben- their group meeting, while only 51 perefits communication. Millennial employ- cent recall critical illness being discussed, ees are slightly more likely to find group when available. This seems like a missed meetings helpful compared with older opportunity, particularly since employees generations, while women also consid- are more likely to need help understander them a bit more useful than men do. ing these nonmedical benefits. These slight positives aside, group meetWhile one-on-one benefits meetings ings do not receive high marks from any receive lower attendance than group demographic group. meetings, employees said they are 76

InsuranceNewsNet Magazine » October 2015

considerably more likely to find oneon-one meetings useful. This holds true for all company sizes, although employees at midsize companies (with 100499 employees) are most likely to find personal meetings very useful. While employers often prefer not to offer oneon-one meetings due to the time and logistical difficulties involved, it is important for them to recognize the value that these meetings offer to employees. In fact, many employees say that more access to one-on-one meetings would be a key way for employers to improve the open enrollment experience for them. One respondent complained that her company was “just trying to push you to the Internet all the time.” She also said attitude makes a big difference and she would like to feel that personal meetings are welcomed rather than being a bother. While meetings are a valuable way to communicate benefits information, there is clearly room for improvement. By making sure that all benefits are explained allowing sufficient time for questions and providing more opportunities to meet with someone one-on-one, employers can achieve increased effectiveness with their benefits meetings. Kimberly Landry is a senior research analyst for LIMRA who specializes in topics in the employee benefits industry. Kimberly may be contacted at kimberly.landry@ innfeedback.com.

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