PREDICTIVE PROSPECTING: HOW BIG DATA ANALYTICS WILL HELP AGENTS SELL PAGE 20
Google Your Way to Sales PAGE 10
Why Ken Fisher Loves to Hate Annuities PAGE 40
Put Your Agency on Autopilot PAGE 58
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The Authors Have Been Seen On:
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Brian Tracy has made a name for himself as a professional speaker, entrepreneur and success expert, becoming a CelebrityExpert® himself and writing over 60 Top and Best-Selling Books on how to succeed in business and in life. Along the way he has helped 242 experts and clients of this Agency to showcase their strengths and tell their stories by becoming Best-Selling Authors. And we have teamed up with Brian Tracy again to help you become a Co-Author of his next Guaranteed Best-Seller, Success Today! From our experience, along with Brian’s experience in publishing over 60 books throughout his career, nothing elevates you to an elite expert like a Best-Selling Book. Today, I want to invite you to learn more about our publishing process and the prospect of writing a book with a legend like Brian Tracy. I also want to give you a PDF copy of our Best-Selling book, Celebrity Branding You® as a thank you just for saying “maybe.”
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DECEMBER 2014 » VOLUME 7, NUMBER 12
ANNUITY
40 W hy Ken Fisher Loves to Hate Annuities By Steve Marsh How advisors can counteract the barrage of ads proclaiming hatred for annuities.
44 B ig Changes Ahead: Index Product Trends for 2015
AFP/Getty Images
Spanish historians say they have discovered what Monty Python could not — the Holy Grail, the legendary cup Jesus supposedly sipped from at the Last Supper.
20
INFRONT
8Q LACs on Deck for Early 2015 Release By Linda Koco Clients will need the help of an advisor in deciding where a QLAC fits in their retirement planning.
By Chris Conklin Key themes will be new indices in fixed index annuities, regulatory debate over index universal life illustrations and long-term-care-related features.
48
FEATURE
20 Predictive Prospecting: The Holy Grail of Marketing By Linda Koco Predictive analytics, also called “big data,” has been adopted by life and annuity carriers. Now advisors are wondering if big data can help with prospecting, marketing and lead generation.
LIFE
32 Cash Value Can Build a Bridge to a More Secure Retirement
HEALTH
48 L arge Employers Cut Costs by Opening Health Centers By L. Briggs Cochran and David M. Demers A case study shows how a large municipal government addressed increasing employee health care costs, provided an added worker benefit and saved millions of dollars.
54
By Michael Parker Help clients understand how cashvalue life insurance can contribute to a well-rounded retirement portfolio.
10
34
54 15 Minutes Could Save Your Client’s Retirement Plan By Ric Lager A marketing idea for those who want to expand their existing client investment advisory relationships.
INTERVIEW
10 Google Your Way to Sales
An interview with Sam Richter Web research tools have made cold calls a thing of the past, according to Sam Richter, author of Take the Cold Out of Cold Calling. In an interview with InsuranceNewsNet Publisher Paul Feldman, Sam describes how just a few minutes of online research will seal a sale and keep clients coming back.
2
FINANCIAL
34 Preventing Tax Pitfalls with the Right Life Insurance Policy
InsuranceNewsNet Magazine » December 2014
By Ron Sussman If a life insurance policy promises to outsmart the U.S. tax code, it probably will not.
BUSINESS
58 How to Put Your Agency on Autopilot By Todd Colbeck Here is a system to help you eliminate much of your administrative work while booking more appointments.
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ALSO IN THIS ISSUE DECEMBER 2014 » VOLUME 7, NUMBER 12
INSIGHTS
60 SOCIETY OF FSP: Getting the ‘I’ Out of ‘TEAM’ By Richard M. Weber When you put together the right team of experts, the client comes out a winner.
62 NAILBA: What’s Ahead for 2015?
By Barbara Crowley Long-term guarantees and low interest rates will continue to dog insurers in the coming year.
64 MDRT: A Financial Plan for an Expanding Family By Matthew T. Hoesly An advisor learns the importance of planning when he becomes a parent himself.
65 NAIFA: Annual Meeting Kicks Off 125th Anniversary By Ayo Mseka Members paid tribute to the association’s past while they learned techniques to carry their practices into the future.
66 LIMRA: Bridging the Gap in Annuity Knowledge and Perceptions By Jafor Iqbal When credible information on annuities is made available and accessible, both investors and advisors stand to benefit.
68 T HE AMERICAN COLLEGE: Detroit Is Not Alone – That Could Mean Trouble for Your Clients By Jamie P. Hopkins Clients with state or municipal pensions have their own set of retirement planning needs.
EVERY ISSUE 6 Editor’s Letter 18 NewsWires
30 LifeWires 38 AnnuityWires
46 HealthWires 52 FinancialWires
INSURANCENEWSNET.COM, INC. 355 North 21st Street, Suite 211, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli ASSISTANT EDITOR Susan Rupe VP FINANCES AND OPERATIONS David Kefford PRODUCTION EDITOR Natasha Clague DIRECTOR OF MARKETING Katie Hyp CREATIVE STRATEGIST Christina I. Keith CREATIVE DIRECTOR Jake Haas SENIOR GRAPHIC DESIGNER Carlos Centeno TECHNOLOGY DIRECTOR Joaquin Tuazon
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Copyright 2014 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 355 North 21st Street, Suite 211, 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, 355 North 21st Street, Suite 211, Camp Hill, PA 17011. Please allow four weeks for completion of changes.
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14 INN 12.14 FOR AGENT USE ONLY. NOT FOR USE IN SOLICITATION OR ADVERTISING TO THE PUBLIC. December 2014 Âť InsuranceNewsNet Magazine 5
WELCOME LETTER FROM THE EDITOR
How Big Data Makes a Small World
I
t all comes down to two numbers: 0 and 1. They mean off and on, or absence of power and presence of power in computer speak. This switch is the basis of digital data. In fact, the deeper you look at anything in nature, you’ll eventually encounter a switch. Your DNA is a sequence of switches. That certainly puts the “big” into “Big Data,” which is the subject of this month’s feature article from Linda Koco. Or more specifically, it’s predictive analytics. Simply, it’s why big data means big business. Most of us are on the outside of the data forest looking in. But analytics tell you all about the trees without your having to venture in. According to Linda’s article, analytics will allow you to find out family status, 6
purchasing habits, business development plans, health matters, employment, hobbies, credit history, interests, travel and more. Analytics would increase your efficiency by delivering prospects who are right for you. Agents and advisors can save precious hours they would have spent screening for clients. Not only that, it could help those who are in or want to out a niche. Even with all that, you still have to do oldschool selling. Another feature this month helps with that. Publisher Paul Feldman interviews Sam Richter, the author of Take the Cold Out of Cold Calling. What does the outmoded technology of talking through wires have to do with anything? Sam reminds us that it’s always the message, not the medium.
InsuranceNewsNet Magazine » December 2014
The days of thumbing through the phone book, then smiling and dialing are long gone. Who liked that, anyway? You were embarrassed. The person on the other end of the line was annoyed. It just was not the best use of time or self-esteem. You now have the magic of big data at your fingertips. Linda explains that companies such as IBM are starting to offer analytics to agents and advisors, but you don’t have to wait for that. Not with Google and LinkedIn at your disposal. Sam discusses how to use these tools to get the most helpful information. It really is amazing how much you can find out about someone in five minutes. We have a few good tricks in that article that you can put right to use. So, now you don’t have an excuse for asking dumb questions in the initial discussion. No longer should you be asking about how many people work for someone’s company but rather confirming the number you found. Who has the patience for an agent or advisor who hasn’t bothered to find out the most rudimentary information about a prospect? It is not a matter of prior advantage to look someone up anymore. It’s a simple courtesy. Even so, aren’t we all flattered when someone has taken the time to look us up? I’ll give away one of Sam’s tips here because I don’t want you to miss it. To put prospects at ease, you want to phrase what you know as, “I looked you up online to get some background because I know you’re super busy and didn’t want to waste your time with unnecessary questions,” or something like that. But then the magic phrase is: “And guess what I found?” Who wouldn’t think, “What? What? What?” Anyone would be curious. So, you have engaged your prospect almost immediately. It is all part of charming someone, being interested in him or her. That’s the insurance and financial advising business. Especially now as the focus in sales turns more toward client service and away from product pushing. That’s big data and predictive analytics. It’s not about all the 1s and 0s out there, but rather what they all add up to. Steven A. Morelli Editor-in-Chief
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December 2014 » InsuranceNewsNet Magazine
7
INFRONT TIMELY ISSUES THAT MATTER TO YOU
QLACs on Deck for Early 2015 Release Q ualifying longevity annuity contracts can be used in defined contribution plans and individual retirement accounts. Clients will need the help of an advisor in deciding where a QLAC fits in their retirement planning.
Shepherd said IRA-based QLACs will be a viable retail market for annuity companies because many consumers already have rollover IRAs or individually created IRAs. It will be faster for carriers to implement products for this part of the market than for the DC market, he said.
By Linda Koco
Opportunities for Agents
A
gents, advisors and benefits brokers will most definitely have a role to play in the “QLAC” marketplace now in the making. QLAC is short for qualifying longevity annuity contract. That’s the name the Treasury Department bestowed on certain longevity annuities that can be used in defined contribution (DC) plans such as 401(k)s as well as in individual retirement accounts (IRAs). The purpose of QLACs is to provide a guaranteed stream of lifetime income at older ages. Longevity annuities are essentially deferred income annuities (DIAs) that start their income stream several years after policy purchase, typically deep into old age. In July, the Treasury Department laid out final regulations that effectively make these products “work” for many consumers who have qualified DC plans. The QLACs do this by minimizing required minimum distributions (RMDs) and associated taxes as well as guaranteeing lifetime income. We’ll look at some of that in a moment. First, let’s review QLAC status and agent opportunities. According to several sources contacted for this article, carriers are developing QLACs that fit the regulation’s requirements. No one is setting a date for when the first one will hit the streets, but the group-think is “early 2015.” A few insiders suggest even before, such as “by year-end 2014.” Carriers are initially focusing on developing QLACs for sale in IRAs, according to Steve Shepherd, a partner in the institutional annuities and life insurance solutions business of Hewitt EnnisKnupp. The firm is an Aon Company based in Norwalk, Conn. 8
In the retail market, agents, advisors and brokers will find themselves providing clients with guidance on QLACs. Clients may need an advisor’s help with deciding whether to take a QLAC option that a
rollover IRA provider has made available, for instance. In other cases, retail agents and brokers may be called upon to help clients decide whether to create an IRA, Shepherd said. They might do this if the client wants a QLAC in order to benefit from the QLAC’s tax feature but does not have that option at work. Clients also may turn to advisors for help with deciding whether to take a QLAC that’s been offered at work (assuming the workplace plan offers the option). If the client does take the option, advisors will likely help the client integrate the QLAC into the client’s overall retirement plan, he said. Institutionally based QLACs will be slower for annuity carriers to implement, Shepherd predicted. These are QLACs designed specifically as longevity options for DC plans. The development in this area will be evolutionary, as insurers assess the extent of demand for the products in the
Some additional information to keep in mind about QLACs: The QLAC requirements. To be considered a QLAC, a longevity annuity must have not only the cap on lifetime premium but also a maximum date when payouts must start (age 85). In addition, current regulations say the QLAC can be a fixed annuity or a DIA but not a variable or indexed annuity – a stipulation the industry hopes will be lifted. Some other requirements exist as well. When to “talk QLAC.” Plan sponsors may want to consider QLACs as an option at the time they review available retirement income solutions, the Hewitt EnnisKnupp report on QLACs suggested. Death benefit. Government regulations do provide for this. A plan sponsor can choose to offer DID YOU
KNOW
InsuranceNewsNet Magazine » December 2014
?
NOTE
WORTHY
a return of premium (ROP) as the death benefit. Otherwise, the QLAC’s death benefit is a life annuity payable to a beneficiary. Fiduciary standards. “DC plan sponsors will need to assess the creditworthiness of the underlying insurer or insurers of the plan’s QLACs,” wrote Hewitt EnnisKnupp in its QLAC report. “This analysis is similar to what one would expect of a fiduciary in assessing any investment option offered under the plan.” This will take awhile. “Whether or not QLACs become viable for broader adoption will depend on how the markets, products and thought leadership evolve over time,” Hewitt EnnisKnupp said.
The IRS regulations on QLACs are available on the web here: http://bit.ly/innqr-qlac
A Brand New Leader in Term Life QLACS ON DECK FOR RELEASE EARLY 2015 INFRONT
DC environment, how best to implement the options, plan design issues and related matters. Here, too, advisors and brokers will have a role, Shepherd said. For instance, they will assist the plan sponsor with such things as understanding the QLAC, deciding if the option makes sense for plan participants, and if implemented, determining how to integrate it into the plan.
The RMD Kicker
Industry professionals expect that the QLAC’s RMD feature will appeal to clients who are concerned about making the required withdrawals to meet the government’s RMD rules. The RMD is the minimum amount of money that the federal government requires plan participants to withdraw from their plans every year, starting on April 1 of the year after they turn age 70.5. The withdrawals are subject to income taxes. The regulations state that the value of the QLAC can be excluded from the taxpayer’s retirement account balance when calculating the RMD. That creates a smaller base on which to perform the RMD calculations, thus reducing the size of the yearly RMDs and minimizing the income tax exposure. People can’t go hog wild with the RMD-minimizing. That’s because the regulations limit the maximum QLAC premium to $125,000 (subject to cost-of-living adjustments) or 25 percent of the person’s account balance, whichever is less. From the government’s perspective, this ensures that the largest chunk of plan assets is still included in RMD calculations every year. By comparison, participants who already own so-called in-plan longevity annuities must include the annuity amount in RMD calculations every year. (The existing inplan products tend to be guaranteed minimum withdrawal benefits or DIAs.) People who want smaller RMDs and reduced tax exposure do not like that aspect of the older in-plan products, according to industry sources. But whether plan sponsors that currently offer those options will add QLACs to the menu remains to be seen. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.
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December 2014 » InsuranceNewsNet Magazine 11/14 9
10
InsuranceNewsNet Magazine Âť December 2014
T
here is no reason to make a cold call ever again, according to Sam Richter, the author of Take the Cold out of Cold Calling: Web Search Secrets for the Inside Info on Companies, Industries and People. That’s because Google and social media changed how we can gather information before meeting or calling on anyone. So no one would ever need to make a “cold” call. For most advisors, research on the Web starts with Google. But most people don’t know there are hundreds, if not thousands, of shortcuts, tricks and strategies to finding the right information faster and more effectively. And once you have Google figured out, you can then start exploring the “invisible Web,” one that is said to be 10 times larger. But it’s not just what you know, but what you do with it. In this interview with InsuranceNewsNet Publisher Paul Feldman, Sam shows how just a few minutes of online research will not only seal a sale, but keep clients coming back and giving you the kind of referrals that can sustain your business forever. December 2014 » InsuranceNewsNet Magazine
11
INTERVIEW GOOGLE YOUR WAY TO SALES FELDMAN: Cold calling has been around since there were telephones. What does cold calling mean today?
and dial, is not going to work anymore.
ago they could not have cared less about talking to an insurance agent but today FELDMAN: So, it’s more about “warm” they might be really interested. For excalling? ample, they’re the CEO of a small busiRICHTER: Google is the thing that ness and you recently read an article in changed everything. If you were in this RICHTER: Yes, warm calling is finding the business journal where they formed business 16 years ago, before Google, information about the other person and a board of advisors or a board of direcand it was your first day on the job as an then making that introduction – that tors. All of a sudden they might need a agent, you went to your boss and said, could be a phone call, an email or an directors and officers insurance policy. “Hey boss, where do I get my leads?” in-person meeting –in a way that is rel- They just sold their company, now all of What did they hand you? a sudden they’ve got all this The phone book, right? money and they don’t know And they said start at A and what to do with it, so maybe you’re done when you get to an annuity might be a great Z. That’s really cold calling. product for them. In the industry, we all So, trying to find somehave our own mathematical thing that’s relevant to the formulas. Most agents are other person’s world that familiar with the 10-3-1 formakes them interested in mula: make 10 phone calls, talking to you – that’s how Use the Google asterisk trick to locate get three meetings, close one you turn those cold calls into deal. Obviously that’s a provwarm calls. email addresses by entering an asterisk en method, and all of your in front of the @ symbol, followed by the readers have been very sucFELDMAN: When you do all company’s website extension. Put your cessful doing that. But I bethis research and you find search between quote marks for better lieve in how the Internet has a warm prospect, how do really changed over the past you present that informaresults. 16 years – from the Before tion without being creepy? Google, or the B.G. era, to Do you mention personFor example, *@cargill.com will return the A.G., After Google era. al stuff or should you just email addresses from people at Cargill. stick to business? FELDMAN: What are some of the key differences beRICHTER: You can sense Note: Do not “mine” the Web for email tween the Before Google whether the other person addresses. … Google can even block you and After Google eras? is open to a conversation or they want to get right from conducting a search if it sees that RICHTER: Before Google, a down to business. Most of you’re spending too much time searching prospect might have given the time, people are open to for email addresses. an agent the opportunity to conversation, so here’s the meet for two hours. People language I would use so you used to take two-hour lunchdon’t come off as a stalker. It’s es, two-hour breakfasts. quite simple. From Take the Cold out of Cold Calling Prospects were willing to Let’s say I’m meeting with give that amount of time beJoe Smith. I might say, “Hey, cause they didn’t know anyJoe. Before I meet with peothing about the agent. They didn’t know evant to the other person. It’s really just ple I like to do a little bit of homework. I anything about insurance. So they were doing your homework on the front end just want to make sure I’m talking about willing to give two hours out of their day. so your first words are about the other things that I think you might find releAfter Google, nobody takes two-hour person and not about you. That really vant because I know you’re a super busy lunches. Nobody even takes lunch with warms it up. guy.” That’s the first part of it. What that an advisor anymore. One reason is beThe thing that you’re looking for would does is it probably differentiates you from cause our prospects and our clients to- be: How do you know this person? Maybe all the other salespeople he’s ever met: day have what I call buyer’s intelligence. you have a common background. Maybe “Wow, this guy actually took time to do They’re pretty smart about what insur- you went to the same school, but it was in his homework.” You’re showing the other ance policies are out there. They’re pretty different years. person that you care. smart about you and your firm. They’re Maybe you recently read an article There’s that whole thing of nobody willing to give you half an hour. So, the about something that’s going on in the cares how much you know until they old way of cold calling, where you smile other person’s world where three months know how much you care. I think there’s
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INTERVIEW GOOGLE YOUR WAY TO SALES a lot of truth to that. So you show the president, a manager or director at a largAnother source today, of course, is other person you care. You show the oth- er company, one of the things I recom- LinkedIn. There are 320 million people er person that you took some time. mend is that after you run your Google with LinkedIn profiles, and a LinkedIn There’s another magic phrase that I use search results, there’s a little link above profile is basically their resume. So you that is awesome for agents. If you think the search form on the results page called have a person who’s saying, “Hey, look at about the prospect, three weeks ago “News.” What I recommend people do is me. I took the time to create this profile. I when the advisor picked up the phone to click on that and try to find a news article want you to look at me.” set up the meeting with Joe, he was say- about the other person or their company. I recommend on a LinkedIn search to ing, “Yeah, I’ll meet with you.” When Joe Now again, if it’s a larger company you type in the person’s name in quotation saw the advisor’s name on his calendar might get lots of articles. There’s also an- marks. Again, we want to treat it like a this morning, he was thinkproper noun, a single phrase. ing, “Why do I need to meet Then add one word of their with an insurance guy?” company. If I’m looking for So if I go in and start Joe Smith at General Mills, I talking about myself, the talk put in “Joe Smith” and then I that’s going on in Joe’s head add the word “Mills” and see is, basically, “When is this what shows up. guy going to leave?” But if the Most of the time you’re first words out of my mouth going to get right to that are, “Hey, Joe, before I meet person’s profile. Scan the Golfers are passionate about their game. with people I like to do a litprofile. Find out where they If your prospects play golf, you can find tle bit of homework. You’re used to work, because maytheir handicaps at the USGA’s Handicap a busy guy and I’m trying to be you’ve done business make sure we’re talking about with somebody at those Network. things that I think you might companies. Find out where care about.” And then I use they went to school because 1. Go to www.ghin.com. the magic phrase “and guess maybe you have a connecwhat I found?” Every time tion. Oftentimes you can I use that phrase, the other see their friends, so click 2. Click the “Handicap Lookup” tab on person’s head shakes, their on people they’re linked the main navigation. eyes get wide open and they with. Usually about halfwonder, “What did you find?” way down the page on their “I saw that Business Jourprofile page it will show you 3. Choose the Name & State tab. Select nal article last week where their connections and list the state and enter the person’s name to you’re forming a board of how many shared conneclook for handicap index information. directors – a board of advitions you have. sors. I think that’s really neat Click on the shared conand very wise. I’m just curinections link, and then 4. Click the name to lookup score history, ous, can you tell me why you you can a name. “Hey, Joe, where the person plays, etc. decided to set up a board at before I meet with peothis time?” By asking a really ple I like to do a little bit intelligent question, you get of homework, and guess From Take the Cold Out of Cold Calling past that stalking thing and what I found? I clicked on you gain permission to ask your LinkedIn profile and better questions. I saw that we had a shared other link above the search form called connection with Susie Jones. Susie and FELDMAN: Most people use Google as “Search tools.” I recommend people click I have been golfing together for years. their primary research tool for Inter- on that. Then a dropdown menu appears How well do you know her?” “Oh gosh, net searches. What are some valuable and one of the items will say “Any time.” Susie and my wife are best friends.” techniques for people to make the Click on that dropdown menu and it alSo you try to engage them again in that most of Google? lows you to narrow your website results warm conversation. There’s no excuse to or your news results by date so you can not do those five minutes online before RICHTER: Any time you’re searching for find the most recent. every meeting. a proper noun – the name of a person A news article or press release is always or name of a company – make sure you the best thing to find because that’s pub- FELDMAN: That’s a good point that put it in quotation marks and you’ll get lic information and you’re not stalking most business owners or people who way better results. No. 2, if you’re search- somebody. You just took the time to find work in a business will have a LinkedIn ing on a larger company, a CEO, a vice information. profile, and it’s like having your busi-
Golf Handicap
14
InsuranceNewsNet Magazine » December 2014
GOOGLE YOUR WAY TO SALES INTERVIEW ness card and resume online. What about using Facebook? RICHTER: Facebook is good but a little trickier to search. If your name is Joe Befutnik, it’s really easy. But using the Joe Smith example, when you’re searching Facebook, it’s just not a very good search engine. When you type in a name, Facebook wants to give you a result right away. When you start typing someone’s name in Facebook, you’ll actually see a little dropdown menu that automatically appears, and on the bottom of the dropdown menu it says “See more results for” and then it’ll type in the person’s name you’re looking for. Click that “See more results for” link and pull up all the Joe Smiths. Then you can scan them and maybe notice the person’s picture. You can type in a city name – try Joe Smith plus Minneapolis. You’re going to be successful probably about 50 percent of the time. What’s crazy is most people, even though they think they set their Facebook privacy controls, they really don’t. And the more you click on stuff within Facebook, the more you could be resetting your Facebook privacy back to default, and default is usually wide open. Then you can find people’s pictures, the things they like, the restaurants they like, the posts they make and the friends they have. But if you did look at somebody’s Facebook page, you might not want to bring that up. If you say, “Hey, before I met with you I did a little homework. I was looking on your Facebook page, and guess what I found?” For some reason, that’s a little bit spooky.
RICHTER: Yes. I call it the three by five. Spend three minutes trying to find five pieces of information or five minutes trying to find three pieces of information. Ninety percent of the time, that’s all you’ll need and again, just using the tips I discussed earlier, you are going to be just fine for those first few meetings. You can use Google Alerts as well, although it doesn’t track social media. If
client and then set up triggers that will automatically tell you when it’s time for their quarterly review and their annual review. You can track all the calls and that’s good. It certainly helps you to have a more efficient and profitable business, but you’re kind of forgetting the R part and that is the relationship. All too often in sales, we show our clients or our prospects a lot of love during the prospecting stage. We take them to lunch, send them a box of chocolates, tickets to a ball game. Then the second they sign the contract, they never hear from their agent again. They never hear from the advisor again until it’s time for the annual review. And what some agents call an annual review, I call a sales call. You can automate that process and add that information into your CRM system. It doesn’t always have to be business information. One of my clients has a kid who’s the star quarterback for the football team. I set up an alert on the kid, and when the kid throws four touchdown passes to lead his team to the playoffs, I’ll send a note to my client: “Hey, Jim, congratulations. I saw Junior threw four touchdown passes last night to lead the team. You must be so proud. Hope all is well. Just want you to know I’m thinking about you.” And that’s it. Now, don’t do that every three days. But once every five or six weeks, just drop a client a note.
Spend three minutes trying to find five pieces of information or five minutes trying to find three pieces of information. Ninety percent of the time, that’s all you’ll need.
FELDMAN: In doing research, there’s a fine line in sales between being productive and basically wasting time. Do you have a rule of thumb on how much time you should spend researching somebody?
you see something interesting about a client or a prospect, send them a note. FELDMAN: That’s a great way of keeping in touch. Is there a way to automate that?
FELDMAN: In your book, you talk about the four R’s in sales: reading, writing, ’rithmetic and research. Can you tell us a little more about that?
RICHTER: Most agents are going to have a CRM package. CRM stands for customer relationship management and most CRM systems have kind of evolved into a workflow and a process management tool. So you’re going to onboard a
RICHTER: I believe in the A.G. – After Google era – we all somewhat have to become masters of the fourth R, research. Let me give you a quick example of how one might put the fourth R into action.
December 2014 » InsuranceNewsNet Magazine
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INTERVIEW GOOGLE YOUR WAY TO SALES I know that nonprofit organizations RICHTER: Most agents ask for referrals see that you know Joe Smith. How well post their donor lists, annual reports poorly. What do I mean by that? They do you know Joe? Do you think he’d be and member lists online as a PDF file. go to their clients and say, “Hey, do you a good fit for my practice? Do you think Let’s say I’m going to go meet with Joe know somebody who might use my ser- you could make a referral?” Smith. I’ll go into Google and I’ll type vices?” When you say that, you sound reNinety-seven percent of clients would in “Joe Smith” and then maybe his com- ally weak. make that referral if you ask for that repany name; “Joe Smith” plus “Smith You feel uncomfortable, you make your ferral by name. Yet only 2 percent of adConsulting” plus the city Joe lives in, clients feel uncomfortable and you make visors or agents ever bother to ask for a “Minneapolis.” Then I type in the word them come up with a name off the top referral by name. We’re still doing it the “donate” or “donation” in all old-fashioned way – the cold upper case. When you put call way – which makes you “or” between two words in a look weak. It’s uncomfortsearch engine, you’re telling able for both parties and it’s the search engine you want not very successful. one or both of those. So, I like to say to agents, + or AND And then here’s the mag“There’s your marketing for Use + or AND (most engines use +) between words in ic trick: So I type in the the rest of your career.” If all a search. Most search engines assume you mean + words “file type” and I put a you did was find out who when entering multiple words. Plastics + manufacturing colon after them and “.pdf ”. your clients know and ask delivers results where both words appear somewhere Again, most nonprofits for those referrals by name, on the page, but in no particular order. post their annual reports you’re going to be massively and member lists online as successful. And then before OR a a PDF file. So I’m saying you go meet with that prosUse OR to expand your search results. Plastics OR to Google, go find me a PDF pect, do a little bit of homemanufacturing delivers results in which one or both file; inside the PDF file must work so you can connect of the words appear. be the phrase “Joe Smith,” with them. the phrase “Smith ConsultImagine the power of that. - or NOT ing,” the word “MinneapoIf I call you and say, “Hey, I Use - (minus sign) or NOT (most engines use -) to lis” and the word “donate” got your name from Susie remove search results. The - must be touching the or “donation.” Let’s say a Jones. Susie and I have been word you want to remove. Plastics -manufacturing dozen things show up and golfing together. She’s been a delivers results with the word “plastics,” but removes I see that Joe gives a bunch client of mine for years. She all results with the word “manufacturing.” of money to, let’s say, a said I absolutely had to call Jewish charity – Minneapyou.” Or, even better, Susie “Quotation Marks” Use “quotation marks” around a single word or group olis Jewish Day School or sends an email, “Hey, you of words if you want your results to contain those Minneapolis Jewish Famneed to meet with Sam.” And words, exactly as you typed them, in that exact order. ily Children’s Services or a then, “Oh yeah, I’d love to Important if you are looking for a proper noun. synagogue in Minneapolis. meet with you. That would Now how do you transbe awesome.” “Plastics manufacturing” delivers results with only the late that into knowledge? I Then we set up a coffee. exact phrase “plastics manufacturing,” in that exact would say there’s a pretty I do my homework beforeorder. “Bank” delivers that exact word and turns off good chance that Joe might hand. I know a little bit search suggestions, e.g., “banking.” be Jewish. How do you act about you: where you went on that knowledge? Well, if to school, your work histoI’m meeting with Joe on Dec. ry, awards you’ve won. Now 21, I probably don’t say, “Merry Christ- of their head. Instead, go into LinkedIn you’ve become a client. I’ve set you up mas.” Maybe I walk into Joe’s office and and Facebook and see who your clients on alerts. Every couple of months, I say, “Hey, Happy Hanukkah.” already know. You can see what boards send you an article that has nothing to It’s the accumulation of little things they serve on, which charity functions do with me but everything to do with that can be the difference between win- they attend, and then you can go ask your you. Think of how awesomely successning an account and not winning an ac- client for referrals by name. ful I’m going to be if I run my business count, because people do business with A study by Advisor Impact showed that way. people that they like. what percentage of financial service clients would refer if the agent or advisor Find out more about how you can FELDMAN: You talk a lot about refer- asked for that referral by name. So in- ditch cold calling for good at Sam’s rals. Can you explain how most people stead of saying, “Hey, do you know some- website: www.samrichter.com. get referrals wrong and how to go body who could use my services” you can about getting them the right way? say, “I’ve done a little homework and I 16
InsuranceNewsNet Magazine » December 2014
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NEWSWIRES
Turning Advisors Into Financial Quarterbacks bitly.com/qrqb
What a GOP Senate Means to the Industry
QUOTABLE
Sen. Richard Shelby
November’s midterm elections brought what many commentators called “a Republican wave” that slammed its way to winning control of both the U.S. Senate and House of Representatives. But what does that wave – particularly the GOP control of the Senate – mean to the insurance industry? Rep. Jeb The primary implications of the midterm elections Hensarling for the insurance industry are the likely selection of Sen. Richard Shelby as the chairman of the Senate Banking Committee in the next Congress and the enactment of the industry’s three legislative priorities, probably by year’s end. Besides tweaking the Consumer Financial Protection Board (CFPB), Republicancontrolled financial panels are expected to seek a greater voice for the states in insurance regulation and a reduced authority of the Federal Reserve to oversee insurance companies. Along with Shelby, R-Ala., in the Senate, analysts project Rep. Jeb Hensarling, R-Texas, will be chairman of the House Financial Services Committee. They will also likely propose greater “transparency” in the systemically important financial institution (SIFI) designation process, making it tougher for the Federal Stability Oversight Council to designate more systemically important financial institutions. Another step is the likely passage this month of the Senate version of legislation extending the Terrorism Risk Insurance Act (TRIA).
AMERICA’S MIDDLE CLASS LACKING OPTIMISM
Middle-class Americans don’t seem to find much to be happy about these days. More than half of Americans surveyed in a Harris poll identified themselves as being lower middle class or working class with low economic security. And 75 percent said they’re being held back financially by roadblocks such as the cost of housing (24 percent), health care (21 percent) and credit card debt (20 percent). But wait, it gets worse! “The most disappointing aspect is that 45 percent think they’ll never get their finances back to where they were before the financial crisis,” said Ken Rees, chief executive officer of the Elevate credit service company, which commissioned the survey. “And a third are losing sleep over it.” Forty-four percent of respondents to the Elevate survey reported having less DID YOU
KNOW
?
18
51%
than $2,000 in savings and 21 percent had none at all. Adding to the pessimism is that 71 percent said they were also carrying debt: 53 percent said the total was $10,000 or more and 32 percent had more than $20,000.
STATES LURE RETIREES BY LOWERING ESTATE TAXES
Many states boast of their low cost of living. Now some states are trying to attract retirees by offering them a low cost of dying. In 2015 four states will increase the amount of assets that are exempt from estate taxes. They are Tennessee, Maryland, Minnesota and New York. Some states are taking this even further after 2015. Tennessee will have no estate tax in 2016. Maryland and New York will increase their threshold every year until 2019, when they will match the current federal exemption of $5.34 million. Minnesota’s exemption will rise by $200,000 each year until it reaches $2 million in 2018.
of Americans who used the ACA health exchanges during the last enrollment period DO NOT PLAN ON RETURNING TO THE EXCHANGE during the new enrollment season.
InsuranceNewsNet Magazine » December 2014
Source: Bankrate
AIG settled because it is horribly expensive to litigate and AIG is in the business of providing insurance, not litigating. — Robert Shapiro, Washington attorney, on AIG’s settlement with the New York Department of Financial Services to settle allegations that subsidiaries domiciled in Delaware solicited insurance business in New York without a license
Taxes are among the financial factors influencing a retiree’s decision to move to another state. Lawmakers in states with estate and inheritance taxes are concerned that many retirees may decide to vote with their feet and flee to a more tax-friendly state.
FED ENDING BOND BUYING
The Federal Reserve has ended its six-year campaign to revive the American economy by purchasing trillions of dollars of bonds. The Fed said the economy no longer needs the help. This move marks the third time since 2008 that the Fed has said it was cutting back on the bond-buying, and this time it appears that they really mean it. Analysts say this announcement is more proof that the U.S. economy is slowly working its way out of the Great Recession. The Fed still plans to keep short-term interest rates near zero for a “considerable time,” it said in a statement after a twoday meeting of its policymaking committee. And it said it would replace maturing bonds to keep its holdings at about $4.5 trillion. The bond-buying campaign has helped fuel one of the longest bull markets in American history.
HERE COMES CHIP AND PIN
Just in time for the holiday shopping season, consumers can expect to see the first high-tech chip credit cards in their mailboxes soon. CNBC reported that U.S. credit card issuers, burned by a series of data breaches at major retailers such as Home Depot, have stepped up their timetable for issuing cards with what is known as “chip
[NEWSWIRES] and PIN” technology. Such technology is widespread in Europe, where cards require a unique user code instead of a simple swipe. The word is that card issuers in this country would begin introducing chip and PIN gradually but, according to CNBC, decided they could no longer wait. Replacing the more than 1 billion swipe cards in use in the U.S. will be a major task. Chase, the nation’s largest credit card issuer, first focused on replacing cards such as the British Airways Visa or Ritz Carlton Rewards card, for customers who frequently travel internationally. Then the nation’s No. 3 card issuer, Bank of America, stepped up the replacement game by announcing earlier this month that it would begin replacing all expired and lost cards with new chip-enabled cards.
SENIOR INCOMES IN 49 STATES AREN’T ENOUGH
Senior citizens in Nevada and the District of Columbia have set aside the magic figure of 70 percent of their preretirement income for their nonworking years. Seniors in the other 49 states haven’t done so well, according to a study by Interest.com. Massachusetts’ seniors face the largest income gap for the second year in a row; they bring in just under half as much money as Massachusetts residents between 45 and 64 years old. Massachusetts and North Dakota were the lowest-ranking when it came to the percentage of income available to seniors for their retirement years. Interest.com divided the median annual household income for those who are 65 and older by the median annual household income for those between 45 and 64 years old. Washington, D.C. (74 percent) and Nevada (71 percent) were the only places to exceed the coveted 70 percent threshold.
CALIFORNIA VOTERS SAY NO TO PROPOSITION 45
California voters soundly rejected a ballot proposition that would have halted excessive health care insurance rates. Proposition 45 would have One of the ads from the given the state insurance com“Vote No on 45” campaign missioner the power to reject health insurance rate hikes for about 6 million Californians who buy their own policies or who work for small businesses. “Prop. 45 was an ill-conceived measure
Oops! That Hospital Bill Isn’t Covered Some large employers have offered their workers coverage that does not cover inpatient hospitalization. And, under a loophole in the Affordable Care Act (ACA), that coverage was permissible. Now the Centers for Medicare and Medicaid Services announced it would take steps to close that loophole. USA Today reported that to meet the ACA’s “minimum value” test, health plans for individuals and those working for smaller employers must include coverage with at least 10 categories of “essential health benefits” that include maternity care, prescription drugs and hospitalization. The health care law is much more stringent about what health insurance must cover for these people than it is for those working at large employers. Plans that cap the number of hospital visits or offer no hospital coverage were believed to pass the ACA’s minimum value test if other coverage for doctors and prescription drugs was generous enough. But CMS is proposing that employers have to offer at least one plan that meets the minimum value test. These plans were expected to appeal mostly to low-income workers because of lower premiums, but experts warned that the plans could leave them without important coverage when they need it most. The proposed amendments to ACA regulations would take effect in 2015, meaning some employees could still be offered these plans. But the CMS guidance says these employees could still go to the federal or state exchanges and buy plans with subsidies as the plans don’t meet the minimum value. that would have been a step backwards against the progress made by the Affordable Care Act and our state’s health exchange, by giving a politician power over health care decisions that should have involved doctors and their patients,” Dr. John Maa of the San Francisco Medical Society said in a statement. Initial independent polling in June showed voters favored both measures by wide margins, before an onslaught of ads airing in late summer and into the fall urging “no” votes flooded California television and radio airwaves. Health insurance companies, doctors and industry groups raised more than $100 million to defeat the measure.
AMERICANS KNOW THEY SHOULD PLAN, BUT DON’T
Americans know there are a lot of things they should do for their own good – diet, DID YOU
KNOW
?
wear their seat belts and put aside savings are a few that come to mind – and yet they don’t do them. Add planning for long-term care (LTC) to that list. Northwestern Mutual’s 2014 LongTerm Care Study shows that 75 percent of Americans agree that the need for LTC planning is greater than ever as people have longer life expectancies. One in three surveyed said they either provide LTC to a loved one or expect to do so in the future. However, only a fraction of those surveyed said they have done anything to address their own need for care. Fewer than a third have Fewer than addressed the need for LTC within their own retirement plans, while just slightly more than a third claim to have of Americans discussed their own prefer- surveyed have ences for long-term care with not addressed LTC friends and family.
Older Americans who are victims of elder abuse experience an
AVERAGE FINANCIAL LOSS OF
Source: Allianz Life
1/3
$3,000
December 2014 » InsuranceNewsNet Magazine
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Predictive Prospecting How Big Data Analytics Could Be the Holy Grail of Marketing BY LINDA KO CO
What, the Grail? Spanish researchers Margarita Torres and Jose Ortega del Rio believe they have found the goblet from which Jesus supposedly sipped during the Last Supper.
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InsuranceNewsNet Magazine Âť December 2014
AFP/Getty Images
A
rizona advisor Linda Patent rented a large seminar room, secured catering from a popular local restaurant and invited a lot of people to come and learn about the topics she had advertised. That event went very well last year, she recalled happily – so well that she did another and another and another, eight events in all. But as time went on, she noticed fewer people were attending. It reached the point that by June, just 20 people, representing only 14 households, showed up. That got Patent to thinking it might be time to find other ways of reaching new prospects. “Could predictive analytics help?” she wondered. She got her answer, but more on her later. Other producers are starting to ask the same question. Predictive analytics, also called “big data,” refers to the crunching of massive amounts of consumer information gleaned from company and public records, data merchants, and other sources. Mining the data reveals meaningful insights on customer preferences, habits, behavior and other details, which corporations and organizations use for a multitude of business purposes including marketing to likely-to-buy customers. Some life and annuity carriers have adopted predictive analytics, and now insurance producers are wondering if they too can use it – to help with prospecting, marketing and lead generation, for example. They’ve been chatting about it at meetings and calling around for information. The straight-up answer is “Yes, producers can use big data.” In fact, a few already are experimenting with it. Distributors, such as independent marketing organizations (IMOs) and brokerage general agents (BGAs), are perhaps on the leading edge. It’s part of their ongoing search for strategies they can use to help their independent agent clients increase sales. Some carriers are exploring field applications of analytics, too.
The Power of Analytics
Advisor interest in analytics often springs from stories advisors hear about its power. Some still recall the media stories from a few years back about an analytics team
PREDICTIVE PROSPECTING FEATURE that had reportedly detected the pregnancy of an unidentified teenage girl, even before the girl’s father knew about it. Whether they believed it or not, several agents said they were enthralled by the potential. Carriers have predictive analytics ventures, too. For instance, Principal Financial Group reduced the time it takes for underwriting retail variable and universal life products from weeks to 48 hours with the help of predictive analytics, according to a study by The Economist Intelligence Unit and sponsored by SAP. Unum uses predictive analytics to identify potential claims fraud, according to a Social Security Administration report. Other carriers are using it to spot likely-to-buy custom-
ers, reduce underwriting time and identify emerging target markets. Then there are the big data companies. In the past few years, they’ve been making the insurance rounds, loaded with – what else? – data that quantify the power of big data to enhance business activities. Producers say they know that the insurance divisions at these firms sell predictive analytics services to carriers, but some wonder if they have packages for insurance agencies, too. Even producers who voice skepticism about the whole field of analytics say they want to learn more. No wonder. There’s a “big data flood” out there, according to Advisor 2020, a book that probes what’s ahead for insur-
Carriers, Agents And Analytics: How Will Their Paths Cross? Some life insurance companies are using predictive analytics to get a deeper look at agency performance. Carriers have always monitored agency sales, quotas and other performance measures. But now, with the help of big data, some are gaining more clarity. To what end? To help grow the agency’s book of business. Some carriers are using analytics to help identify cross-sell opportunities and “weed out leads where there is less confidence of likelihood to buy,” said Eric Sondergeld, corporate vice president of strategic initiatives for LIMRA. “They are trying to figure out which clients the agent should go to first, for maximum benefit to the agent.” To examine the quality of business written. Some life insurers apply various models to the data they obtain on quality to “identify and score the better agents,” wrote Gen Re analytics actuary Louis Rossouw in a study of big data in life insurance. This scoring might include areas such as early lapses, policynot-taken rates, effective disclosure, mortality experience and morbidity experience, for example. Some carriers use the scores to manage agents and to “provide incentives to improve behavior,” Rossouw said. To provide agents with greater insight into effective sales processes. This is on the drawing boards, insiders say privately. Right now, carriers have their hands full with learning how to work with big data analytics and applying it to company operations. Analytics support to the field will come later. – Linda Koco
December 2014 » InsuranceNewsNet Magazine
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FEATURE PREDICTIVE PROSPECTING ance and financial advisors. Published earlier this year, the book is the work of the GAMA Foundation for Education and Research, with the sponsorship of the National Association of Insurance and Financial Advisors (NAIFA). “Every year, there is a 40 percent growth in global data generation,” the GAMA researchers point out. Companies with more than 1,000 employees store 235 terabytes of data on average, much of it generated by consumers on various devices. “Consumers on Facebook alone generate more than 30 billion pieces of content every month.” It’s that swelling of data that advisors find hard to ignore. That’s data on family status, purchase habits, business development plans, health matters, employment, hobbies, credit history, interests, travel and more. If they could only get their hands on some of it, said several producers contacted for this article, this could open up opportunities for uncovering more suitable prospects as well as better addressing customer needs.
Every year, there is a 40 percent growth in global data generation. That’s data on family status, purchase habits, business development plans, health matters, employment, hobbies, credit history, interests, travel and more. Chal Daniels, a financial advisor from Napa, Calif., expressed a common advisor response to the idea when he said, “It would help me be more effective, for example, by cutting back on my diagnosis time, which is time spent on finding likely candidates for certain products.”
It’s on the Way
Certain types of data may be closer to advisor fingertips than they realize. As this article was being written, IBM announced that it will make its cloud-based
Watson Analytics service available for small business use. Watson will provide instant access to predictive and visual analytic tools for businesses. “Our intention is to make the base level accessible to everyone at no charge, forever,” IBM spokeswoman Faye Abloeser said in an email. “With that, professionals can upload data and perform basic analysis and get a sense of the tool.” Does this mean that life insurance and annuity agents could use Watson Analytics? “Absolutely, this is something SMBs
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InsuranceNewsNet Magazine » December 2014
PREDICTIVE PROSPECTING FEATURE [small and midsize businesses] can use,” Abloeser said. They can use the free version or a paid version that allows them to work with “larger, more complex data sets from a wider array of sources.” Because this will be a broad-based service, it’s possible that the “free” version of Watson may not be tailored enough for insurance producer purposes. But the mere fact that Watson will soon be available signals that analytics for small firms like insurance practices is no pipe dream.
What About Now?
Some IMOs and BGAs are already moving into analytics services for agents. These initiatives are not on the massive scale used by large corporations, but they are data-rich. Take Shane Westhoelter, for example. He is chief executive officer of Gateway Insurance Solutions, an IMO in Walnut Creek, Calif. He began looking into analytics via another of his businesses, which sells real estate investment trusts (REITs).
Before recommending a REIT to clients, he said, he obtains studies from the REIT that provide insight into the properties owned by the REIT. Those studies include demographic detail on the areas where the properties are located. Westhoelter said he discovered that the data in those studies could be useful for other business purposes, such as insurance marketing. For example, an agent might consider looking for REITs serving the retirement market, he suggested. Westhoelter uses analytics in lead generation for agents, too. He said his firm “scours” social media sources like Facebook and LinkedIn. “We identify a target market and send out feelers to people we find there to see if they have an interest. If they say yes, we get their permission to follow up, and then we send the leads to brokers who pay for them.” That “scouring” process begins with the IMO purchasing advertising space on Facebook and LinkedIn. “The sites give us
permission to mine out the site down to the ZIP code and street address,” he said. An example is to identify employees at a big company within a 100-mile radius. On Facebook, the filters might be Social Security, Alzheimer’s disease or dementia, he said. “Or, we could screen for people who participated in the ice bucket challenge – people who are interested in philanthropy, helping charity and believe in a cause,” he said. “Then we look at the results to decide whether to offer an educational workshop on the topic.” Once the system generates a list, “you can use social media to invite the people to an event to discuss investment options on, say, 401(k) plans or some other topic,” Westhoelter said. “If they respond, indicating they want more information, then the contact shifts to traditional marketing.” He said his firm provides this service to agents who are looking for new prospects in an area. It has been doing this for five
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FEATURE PREDICTIVE PROSPECTING years. The producers do pay for the leads. As with any lead-generating service, “it’s up to the talent of the agent to turn the leads into paying customers,” he added. Westhoelter’s word to the wise: “Firms that use analytics need to take care not to abuse the data, because they have a lot of personal information.”
Probability Scores
For Jeremy Rettich, analytics is about probability of buying. The president of Virtue Advisors, a Nashville IMO, he has partnered with a data analytics firm to identify those probabilities. He calls the resulting system “psychographic marketing,” which is now a service that his firm offers to agents. The service identifies “buying clusters” by lifestyle, values, attitudes, interests and other personal characteristics, which are combined with basic demographics (age, income, marital status, etc.), Rettich said. This generates a “probability” score,
which highlights the likelihood that particular households or individuals will do business with the agent during the coming year. Agents obtaining this information then focus on reaching out to those households rather than to everyone in a ZIP code having the typical demographic characteristics, he said. Rettich’s word to the wise: With analytics, “you are not mailing advertising to people who aren’t interested. You are sending out fewer mailers … and the proportionate response rate is higher, too.”
Ask the Right Questions
Andrew A. Falvey, the principal at CT Brokerage Systems in Cheshire, Conn., knows a thing or two about analytics. In addition to being a consultant and a life-licensed agent at Beachport Insurance, Falvey also has IT management experience. In his view, analytics results “will only be as good as the questions you ask,”
which are the queries made in the software. For example, it’s not just about finding ZIP codes with a lot of people, he said. “Look at the deeper layers, such as the characteristics of people in the ZIP codes, in the neighborhoods, and so on.” What you are seeking is knowledge, he said. “It starts with collecting data. That leads to information, and that leads to knowledge if you ask the right questions.” (See table below.) Gaining knowledge is key, he said, because it “helps agents answer critical questions like: ‘Do I continue marketing to that group or not?’” That’s a question carriers ask, he allowed, but “agents need to know, too.” To get the best answers, agents will want to get the largest volume of data and information possible to create the knowledge, Falvey said. The more they have, the better the ability to predict an outcome. It’s like looking at a street map with no information about current traffic or construction versus a map with both, he ex-
Analytics Overview: Three Layers Level
Meaning
Examples
Data
The fields in an application
• Male • Age 45 • Life policy • $100,000 face amount
Information
The result of putting the data together and looking at it
• Number of policies on the books of a local agency. • How long it took to get those policies. • The persistency of the policies.
Knowledge
Created by the answers obtained from asking questions about the information
• How big is the market for males age 45? • How many are in my marketing sphere?
Source: Andrew A. Falvey, CT Brokerage Systems, Cheshire, Connecticut. 24
InsuranceNewsNet Magazine » December 2014
A DV ERTI S EM ENT
PREDICTIVE PROSPECTING FEATURE
Bill Levinson, THE INDUSTRY’S TOP INNOVATOR Shares his MANTRA for Success:
PLUG IN.
I
FOCUS.
ADVANCE.
n this third conversation with Bill Levinson, he discusses striking changes in the industry and offers a profound mental approach to not only thrive, but achieve.
Q: How did you get started in the life insurance business? A: My father, Cary, used to wrap my birthday presents with life insurance applications, so at parties the other parents would ask about it, and it would spark great conversations. I grew up around it, but I never wanted to get involved. It was my father’s business, and I wanted to create my own path, you know? Then, when I was 23 years old, and I was a sales manager at a motorcycle dealership, a customer of mine became a mentor. He was in his 50s, a billionaire, and he would come in and take me to lunch. One day, he put his arm around me and said, “Bill, you’re wasting your time here. You need to go work for your father.” Something clicked, and that was my last day at the dealership. Q: What changes have you seen since you started in the business? A: The biggest change is in the technology, which I saw coming years and years ago, and I started building new platforms and tools very early on. Because of this, a lot of the carriers and third party vendors came to us for advice and to lead pilot programs. Q: What have you been able to accomplish with this head start? A: We’ve been able to keep our agents ahead of their competition. With our complimentary, turn-key I-Genius platform, they have all the tools, training and technology they could ever ask for, including websites, quote engines, social media packages, lead capture tools, leads and “sell in your sleep” exclusive products to sell on their own website and social media. Q: What other changes have you seen, and how are you helping agents adapt? A: There are fewer captive agents and more independents. Younger agents are getting into the business, and after 2008, and now with ACA, a lot of real estate agents, stock brokers and health agents are moving into the life insurance space. Our job is to make it as easy as possible for our agents to be as successful as possible, which is why we have a library of training materials, proprietary “sell in your sleep” products like Lightning Term, and compelling differentiators like free college scholarships. Q: We’ve talked before, and you’ve mentioned that you meditate. Is there a certain mindset or mantra you recommend for anyone in the industry today? A: I’d say “mantra” is precisely the right word, and my mantra is simple: Plug in. Focus. Advance. Plug in means get yourself online, get yourself a good CRM system and tools, everything you can to keep up with the latest technology, and that involves a certain mindset – you have to be accepting of change and open to new ideas. We have one agent who’s in his 70s and has been very successful. He walked in our office about six months ago. He had this huge book of business of older clients, and they were starting to refer their children who were asking if he had a Facebook page or where they could go online to learn more. At the time, he barely
Bill L. Levinson
has been integral in many tech-related pilot programs and carrier technology committees. He’s responsible for launching the exclusive I-Genius sales platform and has been featured in many national press releases.
knew what an email was. Today, he’s got his own website, he’s got his own Facebook page, he drips on his own client database with emails once a month. He has his own newsletter. He was open to it, and we helped him with everything, so he was able to make the switch very easily. Q: What about focus? That one sounds obvious, but what advice do you have for an agent to stay focused and get the lifestyle he or she really wants? A: What I would suggest is finding a mentor, someone who is successful, in that place where you want to be. It doesn’t have to be a billionaire – actually my mom has been as big an inspiration as anyone in my life. Meet with them whenever time permits. Or find a motivational speaker whom you can relate to and look up to. Whatever that person or that program is, it’s important to keep it in front of you, have a reminder. For me, I have a dream board that’s in my cabinet behind me. I also think it’s very important, and you don’t have to be a gym buff, but if it’s walking a few miles, if it’s doing yoga, just do something to keep you balanced, mentally and physically. Come up with your own system, but if you constantly stay on that right track and focus, you’ll get to where you want to be. Q: What ever happened to your mentor, the one who told you to get into the business? A: We still talk on a regular basis, but these days we just talk about our personal lives, or where different industries are heading, investments, stuff like that. Q: So, you’re peers now. A: Yeah, exactly. That’s exactly right. And it’s the third part of my mantra: advance. That’s the great part about it, by the way. Plug in, focus, advance – if you do the first two, really do them right, the third will just happen. You will advance into the lifestyle of your dreams.
Are you ready to advance? Levinson & Associates can get you the technology and mentorship you need to move forward in 2015. Visit www.PlugInFocusAdvance.com. December 2014 » InsuranceNewsNet Magazine
25
FEATURE PREDICTIVE PROSPECTING
The industry is changing tremendously,
so agents need ideas on how the market is shifting and how to address those shifts. plained. The first map provides information, but the second provides knowledge that helps the driver find a better route. The problem for agents is that they typically can’t obtain large volumes of data on their own, Falvey said. They need to get it from technology companies that do data analytics or acquire it from large organizations that provide access and have the expertise to sift through the data. “The firms they use must have knowledge of the business … and they must be able to leverage the information so it’s tailored to the producer’s needs, such as for targeted leads,” he cautioned. Falvey’s word to the wise: “Does predictive analytics cost? Yes. Is it expensive? I don’t know, because what you are looking for is perceived value, and that’s an open question at the moment.”
Use It for Marketing
Mike Ford, president of PFG Marketing Group, an IMO in Phoenix, said it comes down to agents wanting to get in front of more people. To do that, they need help with marketing. He said his firm does analytics “as much as we can.” It does this to target agents who are the most likely to need and want his firm’s services. To get the analytics, the IMO rents a national database from a third-party vendor. As for agents using analytics, Ford pointed out that “the industry is changing tremendously, so agents need ideas on how the market is shifting and how to address those shifts.” In fact, agents need training programs on the use of analytics, he said, adding, “It’s critical for them.” IMOs need training, too, “so we 26
can provide meaningful information to our agents.” Ford’s word to the wise: “We would look for guidance from the carriers and regulatory bodies in analytics matters that have to do with privacy, suitability, accuracy of data, and so on.”
An Agent’s Experience
It’s not just IMOs who are dabbling in predictive analytics. Agents are, too. Take Ryan J. Pinney, for example. The vice president of brokerage sales for Pinney Insurance Center in Roseville, Calif., said predictive analytics is one part of a three-pronged system he uses to reach customers. It starts with “demographic modeling,” or building an ideal client list or ideal group list based on known population characteristics such as age, income, occupation, gender, etc. (Data sources include public records and credit bureaus.) “Target marketing” comes next. He narrows the list to a manageable size and then uses social media, such as LinkedIn or Facebook, to advertise only to specific names. “On LinkedIn, for instance, you can target the CEO of every Fortune 500 company with, say, an ad about employee benefit plans,” Pinney said. “Predictive analytics” is the third segment. Using an existing marketing list, he sends out general communication like e-newsletters. Then, he watches to see what items people click, and he scores the clicks as he goes. He then sends specific people ads based on their clicks – for instance, an ad on life insurance or retirement planning if they click on a related item. “Most agents already do some of this, in
InsuranceNewsNet Magazine » December 2014
some fashion,” Pinney said. “For instance, they send out e-newsletters. But many don’t do it consistently, or they don’t track the clicks.” As a result, they don’t get accurate results, spot anomalies or get a sense of who is likely to buy. “That’s when it becomes predictive analytics,” he said. Pinney’s word to the wise: “Demographic modeling, target marketing and predictive analytics all go together. If agents have 400 to 500 clients and if they do these three things, they will never have to add another client.”
What About the Holdbacks?
Linda Patent, the advisor who launched her own investigation into using an analytics service, decided not to do it right now. This wasn’t for lack of interest. It was a cost/benefit decision. An investment advisor representative who is principal of L.R. Patent Financial Services in Prescott, Ariz., Patent said that what caught her eye is the possibility that she could use predictive analytics to figure out where to concentrate her marketing efforts more precisely (as opposed to, say, mailing to an entire ZIP code). “It’s the gathering of the data by marketing criteria that interests me,” she said, noting that it’s discouraging to get general lists of people who are said to have $250,000 of investable assets but who turn out to have only $100,000. Her thought was, if the analytics help increase response rates as well as accuracy of information, that would make her marketing investments more affordable in the long run. After looking at the cost of the service she was considering, however, Patent felt uncertain about the kind of return she would realize. “I don’t have data to prove predictive analytics methodology would increase my response ratios, sales and revenues,” she said. She still wants to try analytics, but she is hoping that the insurance companies will start to make analytics services available to their top advisors. That would be her foot in the door. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@ innfeedback.com.
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FEATURE PREDICTIVE PROSPECTING
Agents Just Getting Going on Analytics Photo: Valparaiso University
A
dvisor use of predictive analytics is in its infancy. Here are some of the hurdles and perceptions that need to be addressed for it to become more mainstream. Lack of trust. Many sales reps simply don’t want to get into analytics, McKinsey researchers Matt Ariker and Nimal Manuel wrote in a recent blog post. Often, this is due to emotional resistance stemming from lack of trust, they said. That’s not rational, they said, noting that “recommendations based on advanced analytics can make a huge difference – if sales reps and customer service agents use them.” One solution the consultants recommend is for companies to turn their top performers into allies and advocates. “Top sales performers often have major influence within organizations,” they said. Lack of knowledge. Many producers contacted for this article said they don’t know what predictive analytics is. Once they learn about how it might help them grow their business, though, they get interested. To help with understanding, Eric Sondergeld, corporate vice president of strategic initiatives for LIMRA, avoids focusing on the predictive aspect, Analytics doesn’t have to predict something in order to be valuable, he said. Instead, he talks about “analyzing data in new and innovative ways to get better results and make good business decisions.” Dave Edington, senior vice president of insurance for Epsilon, a Dallas-based technology firm, pointed out that “big data in and of itself has little value. It’s big data analytics that is key. That unlocks value from the data.” Lack of awareness. Some producers know the term “predictive analytics,” but they are unaware that it will affect their business soon, if not already. This is bound to change. A KPMG survey last year found that 33 percent of 101 insurance executives listed data and analytics as their highest-priority investment 28
As analytics improve, “the costs will come down,” Sondergeld predicted, pointing to the way costs dropped for computers, handheld calculators and digital cameras.
area over the next two years, trailing only IT infrastructure. A Bedford, Massachusetts, software provider, FirstBest Systems, found that insurance executives believe predictive analytics helps improve underwriting profitability (56 percent), make better risk decisions (49 percent) and improve underwriting quality (35 percent). Celina Insurance Group, a property-casualty carrier selling through independent agents, invested in analytics after determining that it was a “question of survival,” wrote Nicolas Michellod, a senior analyst in Celina’s insurance practice. It’s too expensive. Producers aren’t the only ones who worry about cost. Companies dwell on it, too. For example, 85 percent of the mega-carriers that FirstBest studied planned to spend more than $1 million in 2014 on data analytics initiatives, and most have spent more than $5 million. The smaller firms naturally expected to spend less, with 64 percent of small carriers targeting zero to $100,000 for the year. Some IMOs said privately that they spend up to $20,000 a year on certain analytics-related initiatives, although others spend much less.
InsuranceNewsNet Magazine » December 2014
It’s an unknown and therefore risky. If an analytics venture backfires and doesn’t perform as expected, the approach could develop a reputation of not being worthwhile, Sondergeld observed. Among agents, it will be important to prepare them properly on what to expect and how to handle problems that may crop up, he said. Complicating matters is that “many organizations are still in the earlier stages of analytic maturity,” Edington said, pointing to challenges in data quality, integrity, consistency, access to data and analytical staffing shortages. “Many organizations have a lot of work to do before they will be exploiting the value of big data.” Concerns about privacy. Agents have noticed the public outcry about highly publicized data breaches at household names like Target and Home Depot. They don’t want that to happen if they use analytics. Then again, the breaches usually involve retail businesses where the customer uses a check or credit card to buy, Sondergeld said. “Insurance is not retail in that sense – yet.” Even so, he and several other sources interviewed for this article said that as predictive analytics use grows, carriers and producers will need to ensure they “treat the data appropriately, especially if it is attached to personally identifiable information.” “My advice to agents and advisors is to be patient,” Sondergeld said. “This is a very new thing. Companies are jumping in now. There are pilot programs, and they will build over time. … The carriers will talk to their agencies after a while.” Meanwhile, try working upstream with intermediaries or manufacturers, he suggested. “Ask them, what are you doing with the analytics and how can it benefit me?” Soon enough, companies will probably make analytics available to agents, possibly those who sell a certain volume of business, Sondergeld said. They will do this even though some agents might submit business through another company. But most agents will give more business to carriers that help them, he added. The carriers know that the agents will reciprocate. “It’s human nature.” – Linda Koco
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Reaching Gen Y … in Politics and Insurance
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The way in which Generation Y became involved in politics is the same way they get motivated to buy life insurance, according to the campaign strategist for President Barack Obama’s 2008 and 2012 presidential campaigns. Friends and family were the most influential in motivating Gen Y voters to get involved with the campaign, David Plouffe told attendees at the 2014 LIMRA Annual Conference. Likewise, LIMRA research shows six in 10 Gen Y consumers are motivated to work with a financial agent or advisors recommended by their parents. Plouffe said every decision the campaign made flowed through their predictive modeling before they would speak with potential voters. Several insurance companies are using technology to understand their best clients and to better identify prospects. LIMRA research shows that people still want the human element. Almost half (48 percent) of Gen Y prefer to buy face-to-face and they want saving strategies. Plouffe also said in order to reach the under-40 crowd, and especially the under-30 crowd, think mobile first, with a video or a visual. But success is more than data; it’s about qualitative listening. He noted that the best insights would often come from one person who would talk about their concerns in a way that advertising cannot.
CARRIERS PAY OUT RECORD DIVIDENDS
Year-end is the time for dividends, and two carriers are paying them out at record levels. MassMutual’s board of directors approved an estimated dividend payout of $1.6 billion for 2015, marking the third consecutive year the company has paid a record dividend. This is an increase of $92 million – or 6.2 percent – over 2014 and marks the 17th consecutive year that the dividend exceeds $1 billion. Northwestern Mutual’s policyowners will receive an estimated $5.5 billion dividend payout in 2015. It will be a record payout for the carrier and is expected to exceed its estimated 2014 payout by $300 million.
METLIFE TO FORMALLY DISPUTE ‘SIFI’ LABEL BY REGULATORS
MetLife believes federal regulators were DID YOU
KNOW
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wrong to designate the company for a new type of supervision meant for giant firms. The company said in a securities filing it was requesting a hearing before the Financial Stability Oversight Council (FSOC) to contest its decision to preliminarily designate MetLife as a “systemically important financial institution” (SIFI). Under the Dodd-Frank Act, bank holding companies with more than $50 billion in assets and any FSOC-designated nonbank firms are eligible for special Federal Reserve Board supervision meant to limit the impact of financial behemoths on the economy. If FSOC makes the designation final, which is expected, MetLife would become the fourth nonbank firm to get the SIFI label. But its decision to seek a “written and oral evidentiary hearing” delays the process at least. Besides MetLife, Prudential was the only other firm to have formally protested receiving the SIFI label. The council issued a final designation for Prudential in September 2013.
Erie Insurance is expanding into Kentucky, the carrier’s first geographic expansion in more than 10 years. Source: Erie Insurance
InsuranceNewsNet Magazine » December 2014
As people approach retirement, it dawns on many that their employer-sponsored group life insurance coverage will vanish. — James Mallon, president, life insurance, AIG Global Consumer Insurance.
CASEY KASEM’S INSURER FILES LAWSUIT
He was a legendary radio personality who also became known as the target of a massive legal fight between his second wife and his children. Now Casey Kasem’s insurance company, MetLife, has jumped into the legal fray over who should receive the proceeds of his $2 million policy. MetLife is asking the court to decide who is legally entitled to Kasem’s estate and that insurance benefit. Kasem died of Parkinson’s disease on June 15, but in his final months, his wife and the children from his first marriage were at odds over his medical treatment. Both Jean Kasem, the widow, and Kasem’s three children have said that they are entitled to the life insurance policy’s payout, and MetLife wants to protect itself against making the wrong decision. It doesn’t want to end up having to make such a large payment twice. Therefore, the life insurance company is allowing a judge to choose the beneficiary of the money. The children had hired a lawyer who sent MetLife a letter that accused Jean Kasem of having neglected the radio celebrity to the point that she was essentially responsible for killing him. It added that someone responsible for the death of the insurance policyholder is not entitled to inherit the benefits of that coverage.
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*Policy Guarantee ‘True-Up’ U.S. Patent 7,376,609 B2 Age is based on that of the youngest insured. For guaranteed rates and values please refer to a Basic Illustration. Competitors’ premiums were determined using their respective illustration software on October 28, 2014. This information is not intended to be a comprehensive evaluation or comparison of different products. It is intended to provide comparative information on specific aspects of similar products. Competitor information is current and accurate to the best of our knowledge as of October 28, 2014. Product features and rates are subject to change. This comparison isolates features of the product depicted. Customers should always consider all features and limitations of products they are considering. Not available in all states. Policy forms ICC13-JLA-E14, JLA-E14, JLA-E14-CRT. Endorsement forms ICC13-IULPTP-E14, IULPTP-E14, ICC13-IULFLX-E14, IULFLX-E14, ICC13-IULMCS-E14 and IULMCS-E14. Availability varies by state. In CA and NJ products are issued as a group insurance product issued to the Accordia Life and Annuity Group Trust, Rhode Island. If you purchase this product, you will receive an individual certificate. For administrative purposes, from time to time we may refer to your certificate as a policy or as a contract. Products issued by and all policy benefits are the responsibility of Accordia Life and Annuity Company, and not that of any other insurer or company. Accordia Life is not licensed in all states. For agent information and reference only. Not for use with the public.
December 2014 » InsuranceNewsNet Magazine
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LIFE
Cash Value Can Build a Bridge to a More Secure Retirement O nly 26 percent of pre-retirees have cash value insurance. They obviously don’t know the product’s real value. By Michael Parker
M
uch of the conversation around retirement planning focuses on how much clients should save. But what is just as important is where they should save. The reality is that very few Americans have a full understanding of the financial challenges that may impact their overall retirement outcome. Constant changes in our world, from geopolitical and regulatory to economic, require advisors to provide more comprehensive planning guidance than ever before and to explore how to protect wealth as well as grow assets. In 2012, retired Americans received $1.1 trillion in income. Of that, according to the LIMRA Secure Retirement Institute (SRI) two-thirds came from Social Security and traditional pension plans (42 percent and 23 percent, respectively). When considering that the Social Security retirement trust fund is projected to become depleted by 2033, and only one in five Generation X and Generation Y households has access to a pension plan, helping clients diversify 32
their retirement income sources is increasingly important. There is an enormous opportunity for the life insurance industry to advance the client discussion about policy benefits beyond the death benefit, and to help them understand how cash-value life insurance can contribute to a well-rounded retirement portfolio. Today, only 26 percent of pre-retirees (age 55 and up) and 21 percent of trailing-edge boomers (ages 46-54) own cash-value life insurance, according to LIMRA SRI. This means that the tax advantages and income flexibility that life insurance can bring to a retirement portfolio are currently not part of the plan for the vast majority of the population that will be retiring over the next 20 years. With cash value life insurance, clients can potentially accumulate savings on a tax-deferred basis. Depending on the client’s specific needs and risk tolerance levels, that growth can be pursued through various products, such as variable universal life or indexed universal life. Regardless of the type of cash value life insurance policy selected by a client, generally they all allow for the savings to be distributed income-tax free through policy loans and withdrawals (provided the policy is not a modified endowment contract). In
InsuranceNewsNet Magazine » December 2014
addition to providing the client with greater purchasing power, the “non-income” categorization of the cash value distribution also means there may be little or no impact on income tax bracket or modified adjusted gross income, thus having potentially no impact on the taxation of Social Security benefits or Medicare Part B costs. Often when determining retirement age, clients strongly consider how most efficiently to use their various retirement income sources, such as by avoiding early withdrawal fees on a 401(k) or preserving their full Social Security benefit. Today, with approximately 30 percent of nonretired Americans expecting to retire before the age of 65, cash value life insurance distribution can provide a cash stream for clients during the years before they can access their other retirement benefits without penalties. Alternatively, those retiring at age 65 can use cash values as a source of backup income should they outlive their traditional retirement assets. Today, a man reaching age 65 can expect to live, on average, until age 84.3, while a woman turning age 65 can expect to live until age 86.6. Approximately 25 percent of 65-year-olds today will live past age 90. Cash value life insurance can help clients develop an income road map based on the good for-
CASH VALUE CAN BUILD A BRIDGE TO RETIREMENT LIFE tune of longevity that also allows them to transfer an income-tax-free death benefit to heirs if the income is not needed. While increased longevity in retirement means more time to enjoy life, friends and family, it can also mean increased chances for unexpected events such as chronic or terminal illnesses. In these unfortunate scenarios, which can pose significant risk to a client’s assets while creating physical, emotional and financial burdens for loved ones, cash value life insurance can help alleviate some of the financial and caretaker challenges so that clients and families can spend time together and preserve the wealth they’ve worked hard to accumulate. Subject to client qualification, many cash value life insurance policies offer an accelerated benefits rider, at issue for an additional cost. This rider can provide a source of supplemental tax-advantaged funds that can be used for any expenses, including family/ home health care, home remodeling, prescriptions or skilled nursing care. Often when it comes to the distribution phase of a retirement plan, clients rely on
their traditional retirement savings vehicles such as a 401(k) or individual retirement account to fund “needs” (mortgage, daily living expenses) and “wants” (entertainment, travel), while using retirement assets such as annuities and dividends to help cover some of the “wants” and “dreams” (vacation home, grandchild’s education). Clients can optimize this traditional planning model by taking advantage of the income flexibility available through cash value life insurance for some of the needs, wants and dreams, while leveraging the death benefit to fund a legacy. When it comes to retirement planning, there is no silver bullet. There are many different considerations requiring a well-rounded portfolio of retirement assets. Cash value life insurance is often overlooked in the construction of such portfolios. Cash value life insurance is by no means intended to replace the staples of a retirement portfolio, such as a workplace retirement savings account such as a 401(k). Yet clients may be intrigued to know that it is the only solution with the potential to provide all
the following benefits: tax-deferred growth; tax-advantaged distributions; no additional tax for early withdrawals; no increase in tax expenses, Social Security taxation or Medicare premiums; chronic illness coverage; and an income tax-free death benefit. This is not to say there are no risks or considerations that advisors and clients need to take into account when evaluating cash value life insurance. Advisors and clients must consider product suitability, the potential for surrender charges, and underwriting and product logistics. However, advisors who can provide guidance on how to protect wealth through life insurance strategies will be able to help clients toward the retirement outcomes the clients desire. Michael Parker is vice president of life product management for Lincoln Financial Group’s Life Solutions business, overseeing individual life product development, individual life business development, executive benefits and inforce management. Michael may be contacted at michael.parker@innfeedback.com
Did you know? In the next 5 years, 65% of federal and postal employees will be retirement eligible – fueling a huge IRA rollover opportunity and life insurance replacement demand. Advisors are needed to help manage these qualified Federal and Postal Retirees who all have a sense of urgency and need assistance now. Take the 1st Step - Get Instant Access to Our FREE Online Presentation at:
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December 2014 » InsuranceNewsNet Magazine
33
LIFE
Preventing Tax Pitfalls With the Right Life Insurance Policy S uccessfully guide clients and policyholders through the trickiest time of year By Ron Sussman
T
he life insurance industry has a complex relationship with the U.S. tax code – even many seasoned insurance professionals don’t have full understanding of, or experience with, the code’s various intricacies and benefits. In the life insurance world, our most valuable commodity is an intangible asset that provides liquidity at death. Often, potential clients fail to understand the importance of the right policy until it’s too late. What makes this even more challenging is widespread misinformation about the extraordinary value a life insurance policy represents. And, since consumers often consider life insurance policies a luxury rather than a need, agents can unintentionally leave clients hanging over a tax cliff just to help close a sale. In my 30 years in this industry, I’ve seen a variety of sales tactics – some successful, some less so – promulgated by agents and carriers in an attempt to take advantage of our tax code. Of course, a product that provides such significant financial advantages without manipulation shouldn’t require any fancy sales pitches. But tax benefits – particularly deductions for premium payments – often are the “grease that makes the wheels turn.” We’re in the business of ensuring our clients are satisfied, after all. However, to avoid a tax conundrum, agents and industry professionals need a keen knowledge of a life insurance policy’s tax implications. To shed some light on the ways inaccurate or misleading tax information can impact policyholders and their business and family, here’s a cautionary tale. My team began working with a pair of business owners two years after they purchased (and had begun contributing to) 34
policies with an aggregate annual premium of $2.6 million. This plan purported to conform to the U.S. Tax Code Section 419(e); it covered the owners and their families, but none of the other 160 employees. When we provided a thorough review of the plan and the policies it owned, we identified several alarming and abusive tax practices. We discovered the business owners’ life insurance policies were incompatible with their future goals – funding an estate tax liability. In fact, if the insurance had performed as illustrated – and unsurprisingly, it did not – it would have lapsed in fewer years than the insureds’ life expectancies. Needless to say, these clients were unhappy to learn that their huge tax
InsuranceNewsNet Magazine » December 2014
deduction was at risk and their coverage grossly inadequate. Two years later, we received a call from their legal counsel, who informed us the Internal Revenue Service was in the process of auditing the company. It turned out we were spot on regarding the company’s overly aggressive tax deductions and inadequate coverage. The company was subject to fines and penalties; furthermore, the company’s owners filed a lawsuit against their life insurance agent for selling a fraudulent plan. To date, the case is still working its way through the courts. After we learned about the fallout, we helped the family members and employees purchase life insurance coverage that was suitable for their needs, was guaranteed for
Life insurance for
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HOW TO PREVENT LIFE INSURANCE BUYER AMNESIA LIFE
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LIFE PREVENTING TAX PITFALLS WITH THE RIGHT LIFE INSURANCE POLICY life and cost less than half of their original policies. Most importantly, their new plans conform to the appropriate tax laws. The lesson in all of this is simple: If a policy promises to outsmart the U.S. tax code, it probably will not. Agents who make unrealistic promises about a policy’s potential workarounds – through ignorance or overeagerness – are doing their clients a disservice and unnecessarily assuming the risk of being sued themselves. It isn’t too late to correct noncompliant or flawed plans, though, and an annual policy audit can identify these errors and save clients money and headaches around tax time.
Striking a Balance: Finding the Right Benefit
Putting clients’ needs first includes finding the right tax benefits for a client’s individual policy and family or company needs. I’ve seen too many misguided policyholders pay the price this time of year simply because they did not have access to the right information. In fact, the road to tax advantaged life insurance is littered with casualties; among them are Charitable Split Dollar, 419(e) Retired Lives Reserve (RLR) and Minimum Deposit, among others. These options stand out as overly aggressive and ultimately doomed strategies sometimes promoted by agents in the lead-up to tax season. Each previously mentioned option actually began as a viable concept, but was ultimately corrupted by insurance agents or carriers seeking to meet the desire to deduct premiums or interest. It’s important to remember that life insurance is one payment a policyholder can’t necessarily deduct unless it falls within
specific, finite and ever-changing guidelines. As springtime approaches, it’s imperative to begin working with each individual client to determine the best tax strategy. Approach your clients with a personalized perspective to achieve positive results.
Best Practices Over Three Decades
To prevent unfortunate results for your clients during tax season, it’s important to keep the following practices in mind: » Agents should never encourage clients to make large financial decisions based solely on a tax deduction, no matter how enticing. » It’s the agent’s responsibility to ensure the plan is compliant with all Internal Revenue Code regulations. Agents can benefit significantly by identifying discrepancies in a plan and assisting the client with remediation and revised coverage. » Always make sure the coverage you sell meets your clients’ intended needs and risk tolerance. Every client is different and every policyholder has different needs and expectations – treat each case individually. » Clients should feel comfortable obtaining an unbiased second opinion from a third-party administrator unrelated to the agent or insurance carrier. An annual policy audit can uncover many of these risks before they become unmanageable or illegal.
With all of this said, the right life insurance product will provide the most tax-effective means to accumulate and distribute wealth. More specifically, the right plan provides two of the most important tax benefits – tax-deferred accumulation and potentially tax-free distribution. In fact, that’s exactly how my wife, who’s also an insurance industry professional, and I are preparing for retirement. The right policy for our needs is currently providing us with an opportunity to accumulate wealth and receive tax-free income at retirement. Nothing is more effective or more worthwhile, and I encourage my team and their clients to do the same. The working population under age 50 is, on average, woefully underinsured, yet it’s those same policyholders who can best take advantage of the unique tax characteristics of the right life insurance policy. Navigation of the U.S. tax code can be complex, so don’t be tempted, or worse, tempt your clients, with shaky tax inducements. Savvy, successful professionals need to find the intersection of the right insurance plan and on-target, accurate tax benefits. Ron Sussman is founder and chief executive officer of PolicyAudits.com and CPI Companies. He counsels high-net-worth individuals through risk management analysis and life insurance planning strategies. Ron may be contacted at ron.sussman@ innfeedback.com.
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InsuranceNewsNet Magazine » December 2014
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ANNUITYWIRES
More New Products Making News Annuity carriers continue to make headlines with new products and features. Here’s the latest. Phoenix Companies has licensed an exchange traded fund (ETF)-based index from Credit Suisse for exclusive use in four of the company’s core fixed index annuities (FIAs). These products are available for distribution by all independent agents, and there are no restrictions to offering the index only through exclusive or proprietary distribution arrangements. Called the CS Tactical Multi Asset Index, the index is an adaptation of an existing index offered by the Credit Suisse. Credit Suisse is a global firm that focuses on private banking, wealth management and investment banking. Agents may be familiar with the firm as a global brand even if they are not familiar with its specific businesses and products. Allianz Life announced that it has made its Essential Income 7 FIA available through the Wells Fargo index annuity platform for advisors. Allianz said Essential Income 7 offers annuity contract holders several choices during the accumulation phase of the annuity and during the distribution or withdrawal phase. For customers still saving for retirement, lifetime withdrawal percentages are guaranteed to increase every year until withdrawals begin, the company said. Contract holders must be older than 50 before taking lifetime withdrawals, but can opt for a predictable income stream or choose from an income that has the potential of going up every year. Northwestern Mutual announced that it will allow investors to fund an immediate annuity and a deferred income annuity (DIA) using personal savings outside of qualified retirement dollars. The changes affect the Select Portfolio Immediate Income Annuity and Select Portfolio Deferred Income Annuity. Both belong to the company’s Portfolio Income Annuity product suite. When launched two years ago, the products were only available for tax-qualified dollars — for example, dollars coming from an individual retirement account or a 401(k) savings plan. Northwestern Mutual said the two annuities were expanded to meet the needs of retirees and preretirees looking for guaranteed income.
NEW YORK LIFE DIA HITS PREMIUM MILESTONE
The first of the baby boom generation turned 65 years old in 2011. In that same year, New York Life introduced a DIA called Guaranteed Future Income (GFI). Three years later, that DIA has exceeded $2 billion in premiums. This is an indication of the demand from preretirees for guaranteed income and investment simplicity, the company said. Since GFI’s introduction, 10 carriers have introduced similar annuity products, the company said. David Cruz, senior managing director in charge of New York Life’s annuity products, said the milestone is a sign that preretirees who are planning for a retirement that may last as long as 40 years want “pension-like income, guaranteed by highly rated insurers.” 38
Between the initial purchase date and the income start date, GFI contract holders can continue to buy future income through additional premium payments, or can defer or accelerate their income start date as their needs change, New York Life said. Since GFI’s introduction, 20 percent of its contract holders have contributed more than one premium payment.
NAIC LOOKS AT CDAs
Contingent deferred annuities (CDAs) have been getting some attention from regulators recently. A CDA is a longevity product that is somewhat similar to a guaranteed lifetime withdrawal benefit. It guarantees a lifetime income stream after the underlying assets are depleted through systematic withdrawal and/or other specified factors. The product attaches to securities (such as
InsuranceNewsNet Magazine » December 2014
mutual funds) that are owned by the client, not the insurance company. The National Association of Insurance Commissioners (NAIC) set up a CDA (A) Working Group to dig into the subject of CDAs. At issue is providing the direction that some states have been seeking from NAIC about how to approach CDA regulation. The working group is considering whether to include the official definition of CDAs in various NAIC model regulations that mention annuities. These include NAIC model regulations on producer licensing, disclosure, suitability and advertising, among many others.
FEDS ALLOW ANNUITIES INTO TARGET DATE MUTUAL FUNDS
Federal agencies are allowing target date mutual funds (TDFs) to include deferred income annuities as qualified default investment alternatives in employer-sponsored retirement plans. The agencies’ guidance clears legal hurdles that had discouraged some employers from offering lifetime income options for older workers nearing retirement, according to the American Council of Life Insurers (ACLI). The Department of Labor has confirmed that TDFs serving as Qualified Default Investment Alternatives (QDIAs) may include annuities among their fixed income investments. Retirees in qualified plans and IRAs would not have to include these annuities when calculating their required minimum distributions, the payments from tax-qualified plans that must begin at age 70½.
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December 2014 Âť InsuranceNewsNet Magazine
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ANNUITY
Why Ken Fisher Loves to Hate Annuities K en Fisher’s annuity-hate ads might be galling, but regulators are not jumping in. By Steve Marsh
W
e all know that Ken Fisher hates annuities and believes everyone else should too. Fisher’s ads have been everywhere, although they have abated a bit lately. But anyone who has been on the Internet or has read a national consumer magazine has seen the ads where Fisher proclaims his hate for annuities and wants everyone to share that hate. He probably should love annuities for all the business the campaign has driven to him. Fisher, 64, has been a columnist for Forbes for 30 years and is also No. 243 on the Forbes 400 list of richest people, which pegs his worth at $2.6 billion. He has long advised against annuities in the magazine’s pages and in many of his 10 books. His counter-annuity strategy helped build his registered investment advisor (RIA) firm to serve nearly 20,000 clients, with $54 billion under management. He is picky about his clients as well, clearly stating he is looking for people with at least $500,000 to invest. His annuity hate goes only so far as the hook, however. Once people respond to his ads, his talk and material are not antiannuity, but “pro doing business” with one of more than 1,000 advisors affiliated with Fisher Investments (FI). As Fisher profits from his anti-annuity ad campaign, those in the annuity business are left asking how he can get away with saying what he says and the promises he makes. One of his particular points is his offer to help people get out of their annuity contracts. The main problem for Sheryl Moore, president and CEO of Moore Market Intelligence, is what she sees as the inflammatory nature of Fisher’s advertising. Moore, who also is the founder of market research company Wink Inc., works 40
closely with regulators on education committees through the National Association of Fixed Annuities (NAFA). “My personal opinion is that people shouldn’t make inaccurate statements, make blanket statements or create fear in an effort to sell,” Moore said. “He (Fisher) is using fear to get people to put all their eggs in one basket. The S&P 500 dropped almost 50 percent from 2008 to 2009. People who were invested in just the S&P lost nearly 50 percent of their retirement funds. My grandmother owned a variable annuity after she’d worked for CenturyLink for 40 years and lost $1 million when the market collapsed.” Moore said she is concerned that consumers are being moved from safe positions into riskier equity products. “I’m of the risk profile that if you walk into
InsuranceNewsNet Magazine » December 2014
my house and try to sell me stocks and bonds,” Moore said, “I’ll kick you out quicker than you got in.”
Regulators Decline Involvement
In California, where Fisher Investments has an office in San Mateo, the California Department of Business Oversight (CDBO) regulates securities. It also regulates state-chartered banks, mortgage companies and credit unions. But it doesn’t regulate Fisher Investments because FI’s total assets under management exceed jurisdictional limits for state-regulated securities firms. FI accordingly falls under federal regulation by the Securities and Exchange Commission (SEC), according to CDBO spokesman Mark Leyes, who relayed the following sentiment: “It’s not illegal to advertise, certainly
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In the S&P 500 point-to-point with participation rate indexed strategy, the participation rate limits the indexed interest rate to a percentage of the change in the S&P 500 index, but the indexed interest rate is not capped at a maximum percentage. For funds allocated to an indexed strategy, interest is credited on the last day of the term. The account value, which includes any credited indexed interest, will not go down unless, during the early withdrawal charge period, a withdrawal is taken or the contract is surrendered. In the Stacked Income Option, the benefit base amount, on which rider income payments are based, is increased by interest credited to the account value, which may include indexed interest determined in part by changes in a market index or a fund unit value. Because account value interest is added to the benefit base amount after income payments begin, income payments may increase. Optional riders are available for an annual charge. Products issued by Great American Life Insurance Company , a member of Great American Insurance Group. (Cincinnati, Ohio) under contract form numbers P1104314NW and P11044NW, and rider form numbers R6046814NW, 2014 » InsuranceNewsNet Magazine 41 R6046914NW and R6047014NW. Form numbers and features may vary by state. Not available in all states. For producer use only. Not for use in salesDecember solicitation. 2784-SP ®
ANNUITY WHY KEN FISHER LOVES TO HATE ANNUITIES not in California,” he said, “and it’s not illegal to hate annuities.” Emphasizing that any violations regarding truth in advertising would be addressed at the federal level, Leyes added, “I’m not convinced the Fisher ads would trigger any of that. If he says annuities are unfair or corrupt – which could be confronted as an allegation – saying something as subjective as ‘I hate annuities’ is not slander. Beyond that, if he were actually selling annuities, he would need an insurance license, of course. But it seems he is not selling annuities.” Leyes said that California has no issue with FI and that any complaints would be referred to the SEC, adding, “Investment advisors in California can advise to buy an annuity or not to.” It’s different in Iowa, where Fisher Investments does not currently do business, according to Jim Mumford, First Deputy Insurance Commissioner and Securities Administrator for the state of Iowa. “Insurance people in Iowa can say they hate stocks, but they can’t say why they hate stocks,” Mumford noted. He also said securities representatives in Iowa accordingly would need an insurance license if they recommend someone cash in their annuity – as Fisher seems to do in his ads. “Securities people will tell you that insurance agents can’t tell you anything about securities. In Iowa, we take the position that it works both ways,” Mumford said. “We have no knowledge of Fisher or his RIAs doing business in Iowa. If the Iowa resident is contacted in Iowa, no matter if they initiate the contact, the agent must have an Iowa insurance license (resident or nonresident, depending on circumstances). If the Iowa resident is contacted outside of Iowa and the transaction takes place completely outside of Iowa’s borders, the agent does not need an Iowa insurance license.” Speaking of Fisher’s offer to refund or rebate the costs associated with annuity surrender fees, Mumford sees a fundamental difference: “From our point of view, rebating is an inducement to buy insurance. He (Fisher) was basically giving you a rebate to get rid of insurance. Since he was paying to get rid of insurance, the question was whether it was really a rebate in insurance terms.” SEC officials declined to comment on Fisher or his advertising. Financial Indus42
try Regulatory Authority officials did not return calls asking for comments.
Insurance Marketing Reaction
Online marketing professionals like Denver-based Jeffrey Ziegler point to Fisher’s marketing prowess in which he uses everything from direct mail to probable “retargeting” strategies whereby cookies attach to website visitors, causing ads to pop up wherever they go online. “It makes it look like he’s everywhere,” Ziegler said, asserting that it’s nothing magic, just savvy Internet marketing. “Ken’s a billionaire – good for him,” Ziegler said. “The (annuity-hate) ad is his opinion. You’ve Ken Fisher’s annuity-hate ad published in got to take this head-on with ads The Denver Post. popping up right next to his. His ads might seem outrageous, but he’s a billionaire who knows what he’s do- » In the ads, point out that the annuity ing with his marketing campaign. He will has a proven track record resulting in follow you until he gets you to take action.” rescued retirement lifestyles from the Ziegler also suggested including ed- Great Recession. ucational videos on online sites such as YouTube and on your own website. Have » Prepare a point-counterpoint presentayour own video message ready in ad- tion for your clients. Contrast shopworn vance. Tell your clients to see your mes- objections to annuities with showing the sage so they can understand the Fisher good things annuities can offer as part of Investments message for what it is. Send a solid retirement plan. your video message to your entire client database to avoid repeating yourself time » Create a video presentation for your and again in customer meetings. website with a title such as “Why I Love If a potential annuity buyer should re- Annuities … and So Should You.” spond to the (annuity-hate) ad on the other side of the 800 number and ask about » Recognize that free speech is guaranannuities, they would do well to remem- teed by the First Amendment, but know ber that – Fisher Investments is strictly a the difference between your protected stock-and-bond money manager. opinion and blanket statements that Meanwhile, for agents and representa- could be considered slanderous. tives wanting more immediate relief from large display ads shouting, “I Hate Annu- » Keep spreading the word about a new ities … And So Should You!” insurance generation of fixed, fixed index and variprofessionals suggest the following: able annuities, along with a host of innovations that have given life insurance » Buy compliant-appropriate educational products a new presence in retirement ads in as many places as possible – on- lifestyles. line, in consumer newspapers and magSteve Marsh is a longtime azines, and on the radio and television. » In those ads, state why annuities/other insurance products provide some of the best ways to ensure a secure income stream in retirement.
InsuranceNewsNet Magazine » December 2014
journalist covering the annuity industry along with other financial sectors. Steve can be reached at steve.marsh@ innfeedback.com.
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ANNUITY
Big Changes Ahead: Index Product Trends for 2015 N ew indices, standardized illustrations and long-term-care riders are among the changes that will dominate the index product landscape in the coming year. By Chris Conklin
I
t isn’t often that we see major changes in the index product landscape. Since fixed index annuities were introduced in the mid-1990s, perhaps the only major change we have seen was the introduction of income riders – also known as guaranteed withdrawal benefit riders – in the mid2000s. Index universal life insurance products have only incrementally changed since they were first introduced in the late 1990s. But in 2015, we should see several major changes. They are: » The culmination of a change in the fixed index annuity marketplace brought on by competitive forces. » The continuation of an evolution in both markets brought on by changing customer needs.
Fixed Index Annuities Offer New Indices
Since the beginning of the fixed index annuity in the mid-1990s, carriers have overwhelmingly based their interest crediting upon the S&P 500 Index. In the fourth quarter of 2012, more than 80 percent of fixed index annuity sales occurred in either the S&P 500 Index or a fixed non-index account, according to Wink’s Sales & Market Report. But now, that is changing. The change started in 2012 when one company launched an annuity using a new index whose features were unusual at the time. After this annuity was successful, competitors took notice and soon followed with their own new indices. Now that the trend is firmly established, if your favorite annuity carrier hasn’t already introduced a new index, it wouldn’t be surprising if it is considering offering a 44
proprietary index at some point in 2015. These new indices have three unusual features: [1] They don’t reference the S&P 500 Index, but instead reference multiple asset classes linked to lesser known indices, or indices that are designed or selected by the insurer. [2] They have different investment strategies. Some of these strategies include a volatility control feature that is designed to increase exposure to risk assets when volatility is low and decrease exposure to risk assets when volatility is high. [3] They may offer the performance of the index without imposing an annual cap. However, they usually do impose participation rates, spreads or mandatory allocation limits. So although the index strategy may be “uncapped,” it still limits the amount of performance that is credited as interest. Use of these unusual new indices is not without its challenges. The index to which the strategy is linked may be less well known or may be created by the company. In these instances, it may be difficult to be able to validate their performance via publicly available materials. Indices that are created around specific strategies may not perform in the same manner as more commonly understood indices such as the S&P 500 Index, so your clients may have a harder time understanding how the interest credits are determined. Additionally, regulators have begun to publish warnings, specifically about advertising that is likely to contribute to inflated consumer expectations of an annuity product’s performance.
Long-Term Care Features Proliferate in Index Products
The future is bright for combining features across different product types. The
InsuranceNewsNet Magazine » December 2014
need for long-term care coverage has been growing as our population ages and, as a result, we have seen more and more carriers offering LTC-related features in their life insurance and annuity products. It is now very common for income riders on fixed index annuities to provide an increased payment in the event of nursing home confinement. LIMRA estimates that there was $2.6 billion in life/LTC combination product sales in 2013, more than quadruple the sales volume of these products in 2008. There is every reason to believe that this increasing sales trend will continue because the consumer need is growing. There are a variety of types of longterm care-related riders offered in index universal life products. Some carriers offer riders that have no explicit premium or cost of insurance charge, but if the benefit is exercised, the policy’s death benefit is discounted. The advantage of such a rider is that it is provided at no cost unless the benefit is used, and the disadvantage is that the payment is only a portion of the death benefit that is accelerated. Other carriers offer riders that have explicit charges associated with them and that pay the policy’s full death benefit over time, and some carriers even provide an extension benefit such that amounts greater than the policy’s death benefit is available for LTC-related expenses over time. Some carriers offer chronic illness benefits, whereas others offer true tax-qualified long term care insurance coverage. There are quite a few variations in the marketplace, all of which can be helpful – you just want to understand the differences, advantages and disadvantages of what you are selling versus other options that are available in the marketplace.
Next Steps for Agents
To recap our list of trends, key themes in the index product markets in 2015 will be new indices in fixed index annuities,
BIG CHANGES AHEAD: INDEX PRODUCT TRENDS FOR 2015 ANNUITY
Regulators Focus on IUL Illustrations Closer regulatory oversight on illustrations is another trend is expected to affect another index product, universal life. Index universal life products are not explicitly referenced in the National Association of Insurance Commissioners (NAIC) Life Insurance Illustrations Model Regulation, so the American Council of Life Insurers (ACLI) had been working to achieve industry consensus and provide guidance to the NAIC as to how the model regulation should be updated so that in-
regulatory debate over index universal life illustrations, and long-term care-related features. Also, we expect to see innovations in one type of index product influence changes in other index products. For example, I wouldn’t be surprised if the fixed index annuity innovation mentioned above – new indices – migrates over to the index universal life market as well. After all, what works for one type of product can often work for another type, and there are many carriers looking to innovate to create
dex universal life illustrations are standardized across the industry. There are two competing views, one that was recommended to the NAIC by the ACLI, and another that was submitted to the NAIC by a group consisting of several insurers that do not offer index universal life. The NAIC has said that it will consider both proposals and state regulators have started asking questions to insurers about their presentations of potential gains to prospective buyers in illustrations.
an advantage in the marketplace. Because there is so much innovation taking place in the marketplace, and because these innovations help to address consumers’ key needs for reliable accumulation and income while providing a financial safety net in the event of chronic illnesses or death, advisors have an even stronger need than ever before to take advantage of educational opportunities available to them. Call your marketing organization and ask what’s new in the
At this point, we don’t know which approach to standardizing these illustrations may be adopted. If the NAIC adopts the ACLI’s proposal, product designs will likely remain unchanged. If, on the other hand, the NAIC adopts the competing proposal, then it will likely become less important for carriers to offer high index caps and it will become more important for carriers to offer low cost of insurance charges. It is possible that either development could result in a continued growth in popularity of index universal life as it could increase agent and consumer awareness of the product. – Chris Conklin
marketplace. Attend an industry meeting. Or attend a carrier’s on-line educational event. You just may find a solution that helps you to better serve your clients and grow your business. Chris Conklin is senior vice president, product design, life insurance and annuity with Genworth. Chris may be contacted at chris. conklin@innfeedback.com.
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December 2014 » InsuranceNewsNet Magazine
45
HEALTHWIRES
Reaching the uninsured is a challenge bitly.com/qrreaching
Underestimated Income To Cost Insured Workers A raise or a job promotion could end up costing some low-income workers who got help buying health insurance from the Affordable Care Act (ACA). Workers who qualified for the ACA’s federal tax credits to offset premium costs could end up owing money to the Internal Revenue Service (IRS) if they earned more than expected this year. Under the ACA, enrollees were required to estimate their 2014 income a year in advance. Underestimating income means people have to pay back some of the credit, which is typically forwarded each month by the government directly to the insurer. About 80 percent of the more than 7 million people who obtained coverage under the new law qualified for tax credits. U.S. Department of Health and Human Services said consumers who did not authorize Healthcare.gov to obtain updated income data from the IRS when they enrolled a year ago will have their policies renewed without tax credits. But they will have the chance to update their information, the department said.
A QUARTER OF LATINOS ARE UNINSURED
A year after open enrollment for the ACA began, one in four Latinos living in the U.S. does not have health insurance, according to new census data. A variety of factors account for this, including a lack of culturally specific outreach programs, language barriers, financial concerns, frustration with the ACA’s complexities and fears that applying could jeopardize a family member’s immigration status, according to the Pew Research Center. The number of Latinos with health coverage has increased 5.3 percent since the ACA took effect, according to the Robert Wood Johnson Foundation. But many remain uninsured. One reason is that immigrants are more likely to have lower incomes and are more likely to be making an hourly wage at construction or service jobs that don’t offer employer-based insurance, according to Jennifer Sullivan, the director of the Best Practices Institute for Enroll America. Middle-class Latinos are more likely to apply online for insurance, but lower-income Hispanics and more recent immigrants with limited English skills generally prefer to do so in person through a facilitator or over the phone, enrollment advocates said. DID YOU
KNOW
?
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32%
AMA LOOKS AT INSURER COMPETITION
WellPoint, soon to be renamed Anthem Inc., was the largest private health insurer by market share in 82 of 388 metropolitan areas studied by the American Medical Association (AMA). The AMA has undertaken a new annual study of health insurer competition. WellPoint’s commanding position in more than one in five metropolitan areas gave it a market share advantage in more than double the number of metropolitan areas as the next two insurers. Health Care Service Corp. was second with a market share lead in 37 metropolitan areas, followed by UnitedHealth Group with a market share lead in 35 metropolitan areas. “The AMA is greatly concerned that in 41 percent of metropolitan areas, a single health insurer had at least a 50 percent share of the commercial health insurance market,” said AMA President Dr. Robert M. Wah. “The dominant market power of big health insurers increases the risk of anti-competitive behavior that harms patients and physicians, and presents a significant barrier to the market success of smaller insurance rivals.” The AMA’s latest findings regarding competition in the health insurance industry include:
of employers delayed health plan renewal date to avoid rate increases
Source: 2014 United Benefit Advisors Health Plan Survey Source: Centers for Disease Control Source: National Business Group on Health
InsuranceNewsNet Magazine » December 2014
QUOTABLE
How can you be a health care company providing health care and still sell tobacco? — Dr. William Fulcher III, CVS Caremark’s vice president of clinical affairs, on the company’s decision to end tobacco sales in its drugstores
» A significant absence of health insurer competition was found in 72 percent of the metropolitan areas studied. » Seventeen states had a single health insurer with a commercial market share of 50 percent or more. » Forty-five states had two health insurers with a combined commercial market share of 50 percent or more. » The 10 states with the least competitive commercial health insurance markets were 1. Alabama, 2. Hawaii, 3. Michigan, 4. Delaware, 5. Louisiana, 6. South Carolina, 7. Alaska, 8. Illinois, 9. Nebraska and 10. North Dakota.
TWO-THIRDS COULD CHANGE HEALTH PLANS
Brand loyalty may not be much of a factor in whether consumers keep their health plans in 2015. Two-thirds of Americans covered through the ACA told a Radius Global Market Research survey that they will change health plans in 2015. Even though most of those surveyed said they are satisfied with their coverage, they still want to shop around. About 80 percent of those surveyed said that they believe the plan they currently have provides quality and cost of care either equal to or better than the coverage they had previously. But most of these households believe they can do better with a little more comparison shopping. When asked what they’ll look for in a new health plan, those surveyed named lower costs and improved access to doctors and care as their top priorities. More than half of respondents expect their premiums to increase in the next six months. More than one-third of those who switched primary doctors after joining ACA plans did so because their doctor was not on the new plan. And about one in four households are visiting their doctor less frequently or experiencing longer office wait times.
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HEALTH
Photo: HERALD-LEADER
Large Employers Cut Costs by Opening Health Centers A dvisors can help their large group clients cut their deficit spending and create millions in profit. By L. Briggs Cochran and David M. Demers
O
n-site health centers are quickly becoming the solution that many insurance brokers are turning to in order to help their clients increase employee productivity, health and retention while reducing health care claims and direct costs. These on-site health centers, where the focus is on risk reduction, are part of a growing trend. According to the “Worksite Medical Clinics 2012 Survey Report” from health and human resources consultant Mercer, a significant percentage of employers with 500 workers or more are expected to have on-site clinics before the end of 2014. Specifically, Mercer’s report said that 26 percent of employers with 5004,999 employees, and 52 percent of employers with 5,000 or more employees, are expected to have the clinics in place before the end of this year. Health insurance brokers play an important role in adopting the on-site health center. Brokers are often the catalyst for adoption, as they understand how the benefit plan structure and the on-site health center can work together to drive engagement and reduce the cost of health care for the employer. Brokers who have self-funded clients with 1,000plus employees in one location can take advantage of this service to increase access to care, provide high-quality care and improve the benefits mix offered to the employees. This case study from the Lexington-Fayette Urban County Government (LFUCG) is an example of how one broker in Lexington, Kentucky, used this strategy to help change the increasing cost trend and provide an added benefit 48
Medical assistant Katrina Combs, left, and nurse Regina Burrows stock cabinets in the Dr. Samuel Brown Health Center for City Employees in Lexington, Ky. The Lexington-Fayette Urban County Government created the center to control costs while continuing to provide high-quality preventive and primary care.
for the employees. The result of this initiative has been a $24 million savings for LFUCG.
Case Study
On April 12, 2011, in his annual budget address, Lexington Mayor Jim Gray announced that the city was $9.9 million over budget in its health care account in 2010, and was projected to be $12 million over budget in 2011 and $14 million over budget in 2012. LFUCG operates its health plan on a self-insured basis and has approximately 6,700 covered lives. The mayor made it clear that the trend in spending was unsustainable and unfair to taxpayers. He noted that the LFUCG health plan, in terms of the richness of the benefit, fell in the top 1 percent of plans in the nation. Yet it failed to provide incentives for individuals to seek and obtain primary and preventive care. The health plan also did nothing to address the underlying risk driving the skyrocketing cost of care. LFUCG engaged its broker to recommend revisions to the health plan as well as a strategy to address escalating costs. While analyzing the current and projected budget shortfalls, the broker concluded that the plan design was the primary
InsuranceNewsNet Magazine » December 2014
driver of the shortfall. The plan covered 100 percent of the most expensive health care procedures (i.e., no deductibles and/ or coinsurance) while being priced at 30 percent below the actuarial benefit equivalent. Having 88 percent of all employees enrolled in this plan presented a significant challenge to bringing the cost of health care consumption within budget while maintaining a benefit structure that the employees valued. That plan was eliminated. Today, approximately 55 percent of the employees are enrolled in a high-deductible health care plan. Critically important to this restructuring strategy was the creation of the Dr. Samuel Brown Health Center (SBHC). This health center was established to provide the LFUCG workforce with access to high-quality preventive and primary care at no cost to them. In addition, LFUCG implemented a full-service pharmacy where employee co-pays are half what they would normally be at a retail pharmacy. Both of these initiatives counterbalanced the need for increased co-pays, deductibles and co-insurance for LFUCG’s traditional benefit structure. The emphasis shifted away from sick care and toward eliminating cost barriers for
HERE WE GO AGAIN! GETTING READY FOR NEXT ROUND OF ACA SIGN-UPS
HEALTH
LOAN DI PLAN When a bank lends money to a business, the lender will usually require the borrower to provide proof of disability insurance equaling the amount of the loan payments. The Dental Practice Loan Indemnification plan continues payments to the lender should the borrower become sick or hurt.
(800) 345-8816 F www.piu.org F piu@piu.org December 2014 » InsuranceNewsNet Magazine
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HEALTH
LARGE EMPLOYERS CUT COSTS BY OPENING HEALTH CENTERS Photo: David Perry | Staff HERALD-LEADER
prevention and wellness.
Launch of the New Health Plan and Population Health Management
On Jan. 1, 2012, LFUCG launched its new health plan and partnered with Marathon Health to open the SBHC for health plan members. The health center is staffed by a full-time physician, two full-time physician assistants, a registered nurse, two full-time medical assistants and a receptionist. The health center and its accompanying pharmacy are components of a larger population health management program that includes the following elements: [1] Risk identification and stratification: Claims data, biometric screening data and health risk assessment data for employees, spouses and dependents were combined in a single database that was then mined to identify high-risk patients. [2] Information in the hands of the patient: Long-term, sustained risk reduction is possible only when patients become involved in the process of managing their own care. [3] Medical staff training in behavior change and requisite core competencies needed for success: To succeed in population health management, it is critical to have medical teams knowledgeable in interviewing patients and helping them modify their behavior. [4] Engagement and goal setting: The information on high-risk patients led to the creation of a patient task list that the health center staff used to conduct outreach.
tives for members to participate in annual health screening and preventive care, to “know their numbers” and to improve their health status. With the switch to the high-deductible plan, per-member-per-month claims fell from $441 in 2011 (before launch of the health center) to $345 in 2012 (the first year of the center’s operation). This was a 22 percent decrease. The downward trend continued in 2013, with per member per month spending falling another 8 percent, to $318. From Jan. 1, 2012, to Dec. 31, 2013, this change in per capita spending resulted in a total of $24 million savings to LFUCG. If you have a client that has 1,000 employees, is self-funded and has its employees in or near one location, the onsite health center should be packaged with a health plan designed to encourage its use. Offering free care as an alternative to higher market co-pays will increase engagement and provide care that focuses on prevention and health improvement. When this occurs, populations are healthier, health care costs go down and clients are happier. The first step in pitching on-site health care to your employer clients is to ex-
Photo: David Perry | Staff HERALD-LEADER
[5] Incentives: An important component of plan redesign is providing incen-
Physician’s assistant Judith Cleary awaits patients at the Dr. Samuel Brown Health Center. The center’s main goal is to shift the emphasis away from sick care and toward eliminating cost barriers for prevention and wellness.
plain that employers should not be focused on reducing cost by repositioning the current “retail” health care delivery system into their health plans. Instead, they should focus on the best practices of “population health improvement.” This involves identifying those with high and moderate health risks within their population and pursuing strategies to mitigate the risk and reduce the prevalence of illness in the future. Explain to employers that they should ask potential clinic operators how they identify and address risk, not what their unit cost pricing is for primary and acute care. Producing a return on investment and reducing health spending trends is achieved only by negating high-risk members’ future health care consumption. This is the entire purpose of an on-site total population health management program. Success is measured by transitioning high-risk members to moderate- and low-risk categories while helping members who have diseases to achieve the standard of care. Setting up an on-site health center is not complicated. All that’s needed physically is about 900 square feet of space (depending on the employer’s population size) and some medical equipment and supplies. The most important aspect is evaluating a potential vendor relationship based on its strategy and methodology to improve employee health. L. Briggs Cochran is president of Benefit Insurance Marketing, Lexington, Ky. He may be contacted at l.briggs.cochran@ innfeedback.com.
Dr. David R. French, left, medical director, is shown at the registration desk with receptionist Lisa Beckett at the Dr. Samuel Brown Health Center for City Employees.
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InsuranceNewsNet Magazine » December 2014
David M. Demers, MPH, is vice president, business intelligence, with Marathon Health, Burlington, Vt. He may be contacted at david.demers@innfeedback.com.
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December 2014 » InsuranceNewsNet Magazine
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FINANCIALWIRES
6 in 10 Parents Financially Support Adult Children
30-44 Age Group Most Likely to Invest Online bitly.com/qronline
APPROXIMATELY
25
%
What’s keeping Americans from saving for retirement? For many of them, it’s because they are financially supporting their adult children, helping them pay for everything from college loans to entertainment. A LIMRA Secure Retirement Institute study finds that OF MILLENNIALS ARE 6 in 10 American parents provide financial support to their adult children, and nearly half said it has had a negative effect on their retirement savings. “While millennials are the most educated generation in history, nearly 4 in 10 are unemployed and many more are underemployed,” said Deb Dupont, associate managing director, LIMRA Secure Retirement Institute. “Parents of millennials are providing considerable support to their children at a time in their lives when saving for retirement should be a priority.” The study also found that 57 percent of U.S. households with adult children have at least one adult child living at home. Nearly three quarters of households with adult children ages 18-22 have at least one adult child residing in their home.
UNEMPLOYED
AMERICANS SHARE THEIR BIGGEST FINANCIAL FEARS
JOB LOSS
TAXES
GE TGA MOR
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AR
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ALT
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The fear of not being able to retire comfortably is the most common financial worry named by 28 percent of Americans in a COUNTRY Financial Security Index survey. Even scarier is that the more money households have, the more they’re worried about being able to support their lifestyles in retirement. Also frightening is that nearly half of individuals surveyed (47 percent) do not keep track of their monthly discretionary spending whatsoever and a majority (51 percent) rate their financial security as fair or poor. Health care expenses (named by 18 percent) and being able to afford rent or mortgage payments (cited by 11 percent) are also keeping Americans up at night. Health care expenses are especially concerning for Americans ages 50-64 (24 percent) and over 65 (42 percent). Americans under the age of 29 are primarily worried about affording their rent or mortgage, with 18 percent citing it as a top concern. These aren’t the only financial fears DEBT
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gripping Americans. The rapid growth of online banking is creating a new concern for many. Nearly 7 in 10 (67 percent) are worried about their financial information ending up in the wrong hands as banking and payments become increasingly digital.
ELDER FINANCIAL ABUSE UNDERREPORTED, MISUNDERSTOOD
Elder financial abuse continues to hide in the shadows, but it is likely to become more widespread as America’s population ages. Allianz Life conducted its 2014 Safeguarding Our Seniors study and found that financial crimes against the elderly tend to be misunderstood and underreported. As America’s population ages and life expectancy rises, more cases of elder financial abuse are possible, the company noted. While the number of elders who said they have suffered financial abuse is relatively small (5 percent), that number is likely an underestimate because some seniors might not identify or report abuse. Given that the senior population is expected to surpass 54 million in 2020, the study suggests that millions of American seniors could experience financial abuse,
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InsuranceNewsNet Magazine » December 2014
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as nearly 1 in 5 (19 percent) adults age 40-64 reported they have an older friend or family member who has been a victim in the past. Of this 19 percent, more than half (55 percent) said the victims did not report the financial abuse. But while the usual suspects of telemarketers and Internet scammers are blamed as the most likely financial threats to seniors, the reality is that abuse is more likely to take place at the hands of a family member, friend or caregiver. Eighty percent of elders rated telemarketers as the most likely source of abuse followed by Internet scams (68 percent) and U.S. mail solicitation (52 percent). Of those elders who reported experiencing financial abuse, the incident was more likely to have been perpetrated by a family member, friend or caregiver (52 percent) than by a stranger (22 percent). For those who are victims, the impact is often significant. The study found an average financial loss of about $30,000, and more than 10 percent of victims said they suffered losses of $100,000 or more.
VOYA FINANCIAL OFFERS $500 TO BABIES
A baby born on Oct. 20, 2014, is automatically $500 richer, thanks to Voya Financial. As part of the Voya Born to Save campaign, the company celebrated National Save for Retirement Week by offering every baby born in the U.S. on that date a $500 mutual fund investment as a head start on their future retirement savings. According to U.S. Census data, more than 10,000 babies are born each day in the U.S. Meanwhile, about 10,000 baby boomers turn 65 every day. This trend is expected to continue for the next two decades. Parents and guardians of eligible babies have until Dec. 19 to register for the offer.
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FINANCIAL
15 Minutes Could Save Your Client’s Retirement Plan U se your next client service call to examine their company retirement plan options. By Ric Lager
H
ere is a client marketing idea for insurance professionals who want to expand their existing client investment advisory relationships. This idea can improve your client’s retirement plan investment performance. At the same time, it will expand the amount of client household assets that you manage. I don’t want to run you afoul of insurance regulators or your broker/dealer compliance department. But I suggest that you consider a client marketing niche that you may not have thought of before. I have 30 years of experience providing investment advice to individual investors. In the past 14 years, I have developed an 54
investment advisory niche providing investment advice to individual company retirement plan participants. This advice is intended for insurance professionals who can act as an investment advisor representative within their existing broker/dealer relationship. This content is also a great fit for insurance professionals who have set up their own registered investment advisory firm. Let me start with a question. In your previous client marketing experience, what is the largest current pool of client assets? My guess is that your answer would be the client’s company retirement plan account. The same would be true of the client’s spouse. Investment advisors of all kinds are often frustrated by the fact that these company retirement plan accounts are thought to be “off limits” in the existing client-advisor relationship. Company retirement-plan accounts
InsuranceNewsNet Magazine » December 2014
are the largest dollar-value accounts that most individual investors will ever have. Individual company retirement plan accounts can grow into well over $1 million in value over a working lifetime. I would like you to be aware that your clients’ company retirement plan accounts are in desperate need of your knowledge and experience. The 401(k), 403(b) and 457(b) company retirement plans in which your clients participate offer you the ability to gather tens of millions of dollars of new assets to manage for an annual advisory fee. Why do stock brokers, investment advisors, banks and insurance professionals all compete for the same after-tax investment dollars of the same clients? From the E*Trade talking baby to the two guys on the State Farm Discount Double Check commercial, the individual investors who are your existing clients have a non-stop list of investment
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FINANCIAL 15 MINUTES COULD SAVE YOUR CLIENT’S RETIREMENT PLAN
No investment advisory firm is calling your existing client base about the hundreds of thousands of dollars in their company retirement plan account. management alternatives. Even the gekko at GEICO wants some of your client’s attention. All these investment advisory firms have millions of advertising dollars to compete for the same pool of client assets. It makes more sense for the future growth of your investment advisory business to build a niche with your existing clients’ asset base where there is little to no competition. No investment advisory firm is calling your existing client base about the hundreds of thousands of dollars in their company retirement plan account. The same goes for their spouse. Your existing clients need an independent, third-party source of investment advice regarding their menu of investment options on their company retirement plan account. I doubt that there is an experienced and qualified investment advisor in your local market who has the experience and qualification to provide that advice. I would make that statement regarding broker/dealer affiliated advisor or registered investment advisors. With every great sales idea comes an equally challenging compliance question. Here is the question to ask your compliance department: Can I provide investment advice to individual company retirement plan participants on company retirement plan assets that my firm does not custody? In my registered investment advisor world, I know that answer. Providing investment advice on any client asset base, regardless of location, is the same. I provide fiduciary investment advice to all my clients regardless of where their assets are located. Investment advisor representatives and registered investment advisors all fall into the same category. That is why you need to give serious consideration to developing a company retirement plan 56
investment advice niche service to your existing client base. Building that niche advisory business could be done a number of ways. I would advise you to pursue the least complicated client marketing strategy possible. Your clients have never connected your relationship with them to their company retirement plan account. Don’t confuse them now. On the next round of client service phone calls, instruct your client service representative to mention your new free review of all their household company retirement plan accounts. For that review, the client needs to provide your office with two sets of copies. First, you need a copy of the complete menu of options in the client’s company retirement plan account. Second, you need a copy of the client’s most recent quarterly company retirement plan account statement. Your client service representative needs to be able to provide the client with a good explanation for asking the client for this information. Again, the less complicated approach is the best. I explain the reason I ask my clients for this information the following way: “Mr. and Mrs. Client, I need this information for two reasons. First, I want to analyze the complete menu of options available to you on your company retirement plan account menu. There are changes in company retirement plan menu options every year. It is likely that you have not kept up to date with those changes. “Second, I want to offer you an investment management game plan before the next great stock market decline or dramatic rise in interest rates. Preservation of your recent stock and bond market gains is our primary concern. I want to show you how I may be able to help you put
InsuranceNewsNet Magazine » December 2014
that plan in place in your company retirement plan account.” Your client service representative is not asking the client to change the existing broker of record on the entire company retirement plan. Your offer is to the individual client. You want to be able to provide the client with investment advice on an ongoing basis. Once your client provides a copy of the menu of their company retirement plan options, you will need a report analyzing those options and providing the basis for your recommendations. This report should provide historical rankings and current recommendations that you can then tailor easily to your client’s specific needs. I use The Sherman Sheet “Custom Report” service. The Sherman Sheet provides a ranking and analysis of the mutual funds for thousands of retirement plans nationwide, updated weekly, and is the best source I know for complete coverage of all your client plans. My approach is to point out the gap – usually the very wide gap – between the performance achieved in the participant’s retirement plan account, and the performance that could be achieved with your tactical advice. Since individual company retirement plan participants almost always own the wrong mutual funds from their company retirement plan menu, that investment performance gap has probably cost the individual company retirement plan participant a great deal of money. This gap may even make the difference between a retirement in comfort and a retirement in fear – or no retirement at all. My analysis, aided by The Sherman Sheet reports, clearly explains the benefits of my investment advice to the individual company retirement plan participant, and lays a very good foundation for establishing a new relationship with an old client. Ric Lager is founder and president of Lager & Co., a registered investment advisory firm based in Golden Valley, Minn. He was the co-creator of the “No More Pies” investment series for financial advisors and author of “Forget the Pie: Recipe for a Healthier 401(k).” Ric may be contacted at ric.lager@innfeedback.com.
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BUSINESS
How to Put Your Agency on Autopilot S pend less time setting appointments and have more time available for marketing and other sales-related tasks. By Todd Colbeck
If
someone were to ask me if they could do only one thing to change their business, I would reply that it would be to put their client service model on autopilot. This has multiple benefits. First, clients quickly and easily get the level of service that you have committed to provide. In addition, you will have more time available for marketing and other tasks because you can free up the time you used to spend juggling appointments. Here is a simple process you can use to get started. Step 1 – Segment your client base. Conventional wisdom dictates that 80 percent of your production comes from 20 percent of your clients. I find that, for about 95 percent of all agents, 80 percent of production actually comes from a range of anywhere from 20 to 40 percent of their clients. Thus, you can create client segments based on which clients are most important to your practice. Typically, you would rank the 20 percent of your clients who have the most opportunity as your A clients. You would then rank the 20 percent of your clients who you least enjoy working with or with whom you have the least opportunity as C clients. The remaining 60 percent are your bread and butter clients and are ranked as your B clients. I have noticed many agents rank clients by current level of production, which is another strategy. However, I prefer focusing your top efforts on your top opportunities. The process of segmenting your practice could take a few hours or a few days, depending on how many clients you have. Once you have completed your segmentation, I would recommend exporting it to a spreadsheet format such as Excel. Step 2 – After you have your clients segmented in a spreadsheet, you 58
need to create your service model. In your spreadsheet, add a column for each month of the year. Next, take the first client and determine the months in which you want to contact him over the next year. An example might be to contact your A clients twice a year, your B clients once a year and your C clients as needed. Having your service model planned a year out is a key step in putting your business on autopilot. Step 3 – Next, make a list of the products you are able to recommend. Make a column in your spreadsheet for each product. Now check off the product column in the row of each client who already owns that product. When you finish, you will be able to identify opportunities in a split second by reviewing your spreadsheet. Step 4 – You now have a spreadsheet containing your client segmentation, your service model and your opportunities. The last step is to begin not just setting appointments but setting recurring appointments. An example of a recurring appointment might be every six months at 3 p.m. on the second Tuesday of the month. Once you have established recurring appointments with your clients, you will have put your service model on autopilot and given your clients peace of mind because they always know when they will meet with you again in advance. All the agents I have worked with who have completed this process have found they have more appointments and more free time. That seems impossible, but you eliminate a lot of administrative work by implementing this model. By the way, what do you think happens to your income when you have more appointments? You don’t need to be a rocket scientist to know that your income goes up! Let me say that, on paper, this strategy looks pretty easy, just like following a recipe. Why don’t more agents put it into practice? I think agents sometimes like to operate in crisis mode. The theory is that if you “work harder” you will get more re-
InsuranceNewsNet Magazine » December 2014
sults. Well, sometimes “working smarter” is the answer. Another issue is staff. If you rely on staff to set appointments, what happens if they blow it off? That means you have to go into overdrive and do it yourself. Another big fear agents have regarding this model is that they are afraid their clients aren’t capable of managing their calendars in advance. Guess what? They are capable. This is the Digital Age, not the Stone Age! Think of what you have to look forward to once this model is in place. You get to walk into your office on Jan. 1 and know that you are pretty much booked solid in advance for the year. Clients have less anxiety because they already know when they will see you. Your staff can focus on more important tasks than setting appointments. You can focus on preparing for appointments in advance and getting more referrals. Finally, let me give you a few tips on software. There are many great customer relationship management (CRM) tools available, but I prefer Microsoft Outlook simply because many clients use it as well. Send them a recurring appointment as an Outlook meeting notice and it is automatically created in their calendar after they accept it. Use a smartphone that syncs with your CRM software (and just about any brand of smartphone can sync with Outlook.) This is the perfect time to segment your clients, set up your service model and identify opportunities. After you begin setting appointments, set them as recurring appointments and not one-time appointments. Finally, automate the entire process in your CRM tool such as Outlook. Todd Colbeck, MBA, is owner of Colbeck Coaching Group, Miami Beach, Fla. He formerly was brokerage vice president of the Northeast U.S. region at American Express Financial Advisors. Todd may be contacted at todd.colbeck@innfeedback.com.
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For more than 80 years, the Society of Financial Service Professionals has been helping individuals, families and businesses achieve financial security.
SOCIETY OF FSP INSIGHTS
Getting the ‘I’ out of ‘TEAM’ A client-focused solution to financial problems requires interaction and cooperation. By Richard M. Weber
T
he need for social interaction and cooperation is one of the things we begin to learn at an early age. By the time we get to elementary school, rudimentary skills of teamwork are being developed with dodgeball and “Tag, you’re it!” By the time we reach high school, those with the talent for team sports are confronted with the primary challenge of teamwork: The ego drives us to be the hero of the game, but often the game can’t be won if everyone wants to be the hero. “Teamwork” in providing advice and appropriate solutions can be problematic. Do I really want to be part of a team? Some will focus on the “I” – if I’ve disturbed the client enough to start taking action about whatever it is that’s financially bothering her, it’s in my best interest to get the job done while it’s still a priority in her mind. “Strike while the iron is hot.” This is what we might call an agent-centric process. But that approach is almost always shortsighted. The client is not likely served in the best way possible without a full planning process that inevitably will require input, skill and knowledge from experts in law, tax, investment, insurance, employee benefits and retirement distribution. So it comes down to choosing between client-centric and agent-centric processes as the core of my business model. Especially because we may be more comfortable and experienced with teamwork in a sports context, and with the objective of achieving client centricity to get the “I” out of “TEAM,” here are 10 considerations for working effectively within a team of advisors … for the benefit of the client: [1] Choosing the captain. It’s understandable that the professional who identifies problems and has solutions will want to be the team captain. But there may be other considerations. Does 60
the client want to be the head of the team? If not, who has the most trusted relationship with the client? If the tasks involved are relatively simple, is there a need to have a captain? [2] Don’t forget the client! It’s easy to think of a team as a workgroup with specialized skills, but it’s much more than that. It’s not just about the individuals in the conference room; it’s about the client. What is the client’s view of how the team should work? Have we asked the client? [3] Commitment. A team assembled for the client’s benefit requires group commitment as well as each team member’s individual commitment. Clarifying this commitment should be one of the team’s first tasks. [4] Time frame. Another important matter is the early clarification of the client’s timetable. If the tasks cannot be done according to the client’s timetable, the client must be apprised and schedules must be adjusted. [5] Clarity of purpose. A brief mission statement should be drafted and agreed upon. What will we accomplish for our client? Is that the way the client sees it? Is it in the client’s best interest? Has it been reviewed with the client? [6] Responsibility. Who’s doing what? For example, it may be obvious that the tax expert has responsibility for assessing the tax consequences of the applicable situation and recommending effective strategies. But others on the team may have specialized knowledge that complements and supplements the expert’s knowledge. [7] Commitment to peer review. This one takes courage – especially for the insurance agent. The fear is that the insurance solution will be confronted by mythology and misunderstanding of (for example) “buy term and invest the difference” that will undermine the most effective solution. Team members must
InsuranceNewsNet Magazine » December 2014
commit and agree to participate from a position of knowledge and client focus – and to respect each other’s professional competence. On the other hand, artfully expressing concern if it seems that others’ recommendations are falling short of the client’s best interest may require referring back to the mission statement. [8] Options and consequences. All team members should be committed to reviewing alternatives and ideally having more than one solution from which to choose. How will the results be communicated to the client? [9] Ongoing service/management issues and obligations. Once the options have been assessed and the decisions made and implemented, how should the plan be managed? If there is an investment policy statement to facilitate management of the investment portfolio, are similar statements implemented to cover other plan components such as life insurance? [10] Periodic review and reconvening of the team. How often should the insurance or other plan components be reviewed? For example, if there’s a tax law change, does the team reconvene or does the tax expert directly connect with the client? Life – and planning for it – has become much more complicated in the face of a globalized economy and changing client needs along with complex financial and tax considerations. Clients need so much more than just our specific area of expertise. The best client-focused recommendation we can make is to put together the right team of experts … for the client’s benefit. Richard M. Weber, MBA, CLU, AEP, is immediate past president of the Society of Financial Service Professionals. He may be contacted at richard.weber@ innfeedback.com.
FINALLY…A PROVEN DONE FOR YOU FINANCIAL MARKETING SYSTEM That Isn’t Tied To Any FMO, IMO Or Brokerage. That Isn’t The Same Plain Jane Vanilla Brochures That Get Tossed In The Trash, & Isn’t Used By Anyone Else In Your Market… (BECAUSE WE GUARANTEE YOU’LL BE THE ONLY ONE)
Right now, a prospect is throwing your mailer into the trash. He’s changing the channel when your commercial comes onto the radio. He is deleting your email before he ever opens it. Why? Because he’s seen it all before, and he doesn’t need to see it again. What’s worse is you’ve been collecting prospects, names and referrals for weeks, months or years, and they probably don’t even know you exist.
Best-Selling Author & Trust Marketing Expert Greg Rollett
giving you a system that brings them into your office like clockwork, month after month after month. To show you how to ascend those clients within your life and your practice. To make them “clients for life” who consciously bring you a never-ending stream of referrals, not by accident or happenstance.
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If you can’t do those simple things, no fancy pie chart, return or growth statement or “7 Things You Need To Know About Annuities” article is going to convince them to take their assets and sign them over to you. I am here to put an end to the utter waste of your marketing dollars. To show you how to really attract the clientele you want walking into your office. The kind of marketing that grabs their attention because they believe in you, and that you are the one that is going to show them the way. To show you how to convert prospects and leads that have been lingering in your database or on some spreadsheet in your office. Every lead on that list is worth money to you and your practice and I am going to make sure you get every dollar you deserve by
That business of yours is fueled by a trust marketing system. It’s not fueled by the same marketing that every agent at an FMO or IMO has access to. It’s not fueled by copy catting every agent in your market or just shouting louder. It’s not fueled by begging your clients for referrals.
Hi, I’m Greg Rollett, BestSelling Author of Celebrity Branding You®, and everyday I talk to, consult and work hands-on with the country’s top advisors to develop proven marketing systems that are nothing like you’ve ever seen in your industry before.
