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Life Annuities Health Financial

January 2014

What’s in a name? Sometimes, a fine.


InsuranceNewsNet Magazine 355 N. 21st Street, Suite 211 Camp Hill, PA 17011



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Technology Issue

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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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» read it

8 FIO Calls on States to Adopt Uniform Annuity Suitability Regulations By Linda Koco If all states aren’t on board fairly soon with the National Association of Insurance Commissioners’ (NAIC) Suitability in Annuities Transaction Model Regulation, the feds might step in.




44 Indexed Annuities Increase Retirement Success to 97.5% By Douglas Wolff Retirement income plans using mutual fund systematic drawdowns and an indexed annuity with guaranteed lifetime withdrawal benefits may be a great addition to an advisor’s playbook.


20 Identity Crisis

By Linda Koco Are you an insurance agent? A broker? A producer? A look at the various ways insurance professionals refer to themselves and how changing titles reflects a changing business.


32 What Can Clients Expect After the Life Settlement Sale? By Stephen Terrell The life settlement industry has honed processes and procedures that make the entire post-settlement experience easy and discreet.


48 Keeping Out of Jeopardy: How to Win in Today’s Health Market By Andrew Bard Five ways the health business has changed and what those changes mean for the future of the industry.


34 Premium Financing the Key to Closing the Big Cases By Dale Humphrey Premium financing helps facilitate big cases. But like any powerful tool, it must be used appropriately and with careful preparation.


10 The Guiding Star for Your Best Year Ever An interview with Duncan MacPherson Duncan MacPherson, author of Breakthrough Business Development, has long been fascinated by what we know as the “80/20 rule,” which states that 80 percent of your business comes from 20 percent of your activity. In this interview with InsuranceNewsNet Publisher Paul Feldman, Duncan reveals how the STAR business planning process can help you grow your practice. 2


40 Fixed Annuity Carriers See Mixed Messages in Interest Rates

InsuranceNewsNet Magazine » January 2014

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View and share the articles from this month’s issue

By Linda Koco The persistent low interest rate environment continues to present challenges to the annuity market, but slowly rising interest rates are helping sales.


52 Financial Discussions Are the “Elephant in the Room” for Families By Cyril Tuohy Your clients are reluctant to talk about financial issues with their families, and that can lead to complications in the future.


54 How to Reach Super-Busy, StressedOut Prospects by Phone By Wendy Weiss It’s getting more and more difficult to reach prospects by phone. Here are some insights on the best times to call and what to say when they answer.






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61 NAIFA: Your 2014 Blueprint for Success By Raymond “R.J.” Vendetti When you list and evaluate your activities over 30-day periods, your chances of reaching your annual sales goals increase dramatically.

SECRETS OF OUR SUCCESS 56 Still the Big Rock, but Gathering No Moss

62 LIMRA: A New Year Brings a New Chance to Talk About Financial Security

By Steven A. Morelli Prudential has had a reputation for strength and stability throughout its rich history. Now it is looking to a future that also weaves in opportunities from the Internet and big data.

By Todd A. Silverhart The best way to start the year is by reviewing your clients’ finances and the role of insurance in their overall plans.


60 MDRT: Actionable Steps to Retain Clients

64 The Last Word: A Life Insurance Policy Represents a Promise to Be Kept

By Michael Morrow By applying these steps to increase your client retention and your revenue stream, you will make 2014 a successful year.

By Larry Barton Few products and services can provide the guarantees that are the essence of a life insurance contract.

EVERY ISSUE 6 Editor’s Letter 18 NewsWires

30 LifeWires 38 AnnuityWires

46 HealthWires 50 FinancialWires

INSURANCENEWSNET.COM, INC. 355 North 21st Street, Suite 211, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli ASSISTANT EDITOR Susan Rupe CREATIVE DIRECTOR Jake Haas PRODUCTION EDITOR Natasha Clague SENIOR GRAPHIC DESIGNER Carlos Centeno DIRECTOR OF MARKETING Katie Hyp DIRECTOR OF SALES Anne Groff TECHNOLOGY DIRECTOR Joaquin Tuazon



Copyright 2013 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, 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 or call 866-707-6786 ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to, 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. Please allow four weeks for completion of changes.



Legal disclaimer: This publication contains general financial information. It should not be relied upon as a substitute for professional financial or legal advice. We make every effort to offer accurate information, but errors may occur due to the nature of the subject matter and our interpretation of any laws and regulations involved. We provide this information “as is,” without warranties of any kind, either expressed or implied. InsuranceNewsNet shall not be liable regardless of the cause or duration, for any errors, inaccuracies, omissions or other defects in, or untimeliness or unauthenticity of, the information published herein.

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A New Dawn Along a New Path


hen I need a healthy perspective, I remember a smile I glimpsed on a gorgeous spring day. I was on a scaffold, painting my first house. It was a messy, tedious, seemingly endless job and, on top of that, I had a fear of heights. I was cranky and consumed with the nagging sense that I could be doing many other things at that moment. Really, doing any other thing would have been preferable. As I contemplated this, I happened to glance toward the street in the second it took for a bald girl to walk past my driveway. It took another moment for me to remember that the teenage girl down the street had brain cancer. I had heard the disease was pretty far along and it was looking rough for her. Besides her hair being gone, her clothes were hanging off her frail frame. But I realized I was fascinated by something: her smile. No one else was there to see it and I don’t think she saw me, so it wasn’t just a brave face. It didn’t look like it either. It was one of those smiles you find on your face before you even know you’re happy. It’s just there and you are. That’s when I looked up at the sky and around to see that it was a peach of a day, just gorgeous. It had been a tough winter, even for upstate New York. This was the first opportunity I had to paint the house I’d bought the previous fall. I sat down to stir the paint, looking at the swirl, thinking about what I was doing. I was a newlywed taking care of his first house, outside on a beautiful day. And whining about it. Here was a girl who probably would not have the chance to live out dreams like this, but, nevertheless, she was just enjoying the day. At that moment, I vowed to make my life count, to never take for granted what I have. I have shared this inspiration with a few people, but it’s been a while since I discussed it. That’s because I have always struggled with its real meaning. At first,


it was gratitude about what I had. But, in truth, that feeling faded. Yeah, yeah, I was grateful, but sometimes I would think life dealt many cruelties that girl could be grateful not to experience. That house? I was drowning in it during the 1990-92 recession and had to sell at a steep loss. That marriage? Well, its failure was why I had to sell the house. But I learned that this reasoning was as absurd as not enjoying a beautiful day while caring for a new life and love. Good/bad, they follow like night and

day. It’s all a gift. Out of that experience came the perspective that made the next good thing all the more precious. I was reminded of this because of our interview feature in this month’s magazine. In it, Duncan MacPherson shares the insight that the word “deserve” has its root in the Latin “to serve.” How often have we said, “I deserve”? Even when we mature and we stop saying that, we still think it. We’re resentful when we don’t get what we “deserve” from our family, friends, clients, bosses, whoever. But is that what it’s all about? Getting something from someone else? Study after study shows that giving leads to satisfaction and happiness. Getting just leads to more stuff and then that stuff needs stuff. Deserve is to serve. What goes out comes back, accepted for what it is. Acceptance. That was behind the peace of that smile. I’m sure it was also the joy of walking.

InsuranceNewsNet Magazine » January 2014

It is enriching when we accept the walk and enjoy the journey. If it’s just the thing getting in the way of A and B, a walk is no fun. But take in what we’re seeing, hearing, smelling, feeling, and suddenly we’re smiling. I explored this a bit in last January’s editor letter when I described how my daily walk with my dog, Clarabella, was a lifesaver for me. In the year since then, I’ve taken a bit of a journey through these letters to you. I’ve talked about many things that I hope also related to your life and your business. I arrive at a different place this January. During the year, I realized I was no longer enjoying my morning walk. I was angry at drivers and impatient with Clara. But the only thing different about these mornings was my attitude. Eventually, I understood I had not been paying attention to some things that had to change in my life. I won’t impose more details on you than I already have. I will just say I no longer walk with Clara in the morning because I don’t live with her anymore. She has a new brother and now in the morning, they play in my former yard. Despite her skittish and jealous nature, she has accepted her younger brother and she has matured. I now live close enough to my office that I can walk to work. Whatever the weather, each day, not just the beautiful ones, has its own treasure. Many mornings, I think back to that smile and reach up to my mouth to realize it’s crept up there without my knowing it. Happy New Year, Steven A. Morelli Editor-in-Chief


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FIO Calls States to Adopt Uniform Annuity Suitability Regulations Photo: Bloomberg

 new report recommends A that the suitability of an annuity purchase should not be dependent upon the state in which the consumer resides. By Linda Koco


very state should “adopt and enforce” the National Association of Insurance Commissioners’ (NAIC) Suitability in Annuities Transaction Model Regulation, according to the Federal Insurance Office (FIO). Reading between the lines, the underlying message is that this is no time for foot-dragging. All states need to adopt and implement the NAIC suitability model ASAP. If all states aren’t on board fairly soon, the feds might step in. The recommendation was part of a lengthy report that the federal researcher submitted to Congress in December. