InsuranceNewsNet Magazine - December 2013

Life Annuities Health Financial

December 2013

Frustrations mount as issues pile up.

PAGE 44

PLUS The 2014 Industry OUTLOOK PAGE 20

How to be a BESTEARNING Author PAGE 10

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Technology Issue

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ANNUITY SOFT WARE HAS CLIENTS JUM PING OUT OF THEIR SEAT S And Producers Cons istently Closing $400,000 tickets!

“Y

ou know I don’t like talking about it,” Candice McLain fifteen minutes said. to do it. “And so eight years of marriage, After twentythis is what your like.” He clicked future looks on the fourth of she didn’t have to say anything four tabs, the one “Income for Life at all. Matthew that reads, Report.” knew In that instant, didn’t want to think that his wife the McLains could about him potentialsee what income ly passing away they’d receive for each in his sixties. Neither year of them did, but one lives. It was suitable, for the rest of their it couldn’t be ignored. what they had been Matthew insisted expecting. So then that she be present it was time to bring for this second the elephant in meeting, to help the room. Matthew up calm his other him said, “What if I die at great age 66?” It was something happen fear: that, should the age his father passed to him, his lifelong away. love wouldn’t be Three clicks later, cared for. That she’d have to move out Matthew’s question and the answer to of the family home be a burden to their and appeared before them on the big children. screen. “Oh no,” He simply squeezed Candice quietly said. his wife’s hand as Matthew could they sat side by nothing. The projection side in the waiting say room. They didn’t Todd sprang into was devastating. wait long.

“It doesn’t have the room to greet said. “I do have to be this way,” Candice first and them, kindly welcoming a solution.”

Todd inviting Todd didn’t launch Last week, Matthew them both into his office. laid everything nuances of a particularinto a sales pitch. He didn’t start 401(k), his wife’s out. His pension, into the plan. He didn’t even IRAs, his All he did was take mention a product. second appointment everything. And then Todd set a few up their and asked him to details of a particular moments to input onto the screen bring his wife.

This week, after the just his new prospects. annuity that he was confident Todd had his laptop a couple minutes of friendly would And then another chit chat, fit fired up and projecting the projection as sixty-inch screen its image onto a if Matthew passed two clicks, but keeping they all could view at age 66, and the were dramatically looking at was together. What numbers different. they were basic. It was a screen with simple Matthew leapt out Matthew’s and Candice’s numbers, index finger landed of his chair and dashed to the screen.

“All I did, Matthew, names. on the line showing His of his hypothetical their me last week,” Todd was input all the information income the year death you gave said. In fact, it had “That!” He affirmed. – income that did not decline only taken Todd at all.

“I want that.” about Todd had yet to even tell him what “that” was.

“Oh no,” Candice quietly said. Matthew could say nothing.

The projection was devastating.

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DECEMBER 2013 » VOLUME 6, NUMBER 12

» read it

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IN THIS ISSUE

View and share the articles from this month’s issue

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44

ANNUITY

40 B urgeoning DIA Market Targets Gen X

By Linda Koco Many Generation X workers are finding that new deferred income annuities with lower minimum premiums are a perfect fit with their retirement planning needs.

HEALTH

44 W ill ACA Get on Track After Disastrous Rollout?

By Susan Rupe The much-publicized snafus in the Affordable Care Act debut are leading to the question of whether the health care law really will deliver on its promises.

INFRONT

50 A dvisors Get Resourceful While Dealing With Flawed System

8 SAFE Bill Would Use Annuities to Secure Public Employee Pensions

By Cyril Tuohy The Senate is considering the Secure Annuities for Employee (SAFE) Retirement Act, which would offer public employees a new type of defined benefit plan built on fixed annuities.

20 Outlook 2014

By Steven A. Morelli What will the coming year bring to the insurance business? From interest rates to regulations to changing demographics to the rise of big data, InsuranceNewsNet looks at the factors that are leading to an optimistic view of 2014.

10

By Susan Rupe Advisors are stuck between their clients’ anxiety, the frustration of dealing with the health exchange website and the winding down of time before “Obamacare” kicks in.

LIFE

32 Want Better Clients? Get a Plan!

By Brent Eugenides A formal sales system will help your clients understand the process and help you generate new business.

FEATURES

10 How to Be a Best-Earning Author

Part 2 of an interview with Michael Levin Michael Levin may have had nine books on the best-seller list, but he knows that selling a lot of books isn’t the only way to measure your success as an author.

In his opinion, a book is one of the best marketing tools around. In Part 2 of his interview with InsuranceNewsNet Publisher Paul Feldman, Levin describes how writing your book can turn you into the “go-to” person in your community for your line of business.

2

54 FINANCIAL 34 Feds Eye Life Settlements for LTC Funding

InsuranceNewsNet Magazine » December 2013

By Chris Orestis Millions of dollars of death benefit value owned by seniors could be tapped as a way to provide private-pay funding for long-term care services.

54 Time Is Ticking on IRA-Charity Rollovers

By Patti S. Spencer If your client is running up the percentage limitation for charitable gifts, using a qualified charitable distribution will allow your client to transfer more to charity.

WHAT MORE DO YOU GET? eDelivery! Save time. Save money. eDelivery is now available for all Banner policies.

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EVERY DAY MATTERS.® BANNER. WILLIAM PENN.

ALSO IN THIS ISSUE DECEMBER 2013 » VOLUME 6, NUMBER 12

60 MDRT: How You Can Avoid the ‘Substitutability Trap’

56

By Charles Hollander Jr. Avoid the damaging trend that results when your service and sales conversations become too similar to those of other advisors.

62 N AIFA: Five Ways to Boost Your DI Sales

BUSINESS

By Corey Anderson Your clients and prospects have a crucial need to protect themselves financially in case they become ill or get hurt.

56 F our Words for More Referrals

By Matt Anderson Develop a habit for getting people you know to refer you to others.

INSIGHTS

58 L IMRA: Connecting With Consumers in the Era of “Seller Beware”

64 NAILBA: Advisor Focus on Finance Robs Families of Insurance Guidance

By Delores R. Freitag Success comes to financial professionals who connect with their prospects and who act as guides worthy of their trust.

By Ray Phillips The emphasis on financial planning is taking attention away from the value of life insurance.

EVERY ISSUE 6 Editor’s Letter 18 NewsWires

30 LifeWires 38 AnnuityWires

42 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

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Copyright 2013 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 at 866-3818630, 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.insurancenewsnetmagazine.com, or call 866-707-6786, Ext. 115 for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 355 N. 21st Street, Suite 211, Camp Hill, PA 17011.

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WELCOME

LETTER FROM THE EDITOR

Precious Pain

W

hen you have pain pulsating with every beat of your heart, not much else matters.

Indeed, few things are as clarifying as a throbbing toothache. But it could be any kind of pain. We’ve all experienced some degree of it: back, foot, tooth.

When pain moves in, it pushes everything out, like a big, bawling baby attached to your nervous system. The only thought allowed in your brain at that moment is: Please, I will give anything I own or ever will own to make this go away, please, God, oh, please.

In those moments, life is not about the things you do or the things you need to get done. It isn’t about friends and relatives. It isn’t about deciding whether to buy an Android or an iPhone. It isn’t about saving the planet. It is all about you and the pain. That is your world now.

Some people reading this have gone down pain’s darkest corridors. I have seen family members suffer the worst of what cancer can bring as I sat helplessly with my hand over my mouth. But even so, I can’t even come close to understanding how a parent gets through something like that. What words can you possibly say when your child looks at you as the protector who is supposed to make the pain go away?

The next time you tangle with serious pain, hold on to the experience. Keep it nearby like gold. It will reveal insight into everyone you meet.

When you are at the grocery store and see a frowning, elderly person walking gingerly, you’ll understand that he is not just a cranky old guy. He’s a man in constant pain, afraid he might fall down in public and not be able to get back up.

His look that appears to be contemptuous might be a simple attempt to assess whether you are kind or whether you are just another jerk in a hurry.

When you are in a meeting and a colleague keeps interrupting and snapping at you, realize she is someone feeling as if you don’t respect and value her.

Here is someone devoting most of her waking hours to this current endeavor and there you are implicitly treating 6

that commitment cheaply. That is not a throbbing tooth but it’s a clarifying pain just the same.

When you deal with prospects or clients who have clammed up during an insurance sales process, you’ll know that it is not because they have lost interest.

It’s because you have entered sensitive territory.

Find the pain. That’s what salespeople are taught. OK, so you have made a devoted dad frightened for the future of his wife and daughter. This is not just a sales tool. This should not say “chaching!” in your brain.

This is a moment for solemn reverence. Here is where you were meant to be when you woke up that morning. Here is where you make a difference in a family’s future. Here is where you earn your commission as gratitude, not as a reward.

In this month’s issue, we look out at the horizon of 2014 and find plenty to worry about. Interest rates, regulation, technology, competition – even your own carrier eyeing your lunch. But the analysts we interviewed all had a similar conclusion: Get back to why you do what you do.

I suspect you are not in this business just to sell product. Sure, you might

InsuranceNewsNet Magazine » December 2013

know plenty of people who are laser-focused on getting better numbers, but that is probably not you. People like that don’t bother reading things like this.

They only want to know how to rack up the sale.

So, it’s just you and me here. Let me tell you something about December.

It doesn’t matter if you are religious or not, there is something holy about this month. When the night is longest is when we want to have our special people closest. When we are around the fire huddled with others for warmth and protection from the dark and cold is when we have clarity. This is what it’s all about.

This is another thing to keep close by and something else that will pulsate with every beat of your heart.

Happy Solstice, Steven A. Morelli Editor-in-Chief

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Call 1-800-800-2738 to request our kit or visit prudential.com/benefitaccess to learn more.

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• Financial strength you can count on. Prudential Financial companies paid more than $3.5 billion in individual life death benefits last year.†

IN

people 65 and older will need care for a chronic illness during their lifetime**

*BenefitAccess covered by U.S. Patent No. 7,958,035, which was issued on the insurance product management system for an accelerated benefit provided in response to a medical condition, where the benefit is paid to the policy owner without restriction on use of proceeds. **U.S. Department of Health and Human Services: National Clearinghouse for Long Term Care Information, 2013. ***Certification by licensed health care practitioner required. †Prudential Financial, 12/31/12. PruLife® Universal Protector is issued by Pruco Life Insurance Company in all states except New York, where, if available, it is issued by Pruco Life Insurance Company of New Jersey. All guarantees are based on the claims-paying ability of the issuing company.

This rider is not long-term care (LTC) insurance and it is not intended to replace LTC. The BenefitAccess Rider is available for an extra premium. Additional underwriting requirements and limits may also apply. Obtaining benefits under the terms of the rider will reduce and may eliminate the death benefit.

Benefits paid under the BenefitAccess Rider are intended to be treated for federal tax purposes as accelerated life insurance death benefits under IRC §101(g)(1)(b).

Tax laws related to the receipt of accelerated death benefits are complex and may be taxable in certain circumstances. Receipt of benefits may affect eligibility for public assistance programs such as Medicaid. Accelerated benefits paid under the terms of the Terminal Illness portion of the rider are subject to a $150 processing fee ($100 in FL). You should consult your tax and legal advisors prior to initiating any claim.

A licensed health care practitioner must certify the chronic or terminal illness to qualify for benefits. Chronic illness claims will require recertification by a licensed health care practitioner. Other terms and conditions may apply. The rider may not cover all of the costs associated with chronic illness. The rider is a life insurance accelerated death benefit product, is generally not subject to health insurance requirements, and may not be available in all states.

Accelerating your death benefit will reduce the death benefit on a dollar-for-dollar basis. Full acceleration will eliminate the death benefit and your policy will terminate. © 2013 Prudential Financial, Inc. and its related entities.

FOR THE EDUCATION OF PRODUCERS/BROKERS ONLY. NOT FOR USE WITH THE PUBLIC. 0247700-00004-00 December 2013 » InsuranceNewsNet Magazine

7

INFRONT

TIMELY ISSUES THAT MATTER TO YOU

SAFE Bill Would Use Annuities to Secure Public Employee Pensions T he Secure Annuities for Employee Retirement Act aims to preserve millions in guaranteed income.

By Cyril Tuohy

T

he defined benefit retirement model, which entered decline more than 20 years ago, may benefit from a reincarnation of sorts in the Secure Annuities for Employee Retirement (SAFE) Act of 2013 making the rounds in Congress.

The SAFE Act would offer public employees a new type of defined benefit retirement plan built on fixed annuities. The aim would be to secure millions in guaranteed income for the workers’ lifetimes. Private sector workers would benefit as well because the bill would push the “nudge economics” that is supposed to help prepare workers for retirement.

Backers of the bill, which was sponsored by Sen. Orrin G. Hatch, R-Utah, include insurance underwriters, the fixed annuities industry, financial advisors, the mutual fund industry and a host of powerful business lobbies, including the U.S. Chamber of Commerce and the Small Business Council of America.

“This is using annuities in a very significant way, in the way they were intended to be used,” said Kim O’Brien, president and CEO of the National Association of Fixed Annuities.

SAFE, the acronym, is just what it sounds like, she said. Retirees don’t lose their principal and receive an income on the back end.

But the bill, which has yet to garner the support of any Democrats, is facing resistance from powerful unions including the American Federation of State, County and Municipal Employees and the National Conference on Public Employee Retirement Systems (NCPERS), which represents 550 public-sector pension funds in the U.S. and Canada.

8

THERE’S STILL TIME to voice your opinion before the bill is finalized. Below are the members of the Senate Finance Committee and how to reach them online.

MAX BAUCUS

Mont.

D

www.baucus.senate.gov

JOHN D. ROCKEFELLER

W.Va.

D

www.rockefeller.senate.gov

RON WYDEN

Ore.

D

www.wyden.senate.gov

CHARLES E. SCHUMER

N.Y.

D

www.schumer.senate.gov

DEBBIE STABENOW

Mich.

D

www.stabenow.senate.gov

MARIA CANTWELL

Wash.

D

www.cantwell.senate.gov

BILL NELSON

Fla.

D

www.billnelson.senate.gov

ROBERT MENENDEZ

N.J.

D

www.menendez.senate.gov

THOMAS R. CARPER

Del.

D

www.carper.senate.gov

BENJAMIN L. CARDIN

Md.

D

www.cardin.senate.gov

SHERROD BROWN

Ohio

D

www.brown.senate.gov

MICHAEL F. BENNET

Colo.

D

www.bennet.senate.gov

ROBERT P. CASEY

Pa.

D

www.casey.senate.gov

ORRIN G. HATCH

Utah

R

www.hatch.senate.gov

CHUCK GRASSLEY

Iowa

R

www.grassley.senate.gov

MIKE CRAPO

Idaho

R

www.crapo.senate.gov

PAT ROBERTS

Kan.

R

www.roberts.senate.gov

MICHAEL F. ENZI

Wyo.

R

www.enzi.senate.gov

JOHN D. CORNYN

Texas

R

www.cornyn.senate.gov

JOHN D. THUNE

S.D.

R

www.thune.senate.gov

RICHARD BURR

N.C.

R

www.burr.senate.gov

JOHNNY ISAKSON

Ga.

R

www.isakson.senate.gov

ROB PORTMAN

Ohio

R

www.portman.senate.gov

PATRICK J. TOOMEY

Pa.

R

www.toomey.senate.gov

InsuranceNewsNet has put together an online page of resources to help you learn more about the SAFE Act and how to ask your Senator to support the bill. Go to insurancenewsnet.com/SAFE

InsuranceNewsNet Magazine » December 2013

Photo: Associated Press

SAFE BILL WOULD USE ANNUITIES TO SECURE PUBLIC EMPLOYEE PENSIONS

Sen. Orrin G. Hatch is the sponsor of the SAFE Act, which would offer public employees a new type of retirement plan based on fixed annuities.

NCPERS Executive Director and Counsel Hank Kim called the Hatch legislation “ill-conceived and unworkable.” He said it confuses the big deficits in private-sector pensions with the generally healthy state of public-sector pensions.

“Public pension plans, on the other hand, are alive and well,” he said in a statement. Better investment returns since the financial crisis, along with “widespread procedural and operational reforms, have left public pension plans well-funded, financially healthy and sustainable for the long term.”

Lacking any cosponsor, lawmakers, consumed with health care reform, aren’t likely to take up the bill before next year at the earliest. Meanwhile, whether public employee pensions are underfunded and by how much is a matter of real debate.

Public employee unions say that by and large employee pension plans are generally well funded given the rebound of the financial markets.

State and local governments collectively say they are $900 billion short on the funds needed for future promises, but a trio of scholars at the Brookings Institution estimate the unfunded liability at closer to $2.7 trillion.

Funded ratios of state public pensions range from a low of 25 percent in Illinois to a high of 57 percent in Wisconsin, according to the Tax Foundation.

O’Brien also said the bill represents a “new market opportunity” for the fixed

annuities industry, which has struggled in recent years with low interest rates.

The public pension changes under the bill would allow state and local employees to receive monthly income for life after they retire, O’Brien said. Not only would pension costs remain stable and predictable, there is no danger of underfunding, and retirement benefits are protected by state life insurance guaranty associations, she said.

Kim of NCPERS, however, said the bill does little more than “hand public pension systems over to life insurance companies.”

INFRONT

“Contracting out a nonprofit enterprise to a for-profit insurance company makes absolutely no sense,” he said. “Public pension plans are already in the business of providing their retirees with annuities.

We self-annuitize – at a cost of 50 to 76 basis points, certainly a lower cost than a for-profit insurance company could offer.”

Beyond changes to the public pension system, the SAFE Act’s private pension reform clauses would make it easier to cover employees through simpler, “starter” 401(k) plans and increased auto-escalation plan features. It would also make it easier for employers to move up to Safe Harbor 401(k) plans.

Administrative burdens would also be reduced and hardship distributions simplified, according to the bill. Restrictions surrounding rollovers, forfeitures, minimum participation and 403(b) plan termination would also be lifted.

The bill would also address longevity reforms. These would include expanding the ability of employers to offer annuities in defined contribution plans, updating mortality tables used by the U.S. Treasury for specific distributions, and making certain modifications to the Employee Retirement Income Security Act (ERISA).

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years.

Cyril may be reached at Cyril.Tuohy@innfeedback.com.

NCPERS as Executive Director and Council Hank Kim opposes the SAFE Act, stating that the bill does little more than “hand public pension systems over to life insurance companies.”

December 2013 » InsuranceNewsNet Magazine

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10

InsuranceNewsNet Magazine Âť December 2013

L

HOW TO BE A BEST-EARNING AUTHOR

ast month, ghostwriter Michael Levin told InsuranceNewsNet readers how to write a book. But he cautioned that when you are finished, you must not make the mistake of thinking you have just a book. What you have is one of the best marketing tools ever devised.

That is how Michael describes the power of the book.

Do you want prospects to come to you, eager to do business?

Would you like reporters from the top financial news outlets calling you to seek your wisdom? Can you imagine being the “go-to” guy in your community for your line of business?

Behold the power of the book!

How does a mere book do all this? As Michael knows from his work as a topflight ghostwriter, creating a book is certainly an accomplishment, but it’s what you do with that book that matters. In this month’s discussion with InsuranceNewsNet Publisher Paul Feldman, Michael lifts the veil on the marketing magic of the book.

FELDMAN: Do you find that people who have written a book focus on the wrong thing once they get it published?

LEVIN: Yes. It’s not about being a best-selling author. It’s about being a best-earning author. It’s not about going into the book business. It’s about using that book to build your book of business.

You would have to sell a gazillion copies of the book to equal what you would make from one good new client. That’s why it’s distracting when you write a book. Everybody’s competitive. Everybody wants to win, especially entrepreneurial people such as insurance professionals.

So they write their book, and then they say, “Oh, no – I sold only 11 books this month.” Well, it doesn’t matter how many books you sold. It matters how many people downloaded the book from your website.

It matters how much you were able to build your list with the names and emails you collected that you couldn’t have captured before the book. And, ultimately, it matters how many people came in and did business with you.

That is the difference between a best-selling book – which is really just about status – and a best-earning book.

FELDMAN: How does a book compete in a dynamic online world?

LEVIN: If you have a prospect who needs very expensive services, is that prospect really going to Google “insurance agents” and the name of your city or town, then read 10 websites, interview three people and ultimately hire you? How often does that happen?

Most people I speak with in the insurance field say that all of the stuff that they do for marketing is marginally successful,

Photo: Levi Tenenbaum

Read part one of the Levin interview, “How to Finally Write Your Own Book,” at bitly.com/levinpart1

FEATURE

but at the end of the day, the only thing that really makes a difference is word of mouth.

I’ve seen that the only thing that is as much of a force multiplier as word of mouth is a book. I’ve never seen a marketing tool that was as effective. And if there were such an effective marketing tool, I’d offer it.

FELDMAN: Should authors offer both hard copy and digital versions of their book?

LEVIN: Yes. In fact, I tell clients that the first thing they should do with their book is put it on their website and give it away as a free PDF in exchange for contact information.

Let the world know you wrote this book. You don’t need to make a crazy social media spend. Social media is great if you’re Lady Gaga, but I’m not convinced that individual professionals really benefit all that much from it.

Instead, I tell my clients that even before they have published their book, they can take the first three chapters and print 100 copies. Then, they can identify 100 prospects in their community and say, “Dear Mr. or Ms. So-and-So, you’re a person I’m aware of, and I admire you because you’ve done XYZ. I’m working on a book about long-term care insurance. I would be very grateful if you would read the first three chapters, which are enclosed, and let me know what you think, because you are the kind of person I’m trying to reach with this new book.”

People feel honored to be asked for their opinion. Some are going to throw your chapters in the trash, of course. But some of them are going to read the chapters, and not only will they give you their editorial opinions, but they also will say, “How soon can you be over here? You’re really good. This is good stuff. I never really wanted to think about long-term care insurance, but now I realize I need it.” So this is going to cost a few hundred dollars, and it’s a really cheap but powerful form of marketing.

FELDMAN: So are you saying that even though you have the PDF, you should still have the book printed?

LEVIN: Yes, and the reason is because

December 2013 » InsuranceNewsNet Magazine

11

FEATURE

HOW TO BE A BEST-EARNING AUTHOR

everything today comes by email, so when somebody actually takes the time to send you a physical package, it’s striking. It’s unusual.

FELDMAN: How do you go about printing it?

LEVIN: It depends on the company.

CreateSpace is Amazon’s print-on-demand captive company. If you send them a manuscript, they will turn it into a physical book. They’ll design a cover.

They’ll lay out the pages. They’ll put it on Amazon as a paperback or as a Kindle download or both. And every 90 days, they’ll cut you a check for about half of the cover price of sales.

If you want to do a hardcover book, I would contact Lightning Source, which is owned by Ingram. They’re one of the powerhouses of the publishing world.

Lightning Source is very consumer-friendly. They will walk you through the process. You can get a hardcover as well as a paperback and a Kindle download. Lightning Source also will put your book on BarnesandNoble.com and other websites.

If you just want to do the book as a download, you can go to Kindle Direct, upload the manuscript and pay a small fee. Within hours, your book is available on Amazon for Kindle. This technology is astonishing.

FELDMAN: What do you do with your book once it is published?

LEVIN: It’s a really good talking point.

You can tell people, “Yeah, my book’s on Amazon,” and they’ll be blown away. But what we advise the clients for whom we write books is to put the book on your website as a free PDF in exchange for contact information.

Now you can capture the contact information of people who have been visiting your site but not raising their hand. You can put them into a drip marketing program or just send them random emails or do anything you want with them. So when people visit your site, instead of glancing at a white paper or reading the “about the firm” section, trying to figure out whether or not you’re a good guy, now they know you intimately.

They know how you think, they know 12

InsuranceNewsNet Magazine » December 2013

If you still insist on being a BEST-SELLING author ...

Above is a list of some of the best-selling non-fiction books on Amazon.

Michael Levin advocates thinking in terms of being a best-earning author. But in our interview, he also revealed some tricks to becoming an actual best-selling author. The following is quoted from Levin: The term “best-selling book” has really become debased in recent years, and that’s because of Amazon. It used to be that a best-selling book was really something special. The New York Times would – and still does – contact certain bookstores, never revealing which stores they are so that the system could not be gamed. And they would find out how many books were sold, and they had a weighted average – a book sale in this store is worth three books over there – and then they would tell you these are the best-selling books this week.

That changed with Amazon and BarnesandNoble.com. Amazon considers a book to be a national best-seller if it cracks the top 100 on the main list of books, or any sublist, for an hour. Amazon redoes its best-seller listings – it ranks all of the books that they have, all 5 or 6 or 8 million of them, every hour, based on the sales from the previous hour. So you could send an email to your list and say, “Hey, please buy my book on Tuesday night at 8 p.m. Eastern time, and if you do, you will help me make it a best-seller.” If you sell 400 to 700 books in that hour, you are a national best-selling author for the rest of your life.

And you legitimately can write “National Best-Seller” on your book, because you cracked one of Amazon’s sublists for an hour. To be a New York Times best-seller, it takes a lot more sales than that. I actually know two people who do this for a living. They will take a book and blow it up to the top of Amazon or Barnes and Noble or The New York Times best-seller list. But a lot of people will achieve best-seller status just by writing to their list and saying, “Hey, help me out – buy a copy.”

And sometimes they’ll offer a gift – “If you buy the book, I’ll give you a free webinar on whatever.” And that can actually be a very good marketing tool, because you may be able to sell people something that you couldn’t have sold them before. But however you do it, it doesn’t take that many copies to make the list.

HOW TO BE A BEST-EARNING AUTHOR that you care and that you’re experienced.

And they know that they have a serious problem that needs to be addressed and that you are the most trustworthy advisor to solve that problem for them.

FELDMAN: How do you use the book to raise your profile?

LEVIN: The next couple of things I would do is get speaking engagements and get media attention.

With speaking engagements, it’s tough to get on a podium – whether it’s your public library or TED Talks or anything in between – without a book. But now that you’re an author, you can look around and say, “Where would I like to speak? What are the watering holes for my prospects? Where could I find them?” People may not be all that interested in having an insurance professional talk to their group. But they would be very excited to hear the author of a book that solves a problem for them – a problem such as how to keep their loved ones out of a nursing home or how to

keep money in the family instead of giving it to the government or how not to spoil the grandchildren by giving them too much too soon.

That is going to get people excited.

Then when you speak, you can sell copies of the book or – even better – you can give away a copy to everybody as a courtesy. You can say, “Just to thank you for showing up, I’m going to give you a copy of my book, and I’m going to stay here and sign every copy and answer any question until the last person has had his or her book signed.”

That’s going to cost you, what, a few hundred dollars? You can buy additional copies of your book for about three bucks a throw, less if you buy more. Compare that with the cost of doing a dinner for prospects. It’s ludicrous how inexpensive it is to give away copies of your book.

Again, you don’t want to get suckered into that whole issue of how many copies did I sell? Instead, the issues are how many copies does it take to get a prospect and how many prospects does it take to close a case?

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FELDMAN: How does the book help someone get media attention?

LEVIN: When you get into traditional media – radio, TV, newspapers, magazines – there are two ways to go. One is to hire a professional. The problem with doing that is that most of these professionals are really bad at what they do.

The other way is a website called Help a Reporter Out (HARO), and it’s zero dollars. HARO sends a free email three times a day, consisting of queries from reporters. Each of these emails typically contains about 30 queries, and they go out three times a day.

Reporters looking for experts then call or email the sources. This is a good way to get immediate publicity because you’re saying, “I’m the author of the book on such-and-such and, as the author, I can tell you blah, blah, blah.” And then you answer their question. And they’re either going to use you in that story, or they’re going to put you in their database. Then the next time a story comes up in an area that relates to your field, they’re going to call you.

For your FREE DEMO DISK call 800-799-4267 or visit us at AdvisorsAssistant.com

December 2013 » InsuranceNewsNet Magazine

13

Photo: Levi Tenenbaum

FEATURE

HOW TO BE A BEST-EARNING AUTHOR

The most important thing about the book is not momentum or quality ... but it’s guts. It’s the guts to say, “This is who I am.

This is what I stand for. This is what I believe. If this is how you feel, come along with me.”

This is an amazing way to build up your own database of reporters. Then you can send them your newsletter or your blog or whatever, and they can identify you as an important and trustworthy source of information.

This way, once your name starts getting into the media and getting picked up, it just gets picked up more and more often, and more people see your name. More reporters see your name, and they say, “OK, this is obviously the person to go to,” and you move up the ranks that way.

You can put somebody junior in your office on HARO patrol. Have that person understand that three times a day that staffer is going to watch for that HARO email, see whether there’s anything that relates to your field and respond to it.

If you do this often enough, you will get a bunch of hits. Then you can put on your website, “as quoted in The Chicago Tribune,” “as quoted in The Wall Street Journal,” “as quoted on CBS News.” You can put the logo for that news organization on your website.

That increases your credibility, and it’s there for all time.

14

FELDMAN: What is the best thing to do with a physical book once you have one?

LEVIN: It is the most impressive leavebehind in creation. Your competitor is leaving behind a pamphlet or a flier. It may be generic, and it may have been produced by the insurance company, but it isn’t about your competitor. Maybe the agent’s picture is on it, but that’s about all. It’s about as useful as a refrigerator magnet with a real estate agent’s name on it.

So here you are with a book. You want to send out a copy, just as a gift, to everyone you’ve ever done business with.

You might say, “Well, that’s going to cost a few thousand dollars.” But what’s the return going to be? Because all of a sudden, you’re top of mind with people in a very special way. And what are they going to do with the book? Well, everybody loves to have a “guy” – whether the guy is a man or a woman. We love to be able to refer people.

FELDMAN: Do you give clients books to give their friends?

InsuranceNewsNet Magazine » December 2013

LEVIN: Yes. Send a couple of copies of your book to each of your clients. And you say, “Do me a favor – if you’ve been happy with the service I’ve provided, could you please give these two books to two of your friends? If you want more, I’ll send you more.” And you’re going to have some evangelists for you.

Your clients have always loved you, but they’ve never been able to translate that love, respect and admiration for you into anything other than a warm recommendation at the club. Now they’re going to hand out your book and say, “Look – my person wrote a book. This is great. You have to read this. Now you’ll see.” You say, “Well, it’s going to cost me three bucks every time I mail out a book.” Well, you’re buying evangelists at three bucks a head – I think that’s the best deal in the universe. So absolutely get all your current clients copies of your books, and multiple copies – one for them and two for their friends. It’s a relatively small investment to capitalize on the good will that already exists, that you’ve already worked so hard to create but you’ve never been able to tap into before.

Then every prospect gets a book. In a perfect world, all your prospects already have read the book or seen the book before they come to see you, and the prospects who have read the book you won’t have to sell. They’re already sold.

The reason that they made the appointment with you is because they want to do business right now. They’re not going to think it over. They’re not going to talk it over with their spouse. They’re good to go. Imagine what your life would be like if the only people who came in for interviews or first meetings were people who already were prepared to sign. That’s what happens with a book.

FELDMAN: How can a book help you connect better with prospects and clients?

LEVIN: One of the things that you get to do with a book is to demonstrate what you care about the most. Maybe it’s the debt. Maybe it’s your religion.

We have clients who are very devout, and their religious beliefs drive the way they think, work and sell. If they don’t talk about their beliefs in the book, and

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FOR PRODUCER USE ONLY. NOT TO BE USED WITH THE OFFER OR SALE OF ANNUITIES. (10-13) December May 2013 » InsuranceNewsNet Magazine

15

FEATURE

HOW TO BE A BEST-EARNING AUTHOR

if they don’t make them front and center, then they’re missing out on their target market, because their target market feels the same way.

So it’s not about “Oh, my gosh, I’m going to alienate the rest of the world.” It’s “Oh, my gosh, I’m going to hit home with the people who feel the way I do.”

In that sense, the most important thing about the book is not momentum or quality – obviously, we need both – but it’s guts. It’s the guts to say, “This is who I am. This is what I stand for. This is what I believe. If this is how you feel, come along with me.”

Otherwise you’re just sort of another generic, uninformed, average insurance advisor. Nobody wants average.

People want passion. So having the guts to be yourself and then going out and speaking about that, and talking to the media about that passion, are the keys.

Anyone can sell insurance, but only you can sell you. This is how you can go into a world where everybody’s shouting and selling and distinguish yourself.

I have a client who is a financial advisor, and all he talks about is the $19 trillion structural debt that we face. When we were talking about doing a book, that’s all he talked about. When I got out the agreement to do business, as we’re going clause by clause through the agreement, he kept going back to the $19 trillion debt.

I thought, “This is really interesting. I want to see how he discusses it on his website.” I went to his website – there’s not a word about the $19 trillion debt.

He has a standard generic website like all his competitors, but now that’s going to change.

We made sure that 60 to 80 percent of his book is about the $19 trillion debt, and only 20 to 40 percent is about financial advice. Why? Because his real core target market consists of people who feel the way he does about the debt. He’d been hiding this fact under a bushel, afraid that he would be alienating people who didn’t feel that way when, in fact, it’s his strongest selling point within a very targeted niche market.

Some people who care about the debt have a lot of money and are looking for someone who is saying, “It’s not about rebalancing your portfolio. It’s about the deficit. If we don’t clear up the deficit, 16

then we’re just rearranging deck chairs on the Titanic.”

FELDMAN: Can a book create raving clients?

LEVIN: Yes, those are the ones who are going to be knocking down your door after they’ve read the book or heard you talking about it on radio or TV. I once heard a guy say that when he was in high school, he was a good kid, did all his homework and never got in trouble. And he said all the guys who smoked and took drugs – those were the guys who got the girls. He said he finally realized that it wasn’t because they were bad boys. It was because they were authentic.

He said, “I was in just as much pain as they were. It’s just that I hid it. I wasn’t really true to myself. These guys were.

That’s why they got the girls.”

In a weird way, life is still like that. People are attracted most to those who are most authentically themselves, who are true to who they are. They’re saying, “This is what I believe. This is what I stand for.”

So I’m a strong advocate of not just a quality book that explains how you sell this particular form of insurance or what your process is but also being yourself.

The best definition of intimacy that I ever heard is, intimacy means being yourself with someone else – or “into me see.”

I believe that the relationship between an insurance professional and a client is an extremely intimate relationship.

FELDMAN: Do you find that intimacy is particularly important in insurance and financial advising?

InsuranceNewsNet Magazine » December 2013

LEVIN: Yes. Clients are going to tell you things that the spouse doesn’t know about their finances, about which child they favor, about the girlfriend on the side. You become their pastor or their rabbi or their priest because of the level of trust that they put in you.

If there’s going to be that kind of intimate conversation, it has to start somewhere, and it’s not going to happen with a Ben Franklin close. It’s going to happen when you begin telling the truth about yourself and thus opening the possibility up for the prospect to tell you things that you need to know so that you can serve that person properly.

FELDMAN: I think that most people struggle when it comes to telling their own personal story. They tell it so frequently that they get bored and think it’s not relevant. How does writing a book make telling your story easier?

LEVIN: It’s funny, but I have a friend who got divorced, and his ex-wife eventually remarried. Then my friend asked her, “He’s a good guy. But out of all the guys in the world, why did you marry him?”

She said, “Because I got tired of telling my story.”

It’s just tiring to have to tell your story over and over again. Put it down in a book. You do it once and then you never have to tell it to prospects, because they’re going to know you.

They’re going to admire your courage.

They’re going to know who you are, and they will want to do business with you because of it.

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W W W. F I G M A R K E T I N G . C O M December 2013 Âť InsuranceNewsNet Magazine

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NEWSWIRES

U.S. Health Care: Most Expensive, Longest Waits, Most Red Tape bitly.com/qrexpensive

Annuity Flows Show ‘Significant’ Growth

7.4

%

3Q 2013

The Depository Trust & Clearing Corp. (DTCC) reports that annuity inflows and net flows showed “significant” growth in 2013. Considering all the product and carrier changes that have occurred in the fixed and variable annuity business over the past year, that’s a noteworthy development – because it speaks to growth, not stagnation.

DTCC’s Insurance & Retirement Services business unit processes both fixed and variable annuity product transactions for distributors that use its service, so the numbers provide a high-level view of the overall annuity marketplace.

Here are the numbers. In third quarter, annuity inflows increased to $25.1 billion, up 7.4 percent from $23.3 billion in the previous quarter. Meanwhile, outflows were in negative territory, declining by more than 2 percent from second quarter. As a result, net flows for the quarter increased by more than 98 percent from second quarter, to $4.4 billion from $2.3 billion.

On a year-over-year basis, third quarter inflows also were up – by nearly 15 percent, or $3.2 billion – over third quarter 2012. But outflows were up too – by more than 16 percent – compared to third quarter last year. The result was that year-over-year net flows rose by more than 8 percent, or more than $343 million, in third quarter compared to the same quarter last year. That’s not a gigantic increase for net flows in terms of dollars, but it’s still up.

On a first-nine-months basis, the pattern was a little different: Inflows here also rose – to $69.5 billion, up 7.6 percent from $64.6 billion in the first nine months of 2012. However, outflows were up too – by 14 percent. So ninemonth net flows actually decreased to $8 billion, a drop of 26 percent from $10.8 billion in the first nine months of 2012.

WHY NOT ASSUME THEY DON’T KNOW

Jackson National Life came up with a stunning finding in a recent survey of 500 adults with more than $200,000 in investable assets. The researchers found that more than 42 percent of men and 55 percent of women who responded said they do not have enough financial knowledge to feel confident making

investing decisions.

What’s more, although an additional 33.7 percent of women and nearly 40 percent of men told the researchers that they have a solid level of knowledge about financial products, terms and methods, they said they would still benefit from proDID YOU

KNOW

?

18

fessional advice to help them make appropriate investing decisions.

Our guess is that a lot of people won’t fess up to their lack of financial knowledge or need for advice, at least in initial meetings with a financial expert. After all, the need to save face can be a powerful incentive to stay silent. A good face-saving strategy, as well as a good educational strategy, might be for the advisor to assume the client doesn’t know. Just start educating.

HOW ABOUT SOME DISABILITY EDUCATION TOO?

Consumers don’t just need investment education. They also need education about disability insurance.

LIMRA recently asked U.S. consumers

WHILE 71 PERCENT OF NEWLY MARRIED COUPLES acknowledged the importance of sharing beneficiary designations before marrying, nearly half never got around to addressing their life insurance needs before saying “I do.” Source: National Association of Insurance Commissioners

InsuranceNewsNet Magazine » December 2013

10 true/false and multiple-choice questions about disability insurance basics.

Only 4 percent demonstrated a high level of knowledge, as measured by their

correct answers on seven or more questions. By comparison, nearly 75 percent answered fewer than five questions correctly. And, on average, the surveyed consumers were able to answer only three questions correctly.

This is a legitimate concern for advisors who sell disability insurance, LIMRA contends. Indecision and lack of knowledge are cited more than cost as reasons why people who shop for disability insurance end up not buying, the researcher said.

THE AGE OF WIDOWHOOD

Quick, take a guess. What is the average age of widowhood for men and women in the U.S.? Allianz Life put that question to 2,034 consumers in September as part of a survey on attitudes and beliefs about life insurance. If you guessed age 72 for men and 70 for women, or something around those two ages, your answer would be in line with the median response of the surveyed consumers, who ranged in age from 25 to 75 and had $75,000 or more in household income.

If that was your best guess, you would not only be aligned with those consumers but you would also be wrong.

Both answers are a full 10 years later than the average age of widowhood for both sexes as reported by the U.S. Census Bureau (May 2011), Allianz said.

The average age is estimated to be 59.4.

FLEX-SPENDING ACCOUNT REMINDER

American workers will now be able to carry up to $500 from their Flexible Spending Account (FSA) in one year into the next year’s FSA. This is due to a Treasury Department decision in early November.

FSAs allow individuals to set aside as much as $2,500 a year in pretax income for health care costs. Currently, unspent funds revert back to the employer at year end. This use-it-or-lose-it provision

has not been popular among workers.

The provision “encourages individuals to make unnecessary purchases in order not to lose the remaining balance,” said

[NEWSWIRES] Janet Trautwein, chief executive officer of the National Association of Health Underwriters (NAHU). Not surprisingly, NAHU said it is thrilled with the Treasury’s new modification, explaining that “allowing employees to carry over up to $500 in a FSA will give employees more flexibility in managing their own health care costs.”

Now it’s time to get the word out.

Health insurance brokers will likely be the front line for that.

QUOTABLE ‘Ready, fire, aim’ is a strategy that’s rarely effective in general, and almost never when it comes to concurrent offline and online marketing efforts.

— Annie Tsai, chief marketing officer at Demandforce

WHEN THE FED CHIEF TALKS, BUSINESS LISTENS

The majority of top level accountants pay heed to what a Federal Reserve chairman says and does. That’s what the American Institute of Certified Public Accountants found out when it recently surveyed 688 senior Chartered Global Management Accountant designation holders. Sixty-one percent of the executives said that the comments and actions of an individual Fed chairman have at least a moderate influence on their business plans. They attribute that

largely to the Fed chairman’s role on the world stage. With a new chairman about to take over, some chief financial officers and other senior finance leaders are already rethinking investment strategies, borrowing strategies and hiring strategies, the researchers say.

No doubt life and annuity insurance leaders are listening closely as well, and perhaps some are already reshaping strategies or at least setting up Plans A, B and C. The Fed has a lot of influence over interest rates, after all, so it pays for decision makers in insurance to stay abreast of the new chairman’s comments and actions.

Avatars Stroll on Insurance Website Avatars – those graphical icons or images of people that are all the rage in the world of computer games – are now showing up in insurancedom.

Take the new retirement planning website at Guardian Life.

The site lets visitors select an avatar based on age and gender. Then the visitor can “guide” that avatar on a simulated

“walk” through the site and learn about saving, managing debt and planning for each stage of life along the way. No wonder Illustration used on myretirementwalk.com the website is named myretirementwalk.com, eh?

The site includes a blog and other items as well. The designers drew upon some principles of behavioral finance in order to make it an “entertaining educational tool,” the insurer said, noting that educated consumers are more likely to take action, especially when they can clearly envision themselves older and in retirement. Not incidentally, as the avatar walks into new age bands, the avatar’s clothing changes right along with the commentary.

Even agents and advisors will have their ears up so they can be sure their recommendations are in tune with the times.

TAX-QUALIFIED RETIREMENT SAVINGS HAVE PULL

Turns out that not everyone is a spendthrift. Close to half of job changers who have taken lump-sum distributions from their retirement savings plan did not turn around and blow the money on baubles.

According to an Employee Benefit Research Institute (EBRI) analysis of U.S. Census Bureau data, 45.2 percent

of the lump-sum recipients used the entire amount of their most recent distribution through 2012 for tax-qual-

ified savings. That’s up “sharply” since 1993 when only 19.3 percent of those receiving their most recent distribution through 1993 put their money into tax-qualified instruments, the researcher said.

Meanwhile, the percentage of lumpsum-ers who did spend the money entirely on consumption through 2012 dropped noticeably – to 7.5, as compared to 22.7 of those receiving such DID YOU

KNOW

?

distributions through 1993 and 35.4 through 1998.

So, it looks like tax-qualified savings still rock. For advisors in the rollover marketplace, that’s good news, because tax-qualified is their beat.

WHAT IS THE CUTOFF AGE FOR ‘PEDIATRIC’ UNDER THE ACA?

By now, most insurance people know that, due to the Affordable Care Act (ACA), adult children can remain insured under their parents’ health care plan until they reach age 26. However, when talking about pediatric dental care benefits, which are covered as an “essential benefit” under the ACA, the maximum age of coverage for children is lower. Not all plans have to include these benefits – it’s complicated – but when they do, the coverage applies to individuals up to age 19 in most states,

said Craig Martin, vice president of business development, DentalPlans.com. Another complication: States have the flexibility of deciding to extend such coverage beyond age 19, he said. Um, better get an aspirin and then read this again.

MORE THAN 70 PERCENT OF REGISTERED INVESTMENT ADVISORS and fee-based advisors say tax-deferred investing is essential to managing volatility and rising taxes. Source: Jefferson National Life

December 2013 » InsuranceNewsNet Magazine

19

The insurance industry looks out at a smooth ride through 2014, but advisors will need to navigate through changes in regulation, demographics, products and big data. » By Steven A. Morelli

F

eel the relief? It’s the collective sigh from the insurance industry as it survives a historic economic storm and looks to smoother sailing ahead.

But that does not mean agents and advisors should get too comfortable. This is not a case of them settling back into their deck chairs and enjoying the ride.

This is a new journey.

Analysts see emerging new worlds on the horizon. Some seem intriguing, others a tad treacherous.

What’s out there? Here is a broad map of what we’ll explore: ECONOMY: The economy itself is obviously the biggest factor. Volatility is down and many indicators, particularly the stock market, have returned to precrash levels or better. But consumers are in a different place. Much like the survivors of a disaster, they bear scars and are stowing bad memories in their baggage.

DEMOGRAPHICS: America is changing rapidly. Every corner of the country is becoming more diverse, but the insurance sales force still looks like a company brochure from the 1950s.

PRODUCTS and MARKETS: New products are answering old objections, such as the expense and the sense of throwing away money on premiums for a product people won’t use. How consumers get their information is changing 20

Industry at a Glance Life Insurance & Annuities in 2013 Revenue

Profit

Annual Growth 08-13

Annual Growth 13-18

Wages

Businesses

$790.7B -1.2%

$32.4B as well, with more people shopping for insurance online and even at supermarket kiosks. But here’s the thing – it’s not working, at least not that well.

REGULATION: Every year, we say next year will be the one in which legislators and regulators take a good look at insurance and financial oversight. The Federal Insurance Officer and the Securities and Exchange Commission have been gathering information for some purpose. We will likely see what that is in the next 12 months.

InsuranceNewsNet Magazine » December 2013

$68.0B 3.4% 860

BIG DATA: Become comfortable with terms such as “predictive analytics.”

A whole lot of science is elbowing in on the art of selling.

Let’s unpack some of this.

ECONOMY

As always, interest rates occupy the center of attention as the industry’s main sustenance. If rates continue to bump along the bottom of historic lows, companies will become more desperate for even a meager gain to cover ever-more

OUTLOOK 2014

Revenue vs. employment growth 12 6

% change

0 -6 -12 -18 -24 Year 05 Revenue

07

09

11

Employment

innovative guarantees and protect reserves. Advisors have seen this manifested in rolled-back variable annuities and other products. But the pressure also has pushed companies to greater creativity, particularly in riders.

Now, after years of hoping, carriers are seeing mounting evidence of modest growth in the economy and corresponding interest rates. The latest indicator is a report from the well-respected Conference Board, which predicted world economic growth of 3.1 percent in 2014, up

13

15

17

19 Source: IBISWorld

from 2.8 percent this year.

That is despite a slowdown in the most populous nations of China and India.

That’s a good thing, cooling down to a more manageable level. In the meantime, the U.S. economy is expected to grow at 2.6 percent next year, up from 2.3 percent in 2013. Even the eurozone is expected to limp out of its multidip recession.

Stephen Hoopes, industry research analyst at IBISWorld, said that the slowly rising tide will lift insurance also.

FEATURE

“We don’t see anything – at least from 2014 to 2019 – that would really shake that stability,” Hoopes said.

That smooth sailing would be on honest currents such as increasing income and stable price rather than crazy bubbles.

“Over the five years to 2018, industry revenue is forecast to grow at an annualized rate of 3.4 percent to $935.4 billion,” according to IBISWorld’s report, “Life Insurance & Annuities in the United States.” “Premium growth will be supported by increasing household affluence, an aging population and households taking on a greater role in retirement planning. Investment income is anticipated to get a boost from stronger financial markets and higher interest rates over the second half of the five-year period. In addition, industry operators are expected to continue to consolidate in order to operate more efficiently and boost profit margins.”

So, all good, right? Not so fast, said Gary Shaw, the insurance sector leader at Deloitte.

“There are obviously positive signs within the economy, but I still think there’s a hesitation for people to commit among other discretionary income choices to planning for their retirement to making insurance purchases,” Shaw said. “There is a disconnect between people continually ranking high the need

December 2013 » InsuranceNewsNet Magazine

21

Per capita disposable income

to plan for retirement and their failure to actually do that.”

How can insurance companies and producers make that connection? A key is in understanding how demographic groups want to be advised.

DEMOGRAPHICS

The insurance industry has been gaping at the boomers’ “silver tsunami” with awe over the past few years. After all, 10,000 boomers turn 65 every day and they are sitting on a good portion of the $3 trillion in 401(k) plans alone to convert into retirement income.

But it’s the wave behind the boomers that fascinates Shaw. He said Generation X is actually more attuned to the insurance message than advisors might imagine, and they also have some serious money to protect.

“The next wave, just entering their peak earning years, is about 40 percent of the workforce,” Shaw said. “There have been surveys saying the opportunity is about $3.6 trillion of the gap between current insurance levels and what they may need.”

They already are sold. Gen Xers know they need coverage and, even better for advisors, they have a high propensity to buy. Earn their business and they are also brand-loyal, Shaw said.

But companies and advisors have to get them where they live – online.

“The No. 1 way to reach them is making a connection via the Web,” Shaw said.

“They use the Web for research all the time. They want to have control of the process, to be educated when they want

Median age of population

4

38.0

2

37.5 % change

OUTLOOK 2014

% change

FEATURE

0

-2

-4 Year

36.5

06 08

10

12

14

16

18

to be educated, and to not be pushed by sales.”

So, what’s the problem? Well, besides the technological problem of reaching prospects without appearing to sell them, there is the endemic problem of disconnected demographics. The oldest Gen Xer is 48. The average age of an insurance agent is 57. Insurance is typically a peer-to-peer sale. Hence, the disconnect.

Agents tend to be on the pale side as well, about 80 percent white, according to the U.S. Bureau of Labor Statistics.

Shaw said he frequently hears about this problem from insurers.

“It’s a big obstacle,” he said. “I was meeting with an insurance executive from the Midwest the other day and he just happened to throw out this story where they were reviewing call center comments and saw that there was a need for Spanish-speaking agents in a certain geographic area. But they didn’t have one in a 50-mile radius.”

04 06 08 10 12 14 16 18

21% 41%

VUL

33% Term

But it’s more than just speaking Spanish that insurers need to do, said Scott Hawkins, vice president of insurance research and consulting at Conning & Co. “Are we growing distributors who can effectively reach into this diverse consumer market?” Hawkins asked. “Can we effectively provide advice beyond just the book knowledge of understanding products and financial planning, and actually understand the needs of a diverse range of customers?”

Not quite yet, Hawkins said, adding that some companies are doing better than others. Overall, though, the industry has not been catering to the middle market where lower-income and younger consumers live.

Companies and advisors have been targeting the big cases, producing the phenomenon of having the lowest percentage of people in the United States covered by life insurance since World War II. But the industry itself is having its best year ever, with $39 billion in

UL Premium Market Share by UL Type UL Type

UL

5%

36.0 Year

Source: IBISWorld

Overall Premium Market Share by Product Type

WL

37.0

Non-IUL

IUL

Total

Lifetime Guarantee

34%

2%

36%

Current Assumption

18%

12%

30%

Accumulation Focused

5%

23%

28%

Term UL

1%

0%

1%

Other UL

4%

1%

5%

Total

62%

38%

100% Source: LIMRA

22

InsuranceNewsNet Magazine » December 2013

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FEATURE

OUTLOOK 2014

projected sales, according to Conning.

The overall sales figure finally has surpassed the precrash high of $37 billion in 2007. Another first since 2007 is an increase in the number of insurance agents, up 1.8 percent.

PRODUCTS and MARKETS

More good news for agents and advisors: They are still far and away the key distributors of life insurance and annuities.

The broker/general agent/independent agent channel accounted for 78 percent of the industry’s first-year and single premium life insurance sales, according to Conning. They also sold 77 percent of all annuities.

Whole life is still the shining star of life sales with a 6 percent increase in premium in the first half of 2013, although the policy count was down 3 percent compared to last year, according to LIMRA. At 33 percent of the market, whole life still has a smaller share compared to universal life’s 40 percent, but whole life is hot on UL’s heels. Universal life sales slowed in almost all areas, but

an up-and-comer saved the first half for the products – indexed UL. IUL premium vaulted 23 percent in the first half of 2013 as compared to 2012.

Indexed is the star on the annuity side as well, along with variable. That is relative because annuity sales are strong overall, with a 9.9 percent increase for the second quarter over the first, according to Beacon Research. Indexed annuities have grown to take more than half of the fixed annuity market and have been a shooting star since the economic collapse.

Variable annuities increased 7.8 percent quarter over quarter and would have been even stronger if more companies were willing to sell them. Consumers like VAs but the products have been troublesome for reserves, and companies have been pulling back, cutting off supply and buying back contracts.

Companies will continue to pull back on VAs, analysts said.

“There’s still strong consumer demand, but the de-risking of VAs is causing an unwillingness to meet all the demands

An unprecedented 2.5 MILLION VETERANS do not realize they are eligible for a little-known benefit. This breakthrough opportunity is generating countless pre-qualified appoint-

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for the products,” Hawkins said. Why? Call it Post-TARP Stress Disorder. If another market collapse comes, U.S. taxpayers might not be so quick with the bailout bucket a second time.

But indexed annuities don’t pose as big a danger to companies, and the surging stock market has provided a strong marketing message for the product line – base protection plus a possibility of gain.

That still resonates with many consumers haunted by the memory of 2008.

Also fueling growth is that retirement wave we noted earlier.

“As an advisor you have what I refer to as ‘two bites of the apple,’ ” Hawkins said.

“The first happens at age 65 – the traditional age of retirement. Somebody’s leaving work and asks, ‘How do I turn my savings into income?’ ” In that case, immediate annuities are certainly one thing that you should have a conversation about, he said. The second bite is when that person turns 70.5, when people have to take mandatory withdrawals from personal retirement accounts.

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InsuranceNewsNet Magazine » December 2013

OUTLOOK 2014

As an advisor you have what I refer to as ‘two bites of the apple.’ The FIRST happens at age 65 – the traditional age of retirement. The SECOND bite is when that person turns 70.5, when people have to take mandatory withdrawals from personal retirement accounts.

“This is especially true as more and more people have 401(k)s and IRAs,” Hawkins said. “That’s when clients say, ‘Look, I have to start liquidating this. Is there any way I can do it and put it on automatic pilot?’ If you’re selling indexed annuities, that’s great. There’ll be a growing demand for people who can help provide what I refer to as the ‘retirement income’ solutions.”

Companies and insurance advocates are reorienting many of their models to

LY! W E N DATED UP

retirement services. LIMRA is branching out from its life insurance roots to focus on a demographic rather than on products. The research organization recently announced the opening of its Secure Retirement Institute, which it said will “focus on advancing research and education as catalysts for innovation within the industry to help improve retirement readiness and promote retirement security.”

The burgeoning retirement need along

FEATURE

with low interest rates have guided companies to look to product features rather than simply being a better deal than certificates of deposit. Consumers have shown they are eager for the products.

For example, some insurance policies have an early-payment option built into them, where policy owners can collect a death benefit early if they become seriously ill. These life combination products have tripled in a few years, growing from about $800 million in 2009 to $2.5 billion last year, according to LIMRA. Even though an enormous and growing senior population is headed for a vast territory of unfunded long-term care and critical care needs, LTC and critical illness insurance cannot get traction.

And when it does, companies buckle under the cost of claims.

Companies have responded with combination policies and riders that might be the best match since chocolate met peanut butter.

As Baranoff of LIMRA put it, “It’s very comforting to people to know, ‘Look, if I get sick, I’ve got the money. If I don’t get

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25

Volatility vs. Growth OUTLOOK 2014

sick and I die, it goes to my heirs.’ ” One product answers two objections of “wasting” premium by outliving a life policy or making sizable payments into an LTCi contract that is never used.

Shaw of Deloitte predicts that insurance can develop into one product bought early in adulthood and added to over the years in different life stages. In that case, it would be even more important to maintain a meaningful relationship with clients straight from the initial policy through retirement, rather than constantly fishing for new prospects.

All roads in insurance lead to retirement these days. Insurance used to be all about protecting heirs and legacy. Now it’s about self-protection because people have found out the hard way about the dependability of employers and the government.

REGULATION

Insurance is a key sector giving consumers control over their own retirement. That’s the message many industry advocates have been taking to legislators, including the National Association of Insurance and Financial Advisors (NAIFA).

“Quite frankly, we make great partners with the federal government,” said John Nichols, NAIFA president. “I mean, imagine if we only had Social Security.

Are you kidding me?”

Nichols cited the $1.5 billion daily that the industry pays out in benefits, which has been compared to the $1.9 billion that Social Security pays each day.

As Congress considers tax and entitlement reform, insurance advocates have been rallying around the message that industry earns its tax-exempt and tax-deferred status. This is especially true as Americans bear more of their own retirement burden.

“Never before has there been such a movement toward personal responsibility,” Nichols said. “Our industry can play a critical role in helping people understand how to achieve financial security for themselves and their families.”

Implicit in this is the debate between the fiduciary standard and suitability. If insurance agents are pushed to a fee-based, fiduciary standard model, analysts predict that many of the older 26

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a firm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

1000

Revenue volatility* (%)

FEATURE

Hazardous

Rollercoaster

100

Life Insurance & Annuities

10

1

0.1

Stagnant -30

Blue Chip -10

10

30

Five-year annualized revenue growth (%)

50

70

*Axis is on a logarithmic scale Source: IBISWorld

agents will opt for retirement. Under that system, many are concerned that even less insurance will be sold because financial advisors tend to sell other products before insurance. Also, NAIFA has long pointed out that many communities don’t even have financial planners available, even if they could afford them, but there is almost always an insurance agent in town.

Hawkins of Conning said he has seen how the struggle on credentialing and oversight can work out.

“I’ll be curious to see how the competing fiduciary standards become resolved and how that may change the overall nature of the business,” Hawkins said.

“Because in the U.K., you had a situation with their retail distribution review that significantly impacted the ability of product providers or manufacturers to put commissions on products.”

Given that drift, many analysts said it makes sense for advisors to get a securities license now rather than get pushed into it later. Also, that fits with the evolving broader-service retirement income model.

In fact, many analysts and observers are saying that one of the keys to success is specializing in a niche, but unlike in the past, that niche is a market rather than a product. For example, rather than indexed annuities being the niche, the niche would be clients between the ages of 55 and 65. Advisors in that case would provide products and services that help with that life stage rather than just being

InsuranceNewsNet Magazine » December 2013

a shop for a particular product.

Life stage marketing is one of the areas that benefits from big data.

BIG DATA

If that phrase sounds like it should have its own sound effect like the “Law and Order” ker-chunk scene opener, well, it is in fact pretty dramatic. Big data can mean monumental changes in the business.

Underwriting is an obvious area for improvement, said Bob Baranoff, senior vice president of LIMRA. “Some companies are experimenting with these algorithms, and I’m hearing that they are predicting pretty much in line with the traditional full underwriting methods,” Baranoff said. “Whereas traditional underwriting could go six weeks, they can get it down to a week, in some cases two, three days. But they’re charging more than the fully underwritten version. They’re building in some premiums to cover that additional risk of default.”

Companies can determine quite a bit about people from credit card purchases, for example. “If you belong to a gym or buy a lot of sporting goods, they can make certain inferences. If you’re charging hang gliding or something like that, you’re going to be rated higher. They’re going to be wrong in certain proportions, but that’s true of any underwriting.”

Expedited underwriting is a major

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change, but harnessing data can add to transparency in the process, too.

“If you called Domino’s for a pizza, you can track it being made and where it is along the process up to delivery,” Baranoff said. “Well, there’s an insurance company that’s now doing the same thing once you apply for a policy. Agents can track just the way they can with a Domino’s pizza where the application is in the process.”

But it’s behind the scenes where things are getting really interesting. The day is rapidly approaching when analytics will not only supplant current underwriting but also create a new model altogether. An IBM white paper, “The future of insurance: How big data and cognitive computing are transforming the industry,” described products custom-fit for each client, rather than a selection of different coverages to suit needs. It’s what happens when computers start thinking, as in cognitive computing.

“Cognitive computing will allow underwriters to underwrite like their forebears – by evaluating the unique risks of each customer as opposed to aligning risk to a defined product,” says the paper.

“And this work can happen in real time based on knowledge of the customer, past experiences and future predictions – at great scale.”

That means as quickly as a credit check, a consumer could have an offer that speaks to his family, career, life expectancy, likelihood to need disability insurance and whatever else you can think of.

Here’s the important point of all this.

Analysts are identifying trends such as carriers selling through big-box stores and other ways they are going direct to consumer, but meanwhile insurance and technology companies are building a spaceship that could blow past all that.

The saving grace for insurance agents has been that the complex cases require a human being to understand all the dynamics affecting a person. IBM and others expect cognitive computing to step into that role.

Let’s put this in a more accessible context: The Super Bowl.

In the IBM paper, the company showed how Nielsen ratings and focus groups might go the way of the Fuller Brush 28

Even Gen Y’s first preference is to buy life insurance face to face. That is still about half of them.

OUTLOOK 2014

man. (If you don’t know who the Fuller Brush man was, that might be the point.)

During the 2012 Super Bowl telecast, IBM gathered more than a billion tweets, blog posts and social media messages pertaining to movie trailers shown during commercial breaks. Out of all this, cognitive computers produced about 20 opinions that basically said the movie would be a stinker in the box office, and they proved to be right.

“Imagine the significant cost and time savings if a movie studio could test the performance of a trailer before entering full production,” according to the paper. “The resulting competitive advantage could change the way films are made, radically altering the risk inherent to the industry – the definition of a paradigm shift.”

The size of big data can be staggering, but that is just rocket fuel to this process.

The more data, the faster and more accurate it gets.

Seems like a bright, shiny future – without agents and advisors, right?

IT’S STILL ALL ABOUT YOU

Let’s get off that wild Futureland ride and get back on the ground and get a sense of where we are. Agents and advisors are still the key channel for selling insurance and annuities. Consumers still prefer to buy insurance from a person, as Baranoff pointed out.

“Even Gen Y’s first preference is to buy life insurance face to face,” he said. “That is still about half of them.”

But he was quick to say that percentage is far lower than it used to be, which was nearly 90 percent a decade or so ago.

So what are agents and advisors to do?

Analysts say one thing is to broaden service to clients in order to be more useful, whether that is obtaining a securities license or a property and casualty license.

Pick a demographic niche and learn what those needs are.

But mainly, advisors can’t coast if they want to remain relevant. Hawkins of

InsuranceNewsNet Magazine » December 2013

Conning takes an examination of who professionals want to serve and how those people can get their information on their own.

“It requires the agent to put some effort into thinking about who the people in the market are and what they need and want,” Hawkins said. “What kind of advice can they provide as an advisor that the person couldn’t get by going to the insurer’s website and typing in, ‘I’ve got X thousands of dollars, I’m 70 years old, and what’s my quote?’ ” And that answer is often going to lead to a more robust practice, Hawkins said.

“Your competitors are heading upmarket,” he said. “If you go up there you can make some significant commissions.

But realize that’s going to require you to expand your skill set and expand your product base. When you’re talking life insurance, you’ll want to be able to hold a conversation about issues such as estate and tax planning.”

The trick for agents and advisors is to do all that and remember the core value of life insurance and the reason they love the business. Baranoff of LIMRA said the truer the industry and its agents can remain to their central premise, the more vital they will be for Americans.

“We’re not in the instant gratification business,” Baranoff said. “It’s not like you charge something and a couple days later the UPS guy brings you a new toy to play with. It’s a fundamentally different.

We’re in the business of selling a longterm promise.”

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.

December 2013 Âť InsuranceNewsNet Magazine

29

LIFEWIRES

American General is offering a way to provide a retirement income stream from a universal life insurance policy. bitly.com/qraccelerated

North Dakota is the Place to Be Looking for a place where life insurance sales are on a growth spurt? You might want to consider North Dakota. It is the only state to make the top five on two separate lists tracking premium growth over the past four years.

The top states for individual life insurance direct premium growth were Minnesota, North Dakota, Wyoming, Utah and Arkansas. The top states for individual annuity premium growth were Missouri, Montana, Colorado, New Mexico and North Dakota.

These statistics are from a new study, “Individual Life-Annuity State Environment Annual,” by Conning & Co., which surveyed all 50 states and the District of Columbia over the four-year period between 2008 and 2012. Direct premium is the money collected from policyholders before a portion of the funds are deducted by the insurer for pay for reinsurance.

Terence Martin, an analyst with Conning, said the shale oil boom in North Dakota might be one reason for the state’s strong showing on both lists. Young oil industry workers and managers with good incomes are moving into the state.

Minnesota leads the nation in individual life insurance direct premium growth over the four-year period due to the state’s low unemployment, high productivity and relatively high household income, he said.

Photo: Jacksonville Business Journal

INSURER SAYS FURNITURE EXEC FAKED OWN DEATH

A life insurance company is refusing to pay out on a multimillion-dollar policy for a Florida man it says faked his own death in Venezuela.

Jose Lantigua, owner of Circle K Furniture in JackJose Lantigua sonville, was traveling in in 2009 April when he was reported dead in Venezuela. The U.S. embassy in Caracas said he died in Rio Chico, a tourist town near the Caribbean coast, and said the 60-year-old Cuban native was cremated in South America.

But while the claims against his estate have piled up, a company that was expected to shell out millions says it doesn’t owe a dime.

“Our investigation has revealed that Mr. Lantigua is alive and living in Venezuela,” a claim examiner at Hartford Life wrote to Lantigua’s family’s lawyer. Lantigua’s policy with Hartford had a cash value of almost $2.5 million last year, court filings said.

DID YOU

KNOW

?

30

INSURERS PAY OUT RECORD DIVIDENDS

Northwestern Mutual expects to set an industry record when it distributes $5.2 billion in total dividends for life and disability income insurance to participating policyowners in 2014. The expected 2014 payout will exceed its estimated 2013 payout by nearly $200 million.

Meanwhile, MassMutual announced that its board of directors approved the company’s largest dividend payout ever in the company’s history for 2014: a record payout estimated at $1.49 billion to eligible participating policyowners.

The approved estimated payout of $1.49 billion represents an increase of $101 million – or approximately 7.3 percent – from the 2013 estimated payout.

At Northwestern, although nearly 90 percent of the $5.2 billion dividend will be paid on traditional whole life insurance policies, the company is one of a few to also pay dividends on term insurance and disability income. Its $300

FIDELITY & GUARANTY LIFE INSURANCE CO., a presence in Baltimore since its founding 54 years ago, will move its headquarters to Des Moines, Iowa, joining a long list of financial services companies who call that Midwestern city home.

Source: Baltimore Sun

InsuranceNewsNet Magazine » December 2013

million payout to DI policyowners is expected to be more than 10 times its nearest competitor’s payout.

2013 INSURANCE INDUSTRY MERGER & ACQUISITIONS DROP

Mergers and acquisition (M&A) activity in the insurance industry for the first nine months of 2013 was slower than the same period last year, although the transactions are notably widespread and focused.

Such activity is down from 2012 by about 100 deals, said Dan Baransky, senior vice president at Merger & Acquisition Services. He noted transactions stood at about 193 so far this year, which included brokers. Companies want to buy lines of businesses or companies that are niche-focused or to expand in a specific geographic region, he said.

2012 was “a pretty strong year,” Baransky said. Although activity is slower this year, he doesn’t think it’s due to companies’ diminished appetite for M&A but possibly more about companies not finding as many targets. It’s more about an absence of quality supply/targets than an absence of demand, Baransky said.

ACLI: LIFE INDUSTRY ASSETS CONTINUE GROWTH

Life insurance industry assets continue to grow, increasing to an all-time high of $5.8 trillion at year-end 2012 from $5.4 trillion in 2011 and $5.1 trillion in 2010, according to the latest edition of the American Council of Life Insurers (ACLI) Fact Book.

Insurer general account assets grew about 2 percent, a reflection both of low interest rates and single-digit annual increases in recent years. Insurers’ operations are funded largely through general accounts.

Some 70 percent of general account assets were invested in long-term bonds – primarily corporate bonds, according to the 2013 Fact Book. Nearly 95 percent of bonds in the general account are considered “high quality” by the National Association of Insurance Commissioners (NAIC).

At the same time, insurer separate account assets increased 12 percent, reflecting the stock market’s robust 2012 performance. The equity or stock market-based components of insurer contracts typically operate through separate accounts.

December 2013 Âť InsuranceNewsNet Magazine

31

LIFE

Want Better Clients? Get a Plan!

C reating a formal sales system will increase your prospects’ commitment and, ultimately, your case size.

By Brent Eugenides

W

e all know that, for most clients, insurance is an intangible item. It’s an emotional purchase. It’s a combination of fear and love wrapped up into a piece of paper (actually a big thick contract that virtually no one

reads), which they hope works out when the time comes.

As a new life insurance recruit, I was taught various methods to use in making these “intangible” sales. Most of these methods involved, in one way or another, the following steps: fact-finding to discover a reason to disturb the prospect, describing features and benefits of our products and matching up the two. That’s one way to sell.

Over the years, I moved to a formal

advisory approach. Sometimes, this approach is slower, but I experience much better results from it. It may help you as well. Here are two things I live by:

» Selling insurance should be systemized. Using a formal process for all interactions increases your case size, the consistency of the experience and the number of polices sold, while helping clients and prospects better understand the risks they face.

Insurance Policy Statement (InsPS) RISK COVERAGE/RISK RETENTION PAGE I view myself as a moderate risk retention individual, seeking current coverage from the following risk management areas.

Total risk level today: Life #1 ______________________ #2 ________________________ Disability #1 ______________________ #2 ________________________ Estate taxes #1 ______________________ #2 ________________________

Coverage Levels to Maintain LIFE Total individual life coverage #1 $__________________ #2 $ _________________ Term ________________% Term ________________% Owner #1 ___________________ #2 ___________________ Total joint life (for both) $_________________ Ownership form ______________

DISABILITY I am more comfortable if the insurance carriers are mainly large companies that fit in the A or better category as rated by A.M. Best Co. We acknowledge and concur with this Insurance Policy Statement (InsPS):

Disability #1 monthly benefit $ ____________ Wait _________ Benefit period _______ Disability #2 monthly benefit $ ____________ Wait _________ Benefit period _______

LONG-TERM CARE

_______________________________ ________________ #1 Date

LTCi #1 monthly benefit $ _________ Wait _______ Period _______ COLA ______

_______________________________ ________________ #2 Date

LTCi #2 monthly benefit $ _________ Wait _______ Period _______ COLA ______

________________________________ ________________ Advisor Date

Liability total personal coverage #1 $__________________ #2 $_________________

32

InsuranceNewsNet Magazine » December 2013

WANT BETTER CLIENTS? GET A PLAN! LIFE » Create a written insurance policy statement (InsPS). This document increases commitment and clarity for you and your prospects or clients. It’s their document and their decision, and it specifies the choices they made.

The Six-Step Process: Integrating the InsPS

To implement the InsPS, I follow a modified six-step planning process similar to the financial planning process. The insurance six steps are:

[1] Define the relationship. Disclose, in written form, the role of the agent, client and other parties to the planning process (estate attorney, product specialists/wholesalers, life insurance company planning team, etc.). Identify what each party is required to do, compensation and any conflicts of interest.

By “compensation,” I am referring to how the agent or others are paid, not the actual commission rate, unless you determine your practice should reveal that. It’s your business decision. My suggestion is to explain the way you are paid, so it’s clear and on paper that the insurance company pays you to distribute its product(s), or that you are charging a fee of $___ for X, Y and Z. Having it in writing is positive and professional. The same goes for all other service providers, if any. Specify what they are doing in regard to the insurance plan and how they are being paid.

[2] Collect data. Identify goals. Spell out which insurance protection needs are to be addressed and how they will be addressed.

What are the objectives to be met? Is the client able to qualify medically and financially? Is the client health-rated? Does the client have the appropriate cash flow to support the anticipated premiums?

[3] Create an Insurance Policy Statement (InsPS). Once you develop a current analysis based on goals and objectives from the previous step, list the client’s sources of risk and their tolerance of each. Insurance policy statements should identify the client’s risks using “insurance profile characteristics” such as client health, longevity expectations, personal income needs, “must haves” for catastrophic events and so forth. A written statement outlining the coverage needed, existing gaps in

coverage and client’s risk tolerance will guide you and your client, as well as direct other advisors who may be working with you on possible solutions.

[4] Develop solutions. The InsPS should detail how much risk to retain and how much to lay off to insurance carriers for each identified risk, and should help determine what level of financial commitment is appropriate. The InsPS should outline ownership structure, i.e., trusts or other entities needed to manage the distribution

A written statement outlining the coverage needed, existing gaps in coverage and client’s risk tolerance will guide you and your client. of insurance proceeds. The InsPS should include non-insurance solutions when appropriate. All the product and design solutions in your final proposal should match the InsPS objectives.

[5] Implement the plan adopted in accordance with the InsPS. This step includes obtaining competitive market quotes for each type of coverage as well as coordinating the client’s estate planning documents and the client’s attorney and/ or certified public accountant regarding funding trusts and tax planning objectives. The InsPS helps all the advisory team maintain focus.

[6] Monitor the coverage over time to

maintain levels appropriate to current needs. Monitor the performance of the various components of the plan. Continued stewardship of the plan is essential.

A Formal Process: Many Benefits

Compliance. Transparency and compliance in our industry have never been higher. Best practices and suitability standards of care are top-of-mind for regulators and for your back office. Insurance sales regulation is undergoing massive change. Using an

InsPS to manage insurance sales will mitigate the risk of complaints in the future and give you something to fall back on if you ever need it in an arbitration hearing or similar venue. It is a best-practices component.

Referrals. A formal insurance sales process generates more referrals from other advisors. It positions you differently. Recently, an estate attorney asked me to meet with his client to develop an InsPS. After helping them put their personal InsPS in writing, I earned their trust. Now they are using me to look at several insurance product solutions. I know it was the formal process that got me in the door.

Consistency of Client Experience.

Most practice management experts will tell you to use a systemized written process with everything you do in order to make your business run more smoothly. Break up work into small, manageable tasks that are repeatable. If you do financial planning now, I’m sure you have a formal process.

If you do investment research and advice, my guess is you follow a similar process with every client. Insurance sales should be handled in a similar manner. It makes good business sense.

Try Developing Your Own InsPS Template

My suggestion is to start by developing an InsPS template for your business and to use it for each new client. You don’t have to follow the six-step process if you feel it is unnecessary for your business. For existing clients, use it as a way to update your files.

It’s a great reason to meet with them again.

You are instituting a new process that will help them better understand what they already have completed with you. It also can generate new business, something we all want to do.

I took a cross section of 20 clients and created a draft InsPS for each based on information I had in their files. Then I mailed them the draft InsPS along with a cover letter and followed up with a phone call. This created 16 follow-up meetings and six new sales. It works, and it’s the right thing to do.

Brent Eugenides, CFP, is founder of BE Financial in Groton, Conn., specializing in insurance planning and consulting for clients and advisors. Contact him at Brent.

Eugenides@innfeedback.com.

December 2013 » InsuranceNewsNet Magazine

33

LIFE

Feds Eye Life Settlements for LTC Funding S tate laws and government agencies are endorsing the conversion of life insurance policies to pay for long-term care.

By Chris Orestis

T

he past four years have seen a growing public awareness that life insurance is an asset policy owners can use to pay for long-term care.

Home health care companies, assisted living communities, nursing homes and geriatric care providers have been on the front lines of this issue, educating seniors about the availability of this option.

The National Council of Insurance Legislators’ (NCOIL) 2010 model disclosure law became the basis for legislation to ensure that policy owners are informed of their legal rights to “convert a life insurance policy into a long-term care benefit plan.” This legislation has been spreading across the nation. The concept that seniors can sell a life insurance policy they already own in order to fund a dedicated benefit plan that will keep them off Medicaid has proven too powerful for state governments to ignore.

Now the federal government is paying attention as well. The Congressional Commission on Long-Term Care has studied this option as part of its deliberations. In addition, Medicare has posted a page to its website (www.Medicare.gov) to inform people that, “You might be able to sell the life insurance policy for present value. The money from the sale can be used to pay for your long-term care needs. If you don’t qualify for long-term care insurance, this may be an option to pay for your long-term care needs.”

2013 a ‘Watershed’ Year

In 2013, nine states (California, Florida, Kentucky, Louisiana, Maine, Massachusetts, New Jersey, New York and Texas) introduced Medicaid life settlement 34

legislation as a way to encourage greater use of private-pay dollars for home care, assisted living and skilled nursing through the conversion of a life insurance policy into a long-term care benefit plan.

Among these states, Texas was the first in the nation to enact this into law.

What does this mean? It means that now states are passing laws endorsing life settlements as a means to pay for long-term care services. States are realizing the important service life settlement companies provide and the importance of unlocking the hidden value in life insurance policies before the owner allows the policy to lapse or surrenders it. The option to convert a life insurance policy to pay for long-term care is available in all states. Now these notification laws are being introduced and passed to make sure state Medicaid agencies are informing people that this program is an accepted part of a Medicaid spenddown.

The new Medicaid life settlement law does two things: [1] Grants authority to Medicaid agencies to inform and educate citizens of their legal right to convert their life insurance policies into a Medicaid-qualified long-term care benefit plan so that they can remain on a private-pay basis. Policy owners also have the right to choose any form of long-term care they want instead of abandoning a life insurance policy to go straight onto Medicaid.

[2] To qualify, the long-term care benefit

InsuranceNewsNet Magazine » December 2013

account must be an irrevocable account, insured by the Federal Deposit Insurance Corp. (FDIC), that makes payments directly to the care provider. The insured person must be able to choose the form of care they want. A funeral benefit must be preserved. If there is any unpaid account balance when the person dies, the funds must go to the designated account beneficiary.

Compelling Numbers

According to the most recent National Association of Insurance Commissioners (NAIC) annual report, almost $28 trillion of life insurance is in force in the U.S. Billions of dollars’ worth of these policies will be abandoned by seniors who are navigating a Medicaid spend-down path.

Life insurance is a disqualifying asset for Medicaid eligibility. A 2007 Government Accountability Office study found that 38 percent of Medicaid applicants owned a policy that had to be surrendered or allowed to lapse inside the look-back period in order to qualify for Medicaid.

State regulatory bodies such as NCOIL have led the way by passing a model disclosure law to mandate that policy owners be made aware of their legal right to convert the use of a life insurance policy death benefit into a living benefit that can be used to pay for any form of senior care service. In January 2013, the Florida State University Center for Economic Forecasting and Analysis released a study finding that converting life policies to pay for long-term care would result in $150 million in annual tax savings.

RETHINKING BIG CASES

FEATURE

LIFE

FEDS EYE LIFE SETTLEMENTS FOR LTC FUNDING

“I believe it could be a win for Medicaid service recipients, a win for the fiscal soundness for Medicaid, it could be a win for potential beneficiaries under life insurance policies and I think it could be a win for long-term care service providers.”

Florida AARP spokesman Jack McRay

Long-Term Care Funding Crisis

Medicaid continues to be the secondlargest budget item (behind education) in every state. Adding to this pressure is the fact that, every day, an additional 10,000 baby boomers turn 65. Demographic and economic pressures almost doubled Medicaid expenditures between 2009 and 2011. In Washington, D.C., and in every state capital, Medicaid spending is one of the biggest issues policymakers are trying to handle.

During hearings held this year by the Congressional Commission on LongTerm Care, the panel members assessed the financial crisis facing the country and seniors in need of care.

“Medicare and Medicaid have become the major source of long-term care and cannot continue at the current pace,” said G. William Hoagland of the Bipartisan Policy Center. Americans should be encouraged to increase their retirement savings so that these programs are relied on as a last resort.

In addition, using long-term care insurance to pay expenses is not an option for many Americans, as premiums rise and companies that can’t make a profit leave the market, said Marc Cohen, an industry consultant. Most of the longterm care policies available are sold by only 12 insurers, he said.

“We know that 70 percent of people over the age of 65 will need some form of long-term services and support,” said Dr. Bruce Chernof, the commission’s chairman. Although government programs provide a significant portion of longterm care, none offers the full range of services people need, said Kirsten Colello, a health and aging policy specialist at 36

the Congressional Research Service.

“The fact is that each of us will need these services and supports at some point in our lifetimes,” said Sen. Jay Rockefeller, D-W.Va. “The question is whether most Americans can afford to pay for them.”

What Is a Long-Term Care Benefit Plan?

As long-term care service providers, political leaders and the public embrace the conversion of life insurance policies into a long-term care benefit plan, it is important to understand the unique nature of this financial vehicle. A longterm care benefit plan is the conversion of an in-force life insurance policy into a prefunded, irrevocable benefit account that is professionally administered, with payments made monthly on behalf of the individual receiving care.

Any type of life insurance policy (term, whole, universal, group) death benefit can be converted into a living benefit that will cover the costs of senior care in any form (home care, assisted living, nursing home, memory care or hospice). The policy transaction conforms to the secondary market regulations that govern life settlements/viaticals, and the benefit is administered specifically to be a Medicaid-qualified spend-down of the asset proceeds. The funds are protected in an irrevocable bank account that can be administered only by a third party to pay for long-term care services. The long-term care benefit plan is a regulated and Medicaid-qualified financial vehicle designed to help cover the costs of long-term care.

Inherent in the structure of the longterm care benefit plan are multiple layers of consumer protections:

InsuranceNewsNet Magazine » December 2013

» The transfer of ownership of life insurance policies conforms to the rigorous regulatory standards that govern life settlements in each state. » The irrevocable, FDIC-insured benefit account is held by a nationally chartered bank and trust company and must conform to federal and state banking regulations. » Because the account is irrevocable and can be spent only on long-term care services, the benefit plan is administered as a Medicaid-qualified spend-down.

Consumer Rights = Consumer Choice

Despite all the legislative support and media attention attracted by this issue, the vast majority of policy owners across this country are unaware of this option and they abandon policies needlessly every year. Seniors often walk away from a life insurance policy in their final years because they cannot afford to continue the premium payments, or they surrender the policy to qualify for Medicaid. But when a family converts a policy instead, they have made the informed decision that securing a portion of the death benefit today to help them with the immediate costs of long-term care is better than lapsing or surrendering a policy on which they have paid premiums for years.

Policy owners should not abandon their life insurance, because the same policy can instead be sold for 25-65 percent of the face value, with the funds placed in a protected account that will preserve their money and make monthly payments toward their chosen form of senior care. At a time when families are struggling with the costs of long-term care and the nation is looking for private market solutions to this growing crisis, it is no longer possible to ignore billions of dollars in death benefit value owned by seniors that can be used as a private-pay option for long-term care services.

Chris Orestis is chief executive officer of Life Care Funding, a nationally known senior care advocate and 15-year veteran of both the life insurance and long-term care industries. Contact him at Chris.Orestis@ innfeedback.com.

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ANNUITYWIRES

New Products Debut Carriers have waited until the final weeks of 2013 to debut new products. Here are two worth noting: » Delaware Life has rolled out its first annuity, a multi-year guaranteed fixed annuity called Pinnacle MYGA. The debut brings to end speculation about whether the newbie would or would not become an active player in the annuity marketplace this year.

The questions have been circulating ever since the company was established as an annuity and life carrier in August. That happened in conjunction with the purchase of annuity and life insurance businesses of Sun Life Financial by Delaware Life Holdings.

The commission-paying policy is a single-premium deferred annuity offering guarantee periods of three, five, seven or 10 years. The current interest rate varies by guarantee period. As of Nov. 5, the interest rates ranged from 2 percent for the three-year period on up to 3.5 percent for the 10-year. Minimum deposit is $10,000 for non-qualified annuities and $5,000 for qualified. » Allianz Life has announced the launch of the Allianz Core Income 7 Annuity with a Core Income Benefit rider as the company takes advantage of surging interest in indexed annuities. The product is the first indexed annuity (IA) that appeals specifically to broker-dealers, but will also be sold through marketing organizations associated with the Allianz Preferred platform.

Two lifetime withdrawal options come with Core Income 7, the company said.

Annuity contract holders can opt for level payments, or payments that increase each year beginning at age 50. The longer an annuitant waits for a payout, the higher the income percentage.

COULD ANNUITIES BE A TAX SHIELD?

There was a time when advisors presented annuity options based on the client’s tax needs.

According to Jeffrey Levine, certified public accountant, this may be the time to return to that strategy. Any time there is an increase in taxes, “we’ve got to look at re-evaluating our tax strategy,” he told a workshop at the recent annual meeting of National Association of Insurance and Financial Advisors (NAIFA) in San Diego.

A lot of people do not realize it, but many Americans could see higher taxes in their 2013 tax return, said the individual re-

tirement account technical consultant with Ed Slott and Co. This is due to changes in the tax code that are going into effect this year. Tax increases might be the incentive that advisors need to go back to using annuities “strictly as a tax play,” he said.

BUYING ANNUITIES: THREE REALITY CHECKS

Consumers may know that purchasing an annuity makes sense for them, but 38

they avoid sitting down and committing to the purchase. Time for a reality check – three of them, actually.

Genworth conducted a survey to counter what it called “hesitations” on buying annuities. Here are the three “hesitations” it identified and the three countering reality checks: [1] Hesitation: “I already have enough predictable income to satisfy my retirement needs.” Reality check: Although 52 percent of pre-retirees expected their expenses to decrease in retirement, 65 percent of actual retirees found their expenses stayed the same or even increased in retirement.

[2] Hesitation: “I have second thoughts because I would rather invest in the market.” Reality check: 85 percent of those who do own annuities consider a predictable income stream to be “critical” to their ability to have the retirement they envision.

[3] Hesitation: “I am uncomfortable with investing money where I can’t have access without penalty for a period of time.” Reality check: 78 percent of people

InsuranceNewsNet Magazine » December 2013

who already own annuities are “satisfied” with their purchase.

So, the next time your prospect seems to hesitate, give them a reality check!

30-SOMETHINGS HAVE IT IN WRITING

30-SOMETHINGS’ NET WORTH DOWN

21%

Middle class Americans in their 30s are most likely among all age groups to have a written retirement plan, according to a Wells Fargo study.

“On a comparative basis, people in their 30s appear to be more aware of what the variables are for a successful retirement,” Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust, said in a news release. “They seem to know that having a plan, saving more and trying to overcome fear of the market are the keys to success.”

More than one third of middle class Americans in their 30s have a written retirement plan, the highest response rate among all age groups, the survey found.

But another survey conducted by the Urban Institute found that the net worth of today’s 30-somethings, adjusted for inflation, is down 21 percent

from the net worth of the similar age group 30 years ago. Those who plan and control household spending and savings are more likely to be in a better position to secure their futures, Nordquist said.

Only 31 percent of Americans between the ages of 40 and 59 say they have a plan, the survey found. Only a quarter of middle class Americans earning between $25,000 and $50,000 have a written plan for retirement, and 29 percent of those with household income of between $50,000 and $100,000 have a written plan.

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Indexed Annuities Grow New ‘Must Have’ Features Guaranteed lifetime withdrawal benefit riders have been the dominant star of indexed annuity features, but they will soon share billing with several other product features, according to insurance and annuity executives. bitly.com/qrmusthave

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39

ANNUITY

Burgeoning DIA Market Targets Gen X L ower minimum premiums could make deferred income annuities more attractive to midlife adults who are looking for a retirement funding vehicle.

By Linda Koco

W

ill deferred income annuities appeal to Generation X? Some annuity watchers have been thinking “no,” but new data from the leading seller in this market suggests the answer is “yes.”

Those in the “no” camp believe Gen Xers won’t buy deferred income annuities (DIAs) because most such products are income annuities that delay payout for many years, making it too far in the future for these midlife adults. In addition, they say that Gen Xers, who are now in the 35-48 age group, have too many other spend-now priorities – such as mortgages and college tuition – competing for their dollars and attention.

But New York Life recently published some statistics about its own DIA sales that challenge those assumptions.

The carrier dropped the minimum premium for its DIA, the Guaranteed Future Income Annuity, to $5,000 from the previous $10,000, last spring. New York Life found that 48 is the average age of customers who bought this DIA since the minimum premium was reduced to $5,000.

That’s 10 years younger than the company’s overall average DIA customer, the company said.

It’s also 10 or more years younger than the average age of DIA buyers industrywide. The industry average for DIA buyers is the late 50s, with most ranging from the early 50s to the mid60s, according to figures reported in August by the Insured Retirement Institute (IRI).

Significantly, age 48 happens to be the current age of the oldest Gen Xers, who were born between 1965 and 1978.

40

Those are the folks who are supposed to be not so interested in DIAs.

The Key

The key that seems to have turned the lock on Gen X buyer purchasing is the price point of the minimum premium. At the very least, the lower entry price seems to be a highly relevant factor. (No doubt, marketing, education and training, and selling partnerships helped too.)

When the carrier announced it was dropping the minimum to $5,000 last April, Matt Grove, senior managing director, indicated that the company believed the new lower minimum would spur members of Generation X and Generation Y, who may already be making regular individual retirement account (IRA) contributions, to consider the DIA as their funding vehicle.

Younger workers are the least likely group to have a defined benefit plan, the carrier pointed out, so the combination of the tax benefits of an IRA and the pension-like guaranteed lifetime income of the DIA might be attractive to these adults.

Carriers often decide to lower the minimum premium on certain annuities. They may do this to increase market penetration or to meet market demand, for instance. Competitors do eyeball those changes, but they quickly yawn.

In this case, however, the company doing the minimum premium reduction is the nation’s leading DIA seller.

(Earlier this year, its DIA premiums had exceeded $1 billion since the product’s introduction in July 2011, according to the company. Its DIA market share in LIMRA’s second quarter report was 44

InsuranceNewsNet Magazine » December 2013

percent.) In a developing annuity line like this one, the biggest seller makes waves, not yawns.

It’s Qualified Money

The qualified money aspect is significant.

The carrier said that the DIAs it has sold with a $5,000 initial premium primarily have gone into newly opened IRAs. That fits with the finances of many Gen X workers who may view the lower going-in premium as easier on the budget compared to the DIA’s previous $10,000 minimum. In addition, Gen Xers might like the fact that the figure happens to fall just shy of the 2013 IRA contribution cap for workers under age 50 ($5,500 for 2013, according to the Internal Revenue Service). Mentally, it’s a close fit.

The fact that these are newly opened DIAs/IRAs suggests that some of the buyers are probably self-employed Gen Xers and younger baby boomers who 1) want a tax-qualified retirement savings plan even though they are not working at a firm that provides a retirement plan, 2) want their plan to resemble the defined benefit plans their parents had and 3) want a plan they can afford even while meeting other midlife expenses.

If they didn’t want all three things, they might not have bought the contract.

By comparison, the primary funding method for all other Guaranteed Future Income Annuities sold by New York Life are IRA rollovers with an average initial premium of $100,000. The rollovers are from another qualified plan, according to the carrier.

The amount is in keeping with the profile of many older workers, many of whom do rollovers – of substantial sums – when they retire.

BURGEONING DIA MARKET TARGETS GEN X In a study published this summer, for instance, the Employee Benefit Research Institute (EBRI) noted that the average rollover amounts increase with age. For those ages 60-64, the average amount was slightly over $121,000 in 2011, EBRI said. The average amount keeps rising until age 70, at which point average rollover amounts begin to decrease.

A heads up for advisors and carriers: Twenty percent of the DIAs sold with the $5,000 minimum initial premium have been “preset” for a recurring annual contribution, New York Life said.

This suggests that these buyers not only want to get in the DIA/IRA door with a lowball entry amount, but they also intend to build their retirement income value over time. Advisors who prefer to do relationship-based sales might like that, since these Gen Xers inevitably will contact the agent as they continue funding their policies.

By contrast, only 3 percent of all other Guaranteed Future Income Annuity policies – the ones sold with the average initial premium of $100,000 – have pre-

set recurring contributions. So, unless the advisor sees the client for other reasons, the advisor-client contact may be limited until it’s time to start income.

Examples

Here is a company-provided example of how two Gen Xers might use the Guaranteed Future Income Annuity with a $5,000 initial premium for retirement income purposes. This is for a DIA written with a “life with cash refund” option: » A 48-year-old man buys the New York Life DIA with a $5,000 IRA contribution and then contributes $5,000 to it annually. When he retires at age 66, he will receive $9,622 a year for the rest of his life. » A 37-year-old man buys the DIA with a $5,000 IRA contribution and contributes $5,000 annually. When he retires at age 66, he will receive $20,667 a year for the rest of his life.

By comparison, New York Life’s average DIA customer is age 58 and defers

ANNUITY

taking income for nine years. If making a $100,000 contribution to a plan with the “life with cash refund” option, the man would receive $11,427 a year for the rest of his life starting at age 67, the carrier said.

According to the IRI, at least 12 companies now offer or have filed to offer a DIA product. That is up from only six carriers last year.

Early last year, the Treasury Department proposed regulations that would make it easier for workers to use part of their retirement accounts, such as 401(k)s and IRAs, to buy longevity annuities (another name for DIAs). Should the regulations ultimately be adopted, they likely will spur increased DIA sales.

Sales already are popping. LIMRA said sales of the products topped $1 billion at the end of 2012 and are likely to hit $2 billion by the end of 2013. The contracts have been selling actively for only a few years.

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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41

HEALTHWIRES

Health care costs mean postponing retirement. bitly.com/qrpostpone

The Computer Will See You Now You know how it is: You feel so rotten that even your hair hurts.

You know you’d feel better if you would only see the doctor, but you feel too miserable to get off the couch. Soon, you won’t have to. The virtual doctor will be a mouse click away.

Virtual doctor visits could become as common as faceto-face appointments because health insurers, hospital systems and employers view it as a way to clamp down on rising medical costs. They hope that by

giving patients an easy access to a primary care physician, it will discourage them from visiting a costly emergency room when they get sick.

The trend is emerging as millions of Americans are expected to gain health insurance under the Affordable Care Act (ACA). The influx of new patients could put a strain on some doctors’ offices, possibly driving more people to the hospital for routine illnesses if they can’t get an appointment quickly.

GROCERY CHAIN MOVES INTO HEALTH CARE

The grocer y store has become much more than a place where you pick up bread, milk and toilet paper.

One Midwestern supermarket chain has branched out into providing health care.

Schnucks, a St. Louis-based chain of 100 stores, opened its first Schnucks Infusion Solutions facility to treat acute and chronic conditions.

At the 6,500-square-foot center, nurses, pharmacists and technicians prepare infusions and administer them either in the patients’ homes or in the facility’s ambulatory infusion center.

AETNA CEO: PUBLIC, PRIVATE EXCHANGES ARE THE FUTURE

The average worker soon will pay more than 50 percent of employer-based health plans, predicted Aetna chairman and chief executive officer Mark T. Bertolini. The Aetna chief said the steep rate of medical inflation is changing the health insurance marketplace from a business-to-business model to a retail market shared by private as well as public exchanges.

DID YOU

KNOW

?

Bertolini said the ever-escalating cost of medical services and health insurance has led employers to shift more of the price of health insurance onto workers. He noted that health insurance premiums have

increased by 90 percent from 2000 to 2011, mirroring the rate of inflation in

underlying medical costs – everything from doctors and hospitals to biotech and pharmaceuticals. During that same period, he said, wages increased only 33 percent.

That’s a shift from business-to-business to a retail marketplace, Bertolini said.

The future of health care is public and private exchanges, Bertolini said. Rather than people buying one of a few options offered through their employer, the employer will give the workers money to buy on a private exchange. Aetna is the largest public exchange participant in the nation.

INSURANCE ADS PLAY OFF ACA FEARS

Some of the bad press for ACA is coming from the health insurers who stand to make money from it. They are airing TV ads that talk about “scary” and “confusing” changes to health insurance, underscoring the problems in online enrollment.

17% OF THOSE ELIGIBLE TO BUY HEALTH INSURANCE on the marketplaces had visited them within the first month of the ACA exchanges opening on Oct. 1.

Source: The Commonwealth Fund

42 InsuranceNewsNet Magazine » December 2013

QUOTABLE This is an open door for people who have never had insurance. You can make good money in the health insurance market – at least for the first year.

— Carmen Crespo, a board member of NAIFA’s Miami-Dade chapter, on selling health insurance through the exchange

If we don’t get our message out, we as an industry are going to die.

— Rich Fahn, a Northbrook, Ill., health insurance broker, on the importance of staying relevant to consumers in the wake of health care reform

The ads are being broadcast by health insurers looking to sign up new customers, whether through the exchanges or directly, without the price comparisons and premium subsidies offered through the exchanges.

“When health care’s future seems so uncertain, it’s nice to know there’s a company you can depend on for quality coverage at a price you can afford,” says an ad for Total Health Care, a Michigan insurer offering a plan through the exchange. In Nebraska, Blue Cross Blue Shield promises, “We’ve got your back.” In Vermont, Blue Cross Blue Shield calls change “scary, especially when it involves something as important as health care.”

In an ad for Sanford Health Plan – which offers plans on exchanges in Iowa, North Dakota and South Dakota – a couple debates what to do about their coverage, calling it “complicated” and “painful.”

Some of the ads currently on the air began running over the summer. But many were timed to the start of online enrollment Oct. 1. Since online signup has belly-flopped, “a lot of the ads playing on people’s uncertainties or concerns look absolutely prescient,” says Elizabeth Wilner, a vice president of Kantar Media CMAG, which tracks the health insurer ads.

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Will ACA Get

Disastrous

WILL ACA GET ON TRACK AFTER DISASTROUS ROLLOUT?

HEALTH

on Track After

Rollout?

BY SUSAN RUPE

The much-publicized snafus in the Affordable Care Act debut are leading to the question of whether the health care law really will deliver on its promises.

I

ts official name is the “Patient Protection and Affordable Care Act.” Some people refer to it as “ACA” and others call it “Obamacare.” But many Americans refer to it with words we can’t print.

ACA’s proponents sold the public on the idea that all Americans could buy insurance that covers pre-existing conditions and a host of other services.

They told the public that they could buy coverage as easily as they purchase airline tickets online. They told the public that they could buy coverage at a reasonable price. But we all know what happened once the switch was flipped on Oct. 1, the first day that people could shop for coverage: » The health care exchange websites went down on the first day because of glitches and an inability to handle the number of people who went online. An army of experts was sent in to fix the problem, but it was estimated that it would take until the end of November to get things up and running the way in which they were intended.

» Only six people were able to sign up for coverage on the first day that the online health care exchanges went live.

WHAT’S COMING NEXT

» About 100,000 people were able to

Dec. 15, 2013

This was only one fifth of the number of sign-ups originally estimated by the Obama administration.

Deadline for enrolling in health insurance in time for coverage to start Jan. 1, 2014.

» Many people gave up trying to sign up at all. A poll said only 17 percent of Americans who are eligible for coverage even bothered to check out the website.

Jan. 1, 2014

sign up for coverage in the first month.

» More than 4 million policyholders were told that their current plans would be canceled because they didn’t meet

the standards for coverage (known as “essential health benefits”) mandated

by ACA. This was despite President Obama famously telling the nation, “If you like your health plan, you can keep it.” Public outrage over this development led to Obama announcing that insurance companies that wished to keep these plans in force would be permitted to do so for one year.

Health insurance coverage bought through marketplaces begins taking effect.

Feb. 28, 2014 Last day to purchase coverage before penalty takes effect.

March 31, 2014 Open enrollment ends.

December 2013 » InsuranceNewsNet Magazine

45

HEALTH

WILL ACA GET ON TRACK AFTER DISASTROUS ROLLOUT?

» Political finger-pointing over the whole mess dominated news headlines and talk shows for weeks. » President Obama apologized to the American people – not once, not twice, but three times – over the botched health care rollout. » In the middle of this broken tran-

sition, health insurance advisors are stuck between a nonfunctioning insur-

ance exchange and anxious clients with one eye on the news and the other on their soon-to-expire policies.

But all of that is nothing compared to this question: “Is the Affordable Care Act really affordable?”

What is affordable to one person may be out of reach to another. When ACA was conceived, the idea was that enrolling large numbers of healthy young adults into the risk pool would help lower premium costs for all. Enrollees whose income fell below specified levels would be eligible for federal subsidies to help purchase insurance. A 3.8 percent net investment income tax would be applied to high-income individuals to help pay for the subsidies.

The ability of those with pre-existing conditions to obtain insurance – and the mandate that insurers cannot drop high-risk individuals from coverage – has been an attractive feature of ACA to many Americans. But it has become the main reason why premiums are going up.

In addition, insurance plans must cover a wide array of services under the “essential health benefits” mandate – whether the insured actually needs those services or not. So, for example, a 60-year-old childless man must be required to pay for a policy that covers maternity care and pediatric dentistry, even though he has no need for that coverage. The elimination of lifetime and annual dollar limits is another ACA requirement leading to premium sticker shock.

In California, the actuarial firm Milliman reported that the “guaranteed coverage provision” is the greatest factor leading to an estimated 14 percent jump in premiums under ACA. Regence BlueShield of Washington estimated that guaranteed coverage is adding 8 percent to the cost of next year’s premiums.

46

WHAT ARE “ESSENTIAL HEALTH BENEFITS?” One of the reasons cited by insurers for the higher cost of premiums under ACA is the requirement that insurance policies must cover a list of 10 “essential health benefits.”

Those who buy ACA-qualified plans must pay for these benefits whether the insured will need them or not. For example, a childless person must pay for a plan that includes pediatric services.

The decision to permit insurers to continue to offer non-ACA-compliant individual policies for another year throws yet another question into the mix. Will keeping those individual policyholders from entering the exchange further muddy the waters by not forcing more healthy adults to jump into the risk pool?

“Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers,” Karen Ignagni, president of America’s Health Insurance Plans, said in a written statement.

“Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace,” Ignagni said. “If now fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase and there will be fewer choices for consumers.”

“Who is going to stay in the old policies?” said John Aloysius Cogan Jr., former executive counsel for the Rhode Island Office of the Health Insurance Commissioner. “The healthy people with the cheap policies.”

But whether the cost of health insurance is going up or down under ACA depends upon several factors, particularly where you live, your age, your family size, your income level and the level

InsuranceNewsNet Magazine » December 2013

of coverage you select (platinum, gold, silver or bronze).

Where You Live

The Heritage Foundation did a before-and-after comparison of average monthly premiums in the individual market versus the ACA exchanges, and it found wide discrepancies by state. Average premiums came down under ACA in only five states: Colorado, New Jersey, New York, Ohio and Rhode Island. Average premium increases, however, ranged from a 171.4 percent rate hike for an adult age 27 in Arkansas to a 0.8 percent increase for an adult age 27 in New Hampshire and a family of four in Nevada.

In analyzing the numbers, the Heritage Foundation said that states with younger populations are seeing larger premium increases, as younger and healthier people are being required to shell out more in order to keep costs down for older and sicker consumers. The number of insurers offering coverage on the exchanges is another factor in premium rates, with states in which there is little competition among insurers seeing higher premiums.

Your Age

If you’re an adult under 26, you may be able to remain on your parent’s health plan. But many young adults are faced with forking over some serious bucks to

December 2013 Âť InsuranceNewsNet Magazine

47

HEALTH

WILL ACA GET ON TRACK AFTER DISASTROUS ROLLOUT?

obtain coverage. Once again, it’s a matter of insurers charging younger consumers higher premiums to offset the cost of covering older and sicker folks. In Arizona, the average monthly premium for a 27-year-old is expected to rise to $261.87 a month, up from $102. Other states where 27-year-olds will be on the hook for the highest premiums include Georgia (where monthly premiums are going up by $165), Illinois ($133), Michigan ($138) and Vermont ($216).

Some young, healthy people will earn too much ($46,000 annually for a single adult) to qualify for subsidies and will face higher net premiums than they would have before Obamacare. Others are figuring that it might make more financial sense for them to go without coverage and face paying a 1 percent penalty.

Adults age 50 and above are facing rate hikes as well, even though a requirement of ACA is that insurers must charge older Americans no more than three times what they charge healthy younger adults.

According to the Heritage Foundation’s figures, monthly rate hikes for an adult age 50 under the exchange range from a high of 96 percent ($206) in Texas to a low of 3.6 percent ($12) in Maine.

Your Family Size

A hypothetical family of four who shops for coverage on the exchange will be looking at a monthly premium increase of anywhere from 31.6 percent (from $634 per month to $835 per month) in North Dakota to 0.8 percent (from $620 to $625 per month) in Nevada, according to the Heritage Foundation. Again, competition among insurers in the marketplace and the cost of providing the mandated essential health benefits are the big factors leading to these premium hikes.

Your Income Level

Here is where subsidies come into play.

If your household income is between 100 percent and 400 percent of the federal poverty level , you are eligible for a tax credit of anywhere between 2 percent and 9.5 percent of that income as a subsidy for purchasing a silver plan (covers 70 percent of expenses) on the exchange.

The Kaiser Family Foundation estimates that more than 17 million Americans will be eligible for subsidies.

48

Anyone earning up to 400 percent of the poverty line, which is up to $45,960 for an individual and $94,200 for a family of four, will be eligible for a subsidy.

The lower your income, the larger the subsidy. For instance, those making $17,235 a year will pay no more than 4 percent of income, or $57 a month.

Those with incomes between $34,470 and $45,960 will pay a maximum of 9.5 percent of income, or $364 a month. The federal government will cover the rest.

Anyone earning more than $45,960 would be responsible for the entire tab on the health plan of their choice.

In addition to premium subsidies, those making less than 250 percent of the poverty line, or $28,725 for a single person and $58,875 for a family of four, are eligible for extra subsidies to defray out-of-pocket costs, such as deductibles and copayments.

In addition, The New York Times reported recently that between 5 million and 7 million people will qualify for subsidies that will exceed the cost of the cheapest plans for individuals and families on the exchanges. This makes coverage free for them. Neither the Obama administration nor the insurance companies, however, are promoting the plans vigorously.

They believe that many consumers would be better off paying a bit more for a policy that would cover more of the out-of-pocket costs for a doctor’s visit or hospital stay.

The Level of Coverage Selected

Under the ACA, insurers are required to offer plans that fit one of four levels.

This requirement will apply regardless of whether a plan is offered through an exchange (and premiums must be the same for plans inside and outside the exchange). Insurers don’t have to offer plans in all of those levels, but within the health insurance exchanges, all insurers must offer at least one silver and one gold plan except for dental-only plans.

The four levels of coverage indicate the percentage of health costs that a health plan would pay for an average person.

An insurer that offers coverage at any of these levels is required to offer the same level of coverage in a plan designed specifically for individuals under age 21.

[1]

InsuranceNewsNet Magazine » December 2013

Platinum plans pay 90 percent of

covered benefits with an average

individual paying the remaining 10 percent out-of-pocket. These plans have the highest premiums.

[2]

Gold plans have 80 percent of

[3]

Silver plans cover 70 percent of

health care costs covered for an average person, with enrollees paying an average of 20 percent of the costs. all health care costs for an average person, with enrollees paying the remaining 30 percent of costs.

[4]

Bronze plans cover 60 percent

of all health care costs for an average person, with enrollees responsible for paying 40 percent of the costs.

These plans have the lowest premiums.

Where Will Premiums Go?

So, will premiums under ACA continue to go up? Or will they level off or even come down once insurers get a clear idea of how many people will sign up for coverage?

Right now, no one seems to have a clear answer for that. The main answer to that will depend on how many young and healthy adults eventually enroll in coverage.

David Axene, a fellow of the Society of Actuaries, told Kaiser Health News that the impact of guaranteed coverage on the health care law is being factored into premium rates now, based on the projections of the ratio of sick to healthy customers. “Once it’s built in, unless they were wrong, it won’t be repeated.”

Brady Cass, president of Asuris Northwest Health, told Kaiser Health News that if actuaries underestimated, premiums might rise more in the future. If not, some consumers might see a rebate, as required by law.

“Did we overshoot the runway or come up short?” he said. “Only way to get there is to get to the end of the runway and look back.”

Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Susan may be reached at srupe@insurancenewsnet.com.

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2013 » InsuranceNewsNet Magazine

49

Will the Affordable Care Act make coverage unaffordable? Read more on PAGE 44

HEALTH

Advisors Get Resourceful While Dealing With Flawed System H ealth insurance advisors are educating group clients and helping individuals calculate their subsidy eligibility while waiting for the online marketplace to be fully functioning.

By Susan Rupe

A

sk most health insurance advisors how successful they have been in obtaining coverage for clients since the online marketplaces went live, and they will reply with a hoot of laughter.

It turns out that most advisors have been no luckier than the average Joe in working their way through the balky online marketplace. While maintaining a sense of humor, advisors are as frustrated as the rest of the public over the missteps in the Affordable Care Act rollout. But although they were forced offline for a month while the ACA enrollment site underwent repairs, health insurance advisors are not sitting back and waiting for something to happen.

They are doing what they always do: providing advice and engaging their clients while they are wondering what will happen next.

“We are in a bit of a holding pattern right now as far as doing anything on the [ACA] website is concerned,” said Liz Gallops, individual health insurance specialist with JBA Benefits in Raleigh, N.C. “It’s been a lot of ‘let me take your info and we will get you signed up when the website is working again.’ We reached the point where we just stopped trying to go online.”

Gallops said that about one-quarter of her company’s clients don’t qualify for federal subsidies to purchase health insurance, but they have been notified that their current health insurers are raising premiums significantly. “One strategy that we have been able to use for these clients is that we have been able to move them to a different carrier as of 50

Dec. 1, 2013, in order to stave off a major premium increase for the next 11 months.”

In Roseburg, Ore., Kelsey Wood of Gordon Wood Insurance and Financial Services said that he has “never taken more applications for insurance in my life” as he has since Cover Oregon, his state’s insurance exchange, went online.

“I hired two extra producers and opened a mall store,” he said.

“We’re supposed to be able to go to Cover Oregon’s website, log in a customer, set up an account, verify their identification – and none of that works,” he said. “We can go to the website and shop plans. It’s a wonderful shopping experience. But we haven’t been able to enroll anyone yet.”

When the online system fails, it’s time to fall back on the tried-and-true method of applying for insurance: pen and paper. That’s what Ken Statz, president of Statz and Associates in Brecksville, Ohio, is doing.

“We’ve taken the paper applications that the Department of Health and Human Services [HHS] provides, and we added our unique certification number and National Producer Number to them,” he said. “We began the process of getting paper applications out to those who want to enroll and taking their information, and then we will submit that information to HHS.” Statz has been resourceful online as well as on paper. In essence, he has stepped in as an exchange. He said he has been able to calculate whether his clients are eligible for subsidies, and for how much, and then go to his carriers’ websites to compare prices on coverage at different “metal” levels (platinum, gold, silver and bronze).

For his group clients, Statz has been busy as well. “I have a group of 45 employees and they normally have a May 1 renewal date,” he said. “We were able to get them an early renewal [for] a better

InsuranceNewsNet Magazine » December 2013

plan at an increase of only 6.7 percent, which is far less of a premium increase than they would have faced had they waited until May 1.”

Statz has been meeting individually with employees of some of his group clients, doing subsidy calculations on each employee to see how they might fare on the exchange. “I am spending a lot of time trying to be proactive and educate my individual and group clients on what’s coming,” he said. “For our individual clients, we are trying to get them information on their estimated subsidy.”

Ed Anderson of Hawkins Insurance Group in Edina, Mo., also has had to be resourceful while waiting for the ACA marketplace to be back in service. “I have been able to quote prices to clients through our Blue Cross marketplace and also to get clients information through the Kaiser Family Foundation website,” he said. “We also are handing out paper applications to collect information from clients.

“A lot of our people will qualify for a subsidy. We’ve had good results in getting subsidies for clients – but we just can’t get them verified online because the system isn’t working,” he lamented.

“We’re trying to work smarter, not harder” in the wake of the online delays, said Kelly Fristoe, owner of Financial Partners in Wichita Falls, Texas. One way in which he is keeping busy is by working with his group health clients.

“We have two employee groups with Feb. 1 renewal dates. They already are facing very large rate increases. We were able to terminate their employer-based plan and make arrangements for me to educate their employees about purchasing insurance through the marketplace.

“I’ll be the guy that the employer reaches out to in order to educate the employees about coverage,” he said. “I want to help them get the most suitable plan for their needs.”

In Arkansas, a federal partnership has

Do MEDICAL been set up so Medicaid-eligible residents can use federal funds to purchase health coverage. But the state’s online marketplace, Arkansas Connector, is experiencing logjams in getting applicants’ eligibility verified, said Cammie Scott, president of C.K. Harp and Associates of Springdale, Ark. “So we’ve had to resort to doing things like faxing in [copies of ] clients’ drivers licenses because we can’t get through online,” she said.

Minnesota’s exchange website, MNsure, has been working, albeit slowly, said Bob Quinlan of Quinlan Insurance and Financial Services in Winona, Minn. “But I have all my clients calling me now and asking, ‘What are my options?’ ” he said. “Even though coverage doesn’t take effect until Jan. 1, people want to know what’s available and how much it will cost.”

Further complicating the situation in his state, Quinlan said, was that personal information, such as the Social Security numbers of agents who took online training to sell insurance in the MNsure marketplace, was compromised.

Even though federal officials say the ACA website will be fully functional by the end of November, some advisors are concerned about what will happen when the website woes are corrected and there is another rush of people applying for coverage.

“If things are not fixed by midNovember, I’m starting to get worried because then there’s not much time left to get coverage for those who need it by Jan. 1,” said Russ Childers, life and health insurance agent from Americus, Ga. In the meantime, advisors are resigned to working with clients as best as they can while dealing with a cumbersome online enrollment system.

“It’s broken, it’s a mess, but we’re working with it,” Wood said. “That’s all we can do.”

Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Susan may be reached at srupe@insurancenewsnet.com.

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NOTE: All conditions, scenarios, and medical impairments may not be considered insurable by the insurance companies.

Only the insurance company can accept or deny an application formal underwriting process.

Informal inquiries December 2013after » aInsuranceNewsNet Magazine 51 and trial applications do not guarantee coverage or rate classes. FOR AGENT USE ONLY • NOT FOR CONSUMER DISTRIBUTION

FINANCIALWIRES

Millennials use their friends’ financial habits to determine their own. bitly.com/qrhabits

QUOTABLE

Exuberance Heats Up to Simmer

49%

sidered themselves optimistic, according to the third quarter 2013 Brinker Barometer survey.

ADVISORS OPTIMISTIC ABOUT THE ECONOMY

26%

There’s exuberance out there and it does not appear to be irrational.

First, financial advisors are feeling better about the economy. We can’t say they feel good quite yet, because 49 percent of advisors con-

But they are feeling a heck of a lot better than they were a year ago when a meager 26 percent 2012 2013 were optimistic.

Last year, advisors were worried about many things associated with the federal government. But, apparently, their optimism can see past even that, because they are still peeved about the shenanigans, with 61 percent of respondents saying they were concerned with “ineffective federal governance by both the administration and Congress.” Yet, nearly half were optimistic about the economy and their clients’ financial health.

Small business owners also are feeling a little better. Usually a fairly grumpy lot, they are slightly simmering with joy. Nearly a third of them, 31 percent, said they plan to hire over the next year, according to a Bank of America survey.

But they, too, see problems with the federal government slowing things down, with 77 percent looking askance toward Washington, D.C. And who could blame anybody furling a fretful brow at the capital? After the 16-day partial government shutdown in October, Congress allocated enough money to keep the government open through Jan. 15. Then they have until the Feb. 7 deadline to raise the borrowing limit.

BONDS ON THE BUBBLE

Financial advisors might be feeling good but their brethren in bonds are not sharing the cheer.

Bonds have been supported by the Federal Reserve’s massive $85 billion monthly purchase to help control interest rates. But someday the Fed will taper the buying and pop will go the bubble. The Wall Street Journal did a survey of economists that predicts the yield on the 10-year Treasury will rise nearly one percentage point from current rates to 3.47 percent by this time next year.

In that case, bonds will have another

DID YOU

KNOW

?

52

blah year on top of 2013. The Barclays Aggregate Bond Index was down 1.10 percent as of Nov. 1.

STOCK RISE LIFTS VA BOATS

As of press time, the stock markets were on yet another rally, on top of a grand third quarter. That meant insurance companies were able to breathe a little easier on variable annuity (VA) subaccounts.

Although carriers have been cutting back on VA sales, account values and operating earnings have been galloping ahead at double-digit increases

year over year. This means companies are generating fees and reaping rewards, while distributors are left out of the party.

56% PARENTS OLDER 50 have not talked to their children THEOF AVERAGE RETURN ONTHAN AN INITIAL PUBLIC OFFERING was 20 percent about issues as wills, inheritance plans where want to this year.

Thesuch average increase in the first dayor (oreven “pop”) is 13they percent. retire; 90% OF AMERICANS said they would not be financially prepared Source: Renaissance Capital to help out an aging parent. Source: Merrill Lynch survey

InsuranceNewsNet Magazine » December 2013

I’m calling this the Obamacare rally because the worse the Obamacare rollout gets, the higher the stock market goes.

— Jeffrey Saut, Raymond James strategist

JELLIN’ LIKE YELLEN

The appointment of Janet Yellen as Federal Reserve chairman was about to go before the Senate Banking Committee as of press time. But it’s safe to say that as you read this, barring any crazy happening, Yellen will be the Fed chair or well on her way.

Yes, she is the vice-chair now. And, yes, she is eminently qualified and widely respected as a sober, competent regulator. But is that why she would have a smooth sail to the seat? Not entirely.

It seems that Republicans, including the typically rowdy Tea Party faction, don’t want to distract attention from the health insurance exchange disaster.

Well, that’s one way to make Congress accomplish something.

RIAs, OPEN WIDE AND SAY, AHHH!

The Securities and Exchange Commission (SEC) is struggling under a tight budget like many agencies in Washington, but Chairman Mary Jo White says she wants to do more with less – more testing, that is.

Only about 8 percent of the 11,000 registered investment advisors (RIAs) nationally are tested each year and White

said at the agency’s annual conference that she’d like to see that number increase. She didn’t specify the higher number but she is asking for more examiners.

White’s remarks have had attorneys warning that the SEC is out to get advisors and they should be very careful about reporting assets under management and reporting composite performance.

Attract attention, they say, and you just might get the kind you don’t want.

Promotion

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FINANCIAL

Time is Ticking on IRA-Charity Rollovers H elp your client save on their income tax while they support their favorite worthy cause.

By Patti S. Spencer

T

he American Taxpayer Relief Act of 2012 (ATRA) extended the qualified charitable distribution (QCD) provisions through Dec. 31, 2013.

In general, distributions from individual retirement accounts (IRAs) must be included in gross income in the year in which distribution occurs, and income taxes must be paid on the taxable portion. A qualified charitable distribution (“QCD” or charitable rollover) is not included in income.

A QCD is an otherwise taxable distribution from an IRA (other than an ongoing simplified employee pension plan or SIMPLE IRA) owned by an individual who is age 70½ or over and paid directly from the IRA to a qualified charity. An IRA owner can exclude from gross income up to $100,000 of a QCD made for 2013, and a QCD can be used to satisfy any IRA-required minimum distributions (RMDs) for the year. A married couple could potentially make a $200,000 contribution, since there is a per-person limit. The amount of a QCD excluded from gross income is not taken into account in determining any deduction for charitable contributions. This means that if your client is running up the percentage limitation for charitable gifts, using a QCD will allow your client to transfer more to charity.

ATRA reinstated the ability of a 70½-year-old individual to make a taxfree IRA distribution or rollover of up to $100,000 to a charity in 2013. The tax law applicable in 2012 did not permit this. The last time this opportunity was available was in 2011. There was a unique opportunity, available only in the month of January 2013, for an individual to roll over an additional $100,000 and have it treated as though it were rolled over in 2012.

54

The organization receiving the charitable distribution cannot be a non-operating private foundation, a supporting organization or a donor-advised fund, and the individual cannot receive any consideration for the distribution. Distributions from employer-sponsored retirement plans such as SIMPLE IRAs and Simplified Employee Pensions do not qualify.

Interplay with Social Security Income

Social Security (SS) income is not taxable until a taxpayer’s adjusted gross income (without SS income), plus 50 percent of their SS income, plus tax-exempt interest income, plus certain other infrequently

InsuranceNewsNet Magazine » December 2013

encountered additions, exceeds a specific threshold. That threshold is $32,000 for married taxpayers filing jointly, zero for married taxpayers filing separately and $25,000 for all others. Once the threshold is exceeded, the percentage of SS income subject to tax varies from 50 percent to 85 percent.

If a taxpayer is 70½ years of age or over, he or she is required to start taking required minimum distributions (RMDs) from IRAs and most other retirement plans. The amount of the RMD can impact the taxation of the taxpayer’s SS benefits. For 2013, a taxpayer aged 70½ or over can make a direct IRA-to-charity distribution that also counts toward the

FINANCIAL

TIME IS TICKING ON IRA-CHARITY ROLLOVERS taxpayer’s RMD for the year. The distribution is not included in income (and therefore does not impact the taxability of the SS income). Obviously, the charitable contribution is not deductible, since the distribution from which the contribution was made was never includable in income for the year.

An added benefit occurs when a taxpayer has a substantial charitable contribution and he or she only marginally itemizes. Donations to charities are tax deductible only when a taxpayer itemizes deductions. By replacing the RMD income and charitable contribution with a direct IRA-to-charity rollover, the taxpayer can contribute to a favorite charity and, at the same time, exclude the distribution from income and use the standard deduction to reduce his or her taxes.

Avoiding the 3.8% Obamacare Surtax

Using the charitable rollover provision would result in a reduction in adjusted gross income. Since the new 3.8 percent Obamacare surtax applies to the lesser of

1) the taxpayer’s net investment income (NII) and 2) the taxpayer’s modified adjusted gross income (MAGI) reduced to a fixed threshold, reducing adjusted gross income is an important planning strategy. The threshold is $250,000 for married couples filing jointly, $125,000 for married couples filing separately and $200,000 for everyone else.

Avoiding Limits on Itemized Deductions

Effective Jan. 1, 2013, ATRA reinstated the “Pease limitation” (named after the late Congressman Donald Pease, D-Ohio) which had been eliminated for the 2011 and 2012 tax years. That limitation caps the amount of certain itemized deductions, including the charitable deduction, that an individual may take if his or her MAGI exceeds a certain threshold amount called the “applicable amount.” The new law has set the applicable amounts as $250,000 for a single individual, $300,000 for a married couple filing a joint return and $275,000 for head of household. If a taxpayer’s adjusted

gross income exceeds the applicable amount, the taxpayer’s itemized deductions will be reduced by the lesser of 1) 3 percent of the amount by which a taxpayer’s adjusted gross income exceeds the applicable amount, or 2) 80 percent of all itemized deductions that are subject to the Pease limitation for the tax year.

For a high-income donor who makes a large gift to charity, the Pease limitation may significantly reduce the amount of itemized deductions that a donor might otherwise be able to take. Using the charitable rollover can avoid these limitations.

The IRA-to-charity rollover can be a true win-win. The taxpayer can reduce his or her income tax, and the charity receives a much-needed contribution.

Trusts, estates and tax attorney Patti S. Spencer is a nationally recognized author and educator. She is founder and owner of Spencer Law Firm, Lancaster, Pa. Contact her at Patti.Spencer@ innfeedback.com.

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To register or learn more: Call: 877-337-5688 Visit: www.irahelp.com E-mail: info@irahelp.com December 2013 » InsuranceNewsNet Magazine

55

BUSINESS

Four Words for More Referrals Having confidence and cultivating relationships are at the core of this system to obtain more and better referrals.

By Matt Anderson

H

ere is a system that makes it easy to remember the four crucial elements of getting a referral. It applies to all the people you know.

Memorize these four words and practice them until they become habits. If you truly want to get more and better referrals for the rest of your professional life, I repeat: Memorize these four words and practice them until they become habits – Earned, Who, How and Control.

Earned

You do not recommend another professional unless you think they do a good job.

It’s the same for you: You have to earn 56

the right to ask for a referral. There has to be water in the well in your relationship before anyone in their right mind will be open to helping you.

The gray area is that people vary in how long it can take for them to trust others.

A few people are enthusiastic quickly and can refer you early on. A few other people can take years to make a referral. Most people fall in the middle.

HOW DO YOU KNOW IF YOU’VE EARNED IT? Sometimes you can trust your gut on this: You know or sense the other person knows, likes and trusts you.

If you are uncertain about whether to ask for a referral, get some feedback from them.

Ask an open-ended question such as: “It would be really helpful for me to get some feedback from you. From the work we’ve done so far, what has been most helpful for you?” You will hear in the tone of their voice whether they are genuinely pleased.

InsuranceNewsNet Magazine » December 2013

This requires that you make yourself a bit vulnerable to them but sometimes having this courage is the only way you’ll find out.

How else can you grow? Plus, your competition probably is not doing it (which can suggest they don’t care).

Here is an idea for a question to ask if you want to get feedback on ways you can improve: “I don’t know you that well yet; what else could I do that would help you more?” You may put yourself in a position where you need to address their suggestions first before asking for a referral at a later date. The advantage is that you don’t shoot too soon and ask at a time when the other person is not that impressed, resulting in awkwardness.

The other side of this topic is the inside job: having enough confidence in who you are and what you do that you believe you have earned it. The more you believe you really are helping others, the easier it is to ask for a referral, because you believe

FOUR WORDS FOR MORE REFERRALS you’ve earned it and you will do everything you can to make your referral source look good. That’s why a few people who are very confident can get away with really tacky sales language.

Communication must be congruent.

A good referral is like sales: it is a transfer of enthusiasm between you and your referral sources.

Who

It’s possible that many people have not referred you because they need your help identifying to whom you want to be introduced. They’re not going to figure this out on their own!

The most important thing about getting referrals is being so clear about what you want that the other person does not have to think about it. It is your job to identify what you want so that it is easy for others to help you. Never again say, “If you can think of anyone else who might benefit from my work, please have them give me a call.” This is not an “ask”; it is a throwaway line.

The question to ask yourself before every meeting is: What would I love to ask this person?

There are six ways to come up with names: [1] Pre-plan your “ask” based on past conversations or online research (e.g., LinkedIn).

[2] Listen differently for names of people who sound like good prospects and are people they like.

[3] Ask different questions to find out who is in their network.

[4] Use generic specifics such as close friend, sibling, favorite co-worker.

[5] Tell stories of others you’ve helped in different situations.

[6] Share a list of companies/prospects you’re looking to help.

How

Many people may not have referred you because they don’t know how, and they’re not going to admit this to you.

Except for current referral sources, play it safe and assume the other person could

use some direction in how best to introduce you – even if they tell you: “I’ll have a word with her.” Assume that either they will say something ineffective or they will get cold feet and say nothing at all.

The first thing to do is to learn what your current referral sources do – how do they introduce you and what do they say about you?

Then begin to craft language to share in an e-mail that others can use, too. The basics are always the same: “Juli’s great. Talk to her. Can she call you?”

Now, let’s spruce it up: “Juli has done excellent work for my wife and me. She specializes in working with (fill in relevant scenario). Not sure how happy you are with your current provider. We regard her highly. Would you be open to hearing from her sometime?”

A client of mine has developed a “How and Why to Introduce Mark Smith” page that has generated 36 high-quality referrals. Almost all of those referrals have turned into initial meetings and several have become clients in just over three months. It has worked because: » He uses simple bullet points, so it’s easy to read quickly. » He has shared it with more than 200 people. » He tells the professionals he meets to put one together, too, so it is easier for him to refer them. Now he’s hearing from them that they are getting referrals because of it! » When he presents it to clients, he has them read it and asks them whether they think he should add or delete anything.

Then he asks for a referral. » People know he truly cares about their success and that it’s not a cheesy sales technique.

Control

It also is likely that many people have not referred you because you have not kept control of the referral process. Usually this happens when the referral source has said he will do something and you hear nothing back.

You cannot expect other people to care about your business opportunities

BUSINESS

as much as you do. And most people are too busy nowadays to attend to following up effectively without your help or reminders.

HOW TO KEEP CONTROL: You must be patient and persistent. The majority of sales are closed after we ask for them five times or more. Most people give up after one request. Track your follow-up and spread it out so you are not annoying.

You must hold people accountable for their word. People hate to be inconsistent with things they have said they will do. Your job is to treat people’s word as if it were some holy scripture. I know that sounds a little strong but it’s terribly important. There are nonthreatening ways to gently remind people of things they said and when they mentioned it: “I hope life is treating you well. When we had coffee on Feb. 21, you asked me to get back to you about (fill in the blank: working with your business partner, meeting up with Denise, etc.). Have you made any progress?” You can always re-coach the person using wording from the “How” step.

Ask questions that help you keep control. When should I get back to you to see if Denise is interested? What is a reasonable time frame for me to get back to you if I don’t hear back from you/ Denise? How would you like me to proceed? Thanks for that; what would you like me to do next?

Never leave an opportunity with the other person saying: “Let me get back to you on this” (unless they sound irritated or belligerent). Perhaps let the conversation move on so it appears that you are compliant, but before you end it, revisit this and say something like: “If, for some reason, you just get crazy busy and I’ve not heard from you, when should I get back in touch about contacting Denise?”

If you truly want to get more and better referrals for the rest of your professional life, I repeat: Memorize these four words and practice them until they become habits. Thank me later!

Matt Anderson, “The Referral Authority,” is the author of Fearless Referrals. Contact him at Matt.Anderson@innfeedback.com.

December 2013 » InsuranceNewsNet Magazine

57

Over 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

Connecting With Consumers in the Era of ‘Seller Beware’ C onsumers need a simple way to decide on buying the right coverage.

By Delores R. Freitag

I

opened my presentation at a meeting of financial professionals with this question: “When I say the words ‘sales’ and ‘selling,’ what words come to mind?”

What I heard were responses like “value added,” “serving others” and “trust.”

While researching his latest book, To Sell is Human, Daniel Pink posed the very same question to 7,000 consumers.

Here’s what he heard: “pushy,” “annoying,” “aggressive,” “slimy,” “smarmy” – you get the picture. In fact, of the 25 adjectives that consumers most commonly used to answer that question, Pink notes that 20 were negative.

This contrast illustrates the great disconnect between today’s sellers and today’s buyers. Just a couple of decades ago, we lived in the era of “buyer beware,” where the seller had more information than the buyer. This situation was a key cause of all those negative adjectives.

Today, we live in a world where buyers often have as much information as the financial professional. Sometimes, buyers have even more information than the financial professional! In this situation, let the “seller beware!”

LIMRA has been tracking consumer sentiment and buyer behavior for years, revealing our findings through research studies including Every Excuse in the Book (2006), Consumer Trust (2009), Using Behavioral Economics to Sell (2012) and many others. The insights from these studies reveal four important themes:

[4] Consumers can be moved to act.

In a “seller beware” world, successful financial professionals are making connections, building trust, and motivating people to act on their intentions to buy the right coverage for themselves and their families.

Selling is both an art and a science. On the science side, LIMRA has conducted research on “choice architecture” to examine how financial professionals can best present advice to potential buyers.

Choice architecture seeks to affect outcomes through the manner in which choices are presented to decision makers.

LIMRA uncovered a number of tactics that can help people make beneficial financial decisions. Here are some examples: » Share personal stories to overcome irrational optimism. People typically underestimate their financial vulnerability unless they have some personal experience that reduced their optimism.

Telling prospects stories about people’s real-life experiences will help them realize they have a need for insurance and/or retirement solutions. » Avoid ambiguity. People find it difficult to make complex or expensive decisions, so ambiguity only makes things worse. To avoid being vague and leaving things open to interpretation, financial professionals should conduct collaborative discovery interviews that ask meaningful, deeper questions and illuminate any points of confusion.

[2] Trust is under siege.

» Use rules of thumb. People want help making decisions. Financial professionals can provide rules of thumb to ease decision making, provide guidance about dollar amounts and so on. They can provide specific recommendations and ways to choose among various options.

[3] T he crisis in buyer confidence is worse than you think.

It’s not that people necessarily want a simple product or simple-minded advice,

[1] T he need for insurance and retirement solutions has never been greater.

58

InsuranceNewsNet Magazine » December 2013

but they want a simple way to decide.

For example, you’ve probably read or heard ads telling prospective bridegrooms to spend two months’ salary when buying an engagement ring. The ads aren’t focused on selling some generic ring they should buy. Instead, they provide guidance on how much to spend.

Our industry is rife with rules of thumb related to income replacement – and they work.

Guidance from third parties can be useful, too. For example, the U.S. Department of Justice used rates of 12 to 20 times income to establish the benefit amount the government paid to the families of 9/11 victims.

Applying tactics like these enhances prospect engagement by breathing life and emotions into fact finding and presentations. It simplifies and clarifies complex products in a way that enables action. We know that this approach is effective: Consider that the financial professionals to whom we taught these tactics experienced a nearly 20 percent lift in average monthly premium!

It’s Time to Change

Today’s cautious, information-laden, untrusting and unconfident consumers bring new challenges to financial services sales. Fortunately, today’s new selling principles can help motivate people to make financial decisions and take action. It’s no longer about “dazzling” people with product knowledge. Today, success comes to financial professionals who connect with their prospects, who act as guides worthy of their trust – and who embrace the “irrationality” of financial decision making.

Delores R. Freitag is Assistant Vice President of Talent Development for LIMRA. She has more than 25 years of experience in sales management and training for the financial services industry.

Contact her at Delores.Freitag@innfeedback.com.

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Monthly Webinar Series NAIFA’s free members-only webinars feature timely information and training on topics such as sales, prospecting, marketing, practice management, and legislative updates.

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December 2013 » InsuranceNewsNet Magazine

59

MDRT INSIGHTS

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

How You Can Avoid the ‘Substitutability Trap’ In order to stand out from your competition, you must look for opportunities to unlock client value.

By Charles Hollander Jr.

H

ave you noticed that it is getting increasingly difficult to stand out and to gain the attention of the very clients you wish to engage? To stay competitive, advisors must avoid the “Substitutability Trap,” which is a damaging trend that results when service and sales conversations become too similar to those of other advisors.

The degree to which you either stand out or blend in will affect your level of success, so each advisor must look for opportunities to unlock client value their competition is not.

Advisors can differentiate themselves by improving the frequency of their client communication, which is an area in which the industry as a whole must improve. By viewing client communication as a marketing tool, you have the potential to help improve the customer experience.

If your client communication is leveraged correctly, you ultimately can generate an increase in referrals. Industry organizations provide advisors with access to resources and ideas to help them accelerate the growth of their practice. For example, my membership in the Million Dollar Round Table (MDRT) has given me access to influential professionals and advisors as well as exemplary resources to stay at the forefront of my clients’ needs.

Unprecedented opportunity exists for those who follow a new set of rules instead of the “copycat” strategy. The best-performing advisors don’t always get it right the first time, but they stay creative and persistent. Stephen Rothschild, one of the industry’s great leaders and past president of MDRT, shared how he accelerated growth by focusing on his clients in relevant and meaningful ways that his competition was not.

60

The degree to which you either stand out or blend in will affect your level of success.

Stephen works with ultra-affluent families who have a large layer of wealth they will never spend. In building his firm’s new playbook, he shifted his focus from what the competition was doing to how he could deliver value to families in different ways. He recognized that, as wealth increased for these families, managing it became more complex for them. The families would hire multiple advisors independent from one another to handle the complexity. This created a unique problem for the families because, although the advisors were cooperating, they were not collaborating in their clients’ best interest.

Stephen learned that if he could take a group of individuals and get them to collaborate as a team consistently, the quality of advice as a whole improved. Stephen stopped focusing on the products, and shifted his attention to what his clients needed. As a result, he developed a team that worked collectively and delivered the best solutions for the client. Influential people like Stephen become successful because they develop the habit of spotting things others miss, and take the chance to re-invent themselves.

Advisors historically try to benchmark and then out-do one another. As a result, they actually hurt their practice by offering services that are only marginally better than their competitors, instead of doing something completely new and

InsuranceNewsNet Magazine » December 2013

valuable. Below are questions to help you avoid the “Substitutability Trap:” » What untapped potential could you uncover if your sales conversations suddenly were different? » What if, not only what you sold was different, but you also could communicate with your client and deliver your offerings faster, more consistently and with fewer resources than ever before? » How would that impact your ability to achieve your business vision?

In the high stakes game of life insurance sales, you can play by everyone else’s rules or you can set them. Successful professionals continuously question themselves, experiment with new approaches and keep their focus on their clients.

Those who thrive don’t compete, they create.

Charles Hollander Jr. is the founder of Red Flag, a performance training firm. He is a past president of The Forum 400 and member of the Million Dollar Round Table (MDRT). He can be reached at Charles.Hollander@innfeedback.com.

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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.

Five Ways to Boost Your DI Sales H elp your clients protect their income and their retirement.

By Corey Anderson

A

t some point before they retire, more than 25 percent of those who enter the workforce today will experience an illness or injury that will result their being unable to work for more than 90 days. Your clients and prospects have a crucial need to protect themselves financially in case they become ill or get hurt. Here are five strategies you can use to help them get the disability income (DI) insurance they need.

[1]

Ask them. Ask your clients and prospects about their income protection plan. As you meet with them, ask them, “I was reviewing the files of my favorite clients and realized we don’t have your current income protection details. What is your current plan?”

[2]

Offer DI insurance to help protect their retirement. Most clients who become sick or injured struggle to make ends meet. When they were working, they protected 100 percent of their income. But they still don’t have enough money to save for retirement.

With higher medical bills and rising expenses, your clients can’t set aside money for retirement. After being on claim for years, when their policy ends when they reach age 65 or 67, or they hit normal Social Security retirement age, your clients have nothing to retire on.

You can tell them not to worry. They can buy a retirement protection policy that pays a specific benefit amount into a trust account (basically a 401(k) plan replacement) if they are totally disabled.

Typically, they can purchase policies that cover up to 15 percent of income, or a cap of $4,300 per month.

[3]

Offer a policy that protects 100 percent of their income. Many people have a group DI plan that covers 60 percent of their “covered earnings,” which typically don’t include things like commissions and bonuses, health 62

insurance premiums covered by the employer or a 401(k) match. Typically, group plans will have a maximum, such as $5,000 or $7,500 a month.

Tell them that they can supplement that group plan to cover some of the gaps. Sixty percent group long-term disability plus 20-25 percent individual disability plus 15-25 percent catastrophic illness feature equals 100 percent income replacement. Then ask them, “If you knew you were going to become sick or hurt, how much of your income would you want to be replaced?”

At the end of my fact-finding session, I spend time educating clients about their group plan and the coverage gaps within it. Most people have the biggest percentage of their health insurance premiums covered by their employer.

But if they become sick or hurt, they have to pick up COBRA expenses. This means that their out-of-pocket expenses will skyrocket.

[4]

Offer “compassionate” DI insurance. Most advisors, brokers and clients have never heard of this policy. About a year and a half ago, a young man from my alma mater was playing hockey for the high school team, was checked from behind into the boards, and was paralyzed. His world changed and his parents’ world changed as well.

I imagine his parents took a long time away from their jobs to care for him. If one of them had had a policy with this

InsuranceNewsNet Magazine » December 2013

“compassionate” feature, they could have taken off work for nine months and they would have been paid for six months under their disability policy.

This assumes a 90-day waiting period.

Can one receive DI benefits without being disabled? Yes. If they take time off to care for a parent, a spouse or a child who needs long-term care, they can receive up to six months’ worth of benefits on their policy. I am hopeful that more carriers will introduce this type of policy soon.

[5]

Stay positive and let the client vote. When I started in this business, I would tell myself, “The client won’t buy that, or he does not need this.” I later learned that our role isn’t to make decisions for our clients. Instead, our responsibility is to present them with options and to explain those options to them without bias. Many clients have decided to go with options I thought they would skip. If I had made that decision for them without showing them the options, their plan would not have given them what they wanted.

Corey Anderson received NAIFA’s 2012 Young Advisor Leader of the Year Award. He is a disability event consultant with Secura Consultants, Minneapolis, Minn. Corey may be reached at Corey.

Anderson@innfeedback.com.

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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.

Advisor Focus on Finance Robs Families of Insurance Guidance T he returns and peace of mind that come from insurance products just can’t be found in any other vehicle.

By Ray Phillips

W

ouldn’t this make a fascinating case study for a Harvard Business School class? Suppose there’s a market providing a product that almost everyone recognizes they need, that almost everyone genuinely wants, and that has been grossly underpenetrated. Would this be a market that such a class would suggest had potential and could be ripe for profit?

Well, upon further contemplation, it probably would not be a fascinating study, as the answer is so obvious that it’s sad. Of course, you recognize this as the fixed insurance market. This is a market with so much growth potential that I can’t help but wonder why good old market forces haven’t reacted sooner to bring it back into equilibrium. Simply put, the demand and the opportunity are there. But it seems that we as an industry are willing to cede decisions to consumers to pursue online tools and commoditized selling machines.

How well have consumers been doing in “steering their own insurance ships?”

Let’s review some oft-repeated statistics.

LIMRA suggests that only 61 percent of men and 57 percent of women have any life insurance at all. Remember, the statistic says any at all. The fact that this number has some kind of life insurance – not that it’s the correct form of life insurance coverage or that it is an appropriate amount – is somewhat reassuring.

In fact, a survey by Nationwide found that married couples simply are underinsured, if they do have any coverage. A staggering 98 percent of married couples with insurance did not have enough to replace their lifetime income earnings.

Further puzzling and frustrating is that 33 percent of those polled suggested that income replacement was their primary 64

motive for purchasing life insurance.

Let’s switch to one of my personal favorites, disability income insurance.

The statistics are pretty blatant there. A LIMRA/LIFE Foundation Barometer Study suggests that only 30 percent of American workers own a disability income plan. Numbers from the Social Security Administration Fact Sheet from February are almost exactly the same; they state that 69 percent of the private sector workforce has no disability insurance. I’d be willing to bet that a significant percentage of the remaining portion of the workforce that does have coverage has only group limited coverage. That can be a worthy benefit, but very often either high income earners are underserved in their group disability plan, or the definition of income is such that bonuses or commissions might not be covered. The unfortunate reality is that many group insureds do not understand or appreciate the potential shortcoming and exposure of their benefit plan.

Disability income insurance’s morbidity-based sister product, long-term care insurance, has long suffered from underpenetration as well. A George Washington University article published in 2012 suggested that fewer than 12 percent of long-term care claims were funded with long-term care insurance. Even the federal government has tried to point out the validity of purchasing long-term care insurance with Long-Term Care Partnerships being given the go ahead as part of the Deficit Reduction Act of 2005.

Another disturbing reality is that these trends aren’t new. The statistics weren’t much different 10 years ago. The question is, why?

Well, from my perspective as a brokerage general agent for the past 25 years, many advisors have avoided discussing fixed insurance. Among the many brokers with whom I speak, the reasons for avoiding this discussion revolve around cumbersome underwriting, lack of profitability in the insurance sale, and just a

InsuranceNewsNet Magazine » December 2013

general unfamiliarity and rustiness because they haven’t concentrated on insurance.

Sadly, I have a notion that many advisors have forgotten the “moral value” of insurance products. The “moral value” is simply the influence that insurance can have on a family or business. The returns and peace of mind that come from insurance products just can’t be found in another vehicle. I remember that several years ago, the industry railed against insurance agents holding themselves out as “financial planners.” It’s almost as if we’ve done a 180-degree switch as an industry and now many “planners” totally leave the insurance aspect of a plan off the drawing board.

This switch is what drives the apathy toward making sure that a client has adequate and appropriate insurance. As a result, many consumers end up making buying and coverage decisions on their own. Or often, they end up not making a purchase at all.

These are just observations and unscientific views from my perch. But the cold, hard reality is that opportunities in the fixed insurance market abound. Statistics show that the American public is in desperate need of a conversation with an insurance professional. For all of the technological devices available for them to learn about and purchase insurance, Americans still are woefully underinsured. We owe it to them and to ourselves to seize the opportunity to promote and sell the very products that created the industry: fixed insurance products. Life insurance, disability income insurance and long-term care insurance should be given consideration. Fixed insurance can be the foundation of every person’s overall financial plan.

Ray Phillips is the president of Pittsburgh-based The Brokers Source and the 2013 NAILBA Chairman of the Board. Contact him at Ray. Phillips@innfeedback.com.

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