They don’t talk about the product or have fancy pie charts. They are designed to get your prospect to know you, like you and trust you.
I also believe that the only way to have everything you want in life is to create a business that allows you to have the financial means to do everything on your Life List.
It is fueled by a Trust Based Marketing System. A system that works for you, with money making Trust Tools that bond with your prospects and clients, inviting them into your life and once you enter, they never want you to leave.
I call this process the Trust Triangle. And I’ve compiled a brand new Special Report that shows you exactly how to put this 3-part Trust Building strategy into play. But I know you want more than a report. A report doesn’t close deals for you. A report gets you thinking, but it’s only action that makes a difference in your bottom line profits and the life you give yourself as a result of those profits. That is why we have developed a special program, designed for only 1 advisor or agent per market. I call it the Ambitious Advisor Program. Allow me to explain. It is part of my mission to allow the advisors I work with to live a life full of ambition, in and outside of the office. To create the experiences they desire and the moments that will last forever. From traveling the world, to taking off early on Fridays to spend more time with your kids, your spouse or family and friends.
That is what the Ambitious Advisor Program is all about. It’s about giving you this complete trust based marketing system, with done for you Trust Tools, to attract new clientele, to add value and goodwill to your current clients and get them excited about sending you referrals. And it’s practically guaranteed to give you results. Because if you don’t get them, you don’t pay me. It’s that simple. There is no contract and there is also no competition. Once you claim your market area, we will NOT let anyone else from your geographic area join. You will completely lock them out.
Today, I want to offer you an opportunity to take a Test Drive and see behind the curtain of the Ambitious Advisor Program. To see what it’s like to be the only advisor your market knows by name and actually wants to brag about to their friends. To see a complete demo and walkthrough inside of the Ambitious Advisor Program, and claim a copy of the Trust Triangle Special Report, simply visit www.ambitiousadvisor.com/demo or call (888) 687-0064.
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December 2014 » InsuranceNewsNet Magazine
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NAILBA INSIGHTS
The National Association of Independent Life Brokerage Agencies (NAILBA) is a nonprofit trade association with over 350 member agencies in the U.S. and Canada.
What’s Ahead for 2015? C lients have never had more options for fulfilling their needs, but they will need their advisors to be more informed than ever in explaining their benefits. By Barbara Crowley
L
ooking ahead for 2015 has already begun. What next year will bring is somewhat unknown and the answers vary, depending on whom you ask. Insurance carriers will continue to be pressured by the need to reserve for long-term guarantees and by continued low interest rates that suppress investment returns. As a result, we see higher premiums on guaranteed products, carriers eliminating lifetime guarantees and flexibility becoming an important part of portfolios. Many carriers are now offering cash value buildup in universal life policies as well as a plethora of riders. These life insurance policy riders offer unprecedented opportunities for policy owners in the form of return of premium at specified times and advance death benefits for critical illness, long-term care needs and even disability. The key points are that clients have never had more options in fulfilling their needs, but as a result, clients will need their advisors to be more informed than ever in explaining their benefits. Long-term care insurance (LTCi) sales continue to lag for individual products. But the American public has never needed home health services and facility care coverage more than they do now. Our population will continue to age at an unprecedented rate, and costs will continue to escalate. The uncertainty of future premium increases and the high price of entry make long-term care insurance more and more difficult to sell. We hear that at least one major LTCi carrier will be announcing a new product in early 2015 that will allow more flexibility and opportunity for insureds. The LTCi industry needs a fresh approach, and we are hopeful this will be the beginning of a beneficial trend. Sales of longterm care benefits continue to soar as rid62
ers to life policies and as linked benefits. The success of life policies being sold with long-term care riders lies in the clients’ understanding that they are the recipients of whichever need occurs first. Linked benefits’ success lies in the fact that many clients have shelf money or nonessential funds that can be repositioned. Knowing they will have more than their deposit in the event of death or knowing they have a guaranteed long-term care pool of benefits is appealing to our clients. Illustration reform is also a hot topic. The American Council of Life Insurers has made recommendations to the National Association of Insurance Commissioners (NAIC) that would alter the way index products in particular are shown. When our industry doesn’t do the right thing in regard to customers, we unfortunately pay the price with requirements that may be too restrictive. We are hopeful that the NAIC will be reasonable about this. Annuity sales are growing as CD returns stay below 1 percent. Index annuities are hot with growth potential and guaranteed principal. Everybody is looking for client solutions that differentiate them from others. When
InsuranceNewsNet Magazine » December 2014
I attended the Million Dollar Round Table meeting in Toronto, I heard advisor presentations that focused heavily on how the advisors work toward giving their clients the most incredible experience possible. As I participate in brokerage general agency meetings, I hear agency principals discussing the same overall concept – make your advisors love you and need you. Interestingly enough, insurance carriers are looking for ways to deepen their partnerships with wholesalers. While it seems everything changes, some things do not change. Our products bring life-changing benefits to families every day. Their ultimate needs have not changed. We make life easier and more tolerable when adverse events affect our clients’ lives. What do I believe should be hot in 2015? Passion! We all need renewed passion for the significance and impact our industry has every day. Barbara Crowley is the chief executive officer of Brokers Clearing House in West Des Moines, Iowa, and is the 2014 NAILBA Chairman of the Board. Barbara may be contacted at barbara. crowley@innfeedback.com.
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MDRT INSIGHTS
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
A Financial Plan for an Expanding Family A n advisor learns firsthand how important it is to prepare financially for the birth of a child. By Matthew T. Hoesly
F
inancial advisors are constantly helping others plan for many of the important events in their lives, including marriage, children, retirement and leaving a legacy for their family. But what happens when they themselves have to enter these stages of planning? I recently had that moment myself with the birth of my daughter. The moment they let us take her home from the hospital without a nurse to guide us was when we realized the newfound personal and financial responsibility that a child brings! When I entered the stage of family financial planning, I learned a lot of personal steps to help secure our financial future. Here are the most important financial items for clients to evaluate when they are getting ready to expand a family: » Create a will and contingent trust. This is one of the most important first steps. Choosing a guardian for the children helps make sure they are raised by someone whom the parents think will share the same family values. Setting up a contingent trust helps ensure that the money your client’s child receives is distributed according to your client’s specific wishes, instead of the child having complete control the minute he or she 18. » Update beneficiary forms. Make sure to double check and update all retirement plans and insurance policies to be sure nothing falls through the cracks. Many accounts with beneficiary designations never pass through a personal will, so it is important that these are also updated. » Begin saving for college. There are various saving plan options available. At this step, it is important for your client to 64
consult a tax advisor to determine what is best suited for their family’s financial situation. I personally opened a 529 plan. The money in this plan can be used at almost any accredited higher education institution in the world. » Purchase life insurance. If your client already has life insurance, he may want to consider increasing the amount. Now that your client has children as beneficiaries, you want to be sure his family is put in a positive financial situation should anything happen. » Buy disability insurance. At a young age, future earning potential is the biggest asset. However, as we age it becomes increasingly important to consider disability insurance to comfortably cover income if illness or injury prevents us from working. A disability lasting longer than three months is very common and can be debilitating to family financials. » Consider a small whole life insurance policy. This accumulates tax-free savings and has a guaranteed purchase option. This option allows children to purchase additional insurance when they
InsuranceNewsNet Magazine » December 2014
are adults, regardless of their health at that time. » Look into a dependent care flexible savings account. Many companies have these plans in place, and they are a way to pay for certain child care costs with taxfree money. It is a “use it or lose it” design, so your client should be sure he will be spending at least the amount he elected to have withheld each month. One main focus for financial advisors is to help families preserve wealth through multiple generations. These are some of the first steps for your clients to take when they have a child to make sure they are on the right track for their family’s financial health. It may also be beneficial to create a checklist for each specific stage of planning and life. Matthew T. Hoesly, CFP, ChFC, MSFS, is a financial advisor with Resource 1 in Norfolk, Va. Matt qualified for MDRT for the first time in 2008 and has achieved Court of the Table twice. Matt may be contacted at matthew.hoesly@innfeedback.com.
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.
NAIFA’s Annual Meeting Kicks Off 125th Anniversary C onference speakers addressed issues ranging from call reluctance to selling to different generations. By Ayo Mseka
T
he NAIFA Career Conference and Annual Meeting was extra special this year – it kicked off a yearlong celebration of the association’s 125th anniversary and paved the way for a future that is as glorious as its past. “As we enter our 125th year, let’s celebrate our many accomplishments,” NAIFA chief executive officer Susan Waters told the members who had convened in San Diego for the conference. “But let’s Susan Waters also remember our purpose and the vision of our fathers.” So, as the members celebrated NAIFA’s storied past, they learned from some of the best in the business how to build profitable and sustainable practices – now and in the years ahead. From Connie Kadansky, they gained some critical insights on how to overcome sales call reluctance, which is the emotional hesitation many advisors have about prospecting and promoting themselves and their businesses. This reluctance, Kadansky said, limits their ability to follow through, ask for referrals, recommend higher-priced products and create relationships with strategic partners. Kadansky shared three key characteristics of effective self-promoters: [1] They make full use of their existing contacts and networks and are always looking for ways to be visible. [2] They not only make sure they get noticed, but they also do things that are distinctive so that they will be remembered. [3] They never leave self-promotion to chance.
To overcome sales call reluctance, advisors must recognize four things that are blocking their success: limited beliefs, assumptions (experience plus emotion), perceptions/interpretations and inner critic/inner terrorist. And to feel good about themselves, advisors should start each day thinking about five things they are grateful for. For 60 seconds each day, they should ask themselves: What is it like to be at ease with prospecting? “Some of the simplest things you do can truly transform your business,” Kadansky said. From industry veteran Greg Gagne, founder of Affinity Investment Group, members heard the story of his rise from “under the table” to Million Dollar Round Table’s Top of the Table. After years of struggling financially, Gagne said he asked himself what it would take to forge a path to success. These are his tips for moving forward: » Stay organized. Top people keep good records of their records. “If you are not keeping good records, start today,” he said. » Do what you say you will do. “Be accountable to yourself and success will follow,” he said. » Create a to-do list every morning and cross off completed tasks throughout the day. This shows that you are making progress, he said, adding that advisors should always remember to say please and thank you. » Get involved with NAIFA and MDRT. This will help you grow. Find a mentor or be a mentor. “Connect with people who can bring you up,” he said. These tips are not rocket science, but Gagne has adhered to them over the years and success has followed. “Use them to forge your own path, and make it a great day,” he said.
Selling to Different Generations
From Seth Mattison, an expert on workforce trends and generational dynamics, attendees learned how to work with and sell to people of all ages. As they offer their services to what Mattison called the “empowered consumer,” they should keep in mind certain attributes of this type of consumer: » Busy. Life is busy for them, so advisors must do anything they can to make things easy for them. » Informed. Thanks to the Internet, today’s consumers are more informed than any other generation before them; their agent or advisor must be even more informed in order to be of value. » They have higher expectations of their service providers. » They have more choices than previous generations, mainly because of their access to the Internet; so advisors must offer them something that the Internet cannot. » They decide differently. Thanks to market volatility in recent years, they have a different investment mind-set from that of their parents and grandparents. So to help them make decisions, advisors must simplify things for them. “We live in a world in which old rules still apply, together with the new; so you must learn how to navigate these changes,” Mattison said. “I wish you courage. I wish for you curiosity, and I wish for you commitment. Be willing to invite all voices to the table. Love people, see people, add value and have fun.” Ayo Mseka is editor-in-chief of Advisor Today, the official publication of the National Association of Insurance and Financial Advisors. Ayo may be reached at ayo.mseka@innfeedback.com.
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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.
LIMRA INSIGHTS
Bridging the Gap in Annuity Knowledge and Perceptions R esearch shows that investors with the greatest understanding of annuities have the most favorable opinion of them. By Jafor Iqbal
P
eter Lynch, the legendary fund manager, once said about investing, “Know what you own and why you own it.” The LIMRA Secure Retirement Institute tested that maxim with annuity owners, and they passed with flying colors. As part of a new report, “Annuities: Love Them When You Know Them, Hate Them When You Don’t,” 2,000 households with investible assets of $100,000 or more were quizzed about different features and benefits of annuities. Among our findings from annuity owners: » Eighty percent of annuity owners scored high (9 or more correct out of 12) or medium (5 to 8 correct) on the annuity quiz, better than on other segments. Around 40 percent of investors without an annuity knew very little or nothing about annuities. Most annuity owners know what they own. » Annuity owners overwhelmingly (80 percent) believe that annuities are a good fit for their financial and retirement needs. This finding indicates that annuity owners know why they own them. Among investors, a strong correlation exists between how much is known about annuities and how annuities are perceived. The more knowledgeable investors are about annuities, the more likely they are to have a positive attitude about annuities, and they appear to be less disturbed by negative statements about them. Investors with low annuity knowledge seem to believe all things negative. » Finally, 48 percent of households with strong or somewhat positive attitudes toward annuities own a deferred annuity. 66
This percentage is six times greater than the percentage of households with negative attitudes toward, or unfamiliarity with, annuities (Figure 1). As a testimony to their satisfaction, 7 in 10 annuity owners are willing to recommend annuities to their friends or family members. The relationship between positive attitude and ownership holds true for all financial products, including immediate annuities, stocks, exchange traded funds, etc. So how should advisors use this information to grow their retirement practice with annuities? Promote the benefits and features of annuities. Advisors, and particularly insurance companies, have a responsibility to clearly communicate the key benefits of annuities to investors, as well as to debunk some of the myths about annuities. Lack of knowledge keeps investors unaware of the benefits of annuities, and incorrect information perpetuates misconceptions of them. Do more retirement income planning. Advisors should be encouraged to do more retirement planning for their clients, such as budgeting for essential and discretionary expenses and income, guaranteeing spousal income, estimating how long the assets will last, etc. Such planning activities expose critical retirement risks and allow
InsuranceNewsNet Magazine » December 2014
advisors to explain how annuities can help eliminate some of those risks. Connect with investors’ emotional needs. Investors told us lifetime guaranteed income is important to them for two reasons: peace of mind and the security of a predictable retirement income. Annuities can be described in ways that appeal to the emotions. Familiar terms such as “a paycheck for life,” “creating your own pension” and “CD-like” can help investors make an emotional connection with annuities. For better or worse, investors learn about annuities from a variety of sources: family members, friends, websites, magazines, TV and social media. The industry can do more to promote the value of annuities. Knowledgeable advisors can reinforce their value by educating investors on when and how annuities should be used. When credible information on annuities is made available and accessible, both investors and advisors stand to benefit. Jafor Iqbal is associate managing director, retirement research, for LIMRA Secure Retirement Institute. In this role, he is responsible for managing retirement income research projects. Jafor may be contacted at jafor.iqbal@ innfeedback.com.
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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.
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Detroit Is Not Alone – That Could Mean Trouble for Your Clients T he underfunding of state and municipal pension liabilities could have devastating effects on your clients’ retirement plans. By Jamie P. Hopkins
W
ith over 27 million people covered by state and pension plans, the security of those plans is crucial to your clients and to America’s retirement readiness. As Detroit’s bankruptcy shows, these government pension plans that are supposed to supply retirees with guaranteed income might not be as secure as we thought. In July 2013, the city of Detroit filed for Chapter 9 bankruptcy, making it the largest U.S. city to file for federal bankruptcy. The cause was roughly $18 billion of outstanding debt and liabilities, including roughly $650 million in underfunded municipal pension plans. There has been some debate about how underfunded Detroit’s $5 billion asset pension plan was at the time of bankruptcy. Estimates have ranged from around 15 percent to as much as 50 percent. Either way, the plan was severely underfunded. Approximately 30,000 working and retired plan participants found their retirement income in jeopardy. The underfunding of the plan was nothing new; it had been a problem for years. Just to keep the pension afloat, Detroit borrowed $1.4 billion in 2005 to meet its underfunded pension liabilities. In July 2014, as part of the bankruptcy proceedings, retirees voted to cut pension checks by 4.5 percent and to eliminate cost-of-living adjustments. This was a significant reduction but one deemed necessary to prevent further loss to the pension system. While these negotiations and pension cuts help Detroit move closer to exiting bankruptcy, not everyone was happy with the decision, and a class-action lawsuit has been filed to stop the cuts. The news gets worse. Detroit is not alone. Moody’s Investor Service estimates 68
that U.S. states and localities have roughly $2 trillion in underfunded pension liabilities. There is a real concern as to which city, state or municipality will be the next Detroit. Will all these localities be able to meet their pension promises? If Detroit is any indication, the answer will be no. While it is more complicated to determine whether a state can reduce pension benefits due to underfunded liabilities in the same way Detroit has done – because states cannot file for Chapter 9 bankruptcy – it is clear that other cities and counties might follow suit. A 4.5 percent reduction might not sound devastating. But when coupled with other potential retirement income changes – including giving up any inflation protection with cost-of-living adjustments – it could add up to a big problem for retirement security. Social Security remains the most common form of retirement income, followed next by employer-provided benefits. There are legitimate concerns regarding the funding status of Social Security as well. It is not far-fetched to imagine Social Security benefits reduced in the not-too-distant future. Under the status quo, Social Security will be able to make full benefit payments only until 2033, at which time there would be enough income from taxes to pay just 76 percent of expected benefits. When you consider how much your clients, especially those nearing retirement, might be relying on Social Security to fund a portion of their retirement income, this is a situation that bears closely watching. Reductions to Social Security cou-
InsuranceNewsNet Magazine » December 2014
pled with permanent reductions in an individual’s state or local government pension plan could devastate your client’s financial security. There is no doubt that the security of any client’s pension plan is an important consideration when planning for retirement. If you have a client eligible for a state or municipal pension, make sure you understand the funding situation of the pension plan. This could heavily influence your decision to recommend annuitizing the benefit, leaving money in the plan or taking a lump-sum distribution. I’d like to tell you that the art and science of retirement income is easy. As an expert advisor, you know better. Incorporating all of this into a comprehensive plan can be incredibly difficult to do. You’ll want to continue furthering your own education to be as prepared as possible, with a good understanding of the pension system and the latest techniques for mitigating retirement plan risk. If a plan is severely underfunded, it might be best to recommend withdrawing the money at retirement to avoid a Detroit-like situation. Detroit is not alone. When it comes to retirement income planning, make sure your clients aren’t either. Jamie P. Hopkins, Esq., RICP, is associate director of The American College New York Life Center for Retirement Income. Jamie may be contacted at jamie.hopkins@ innfeedback.com.
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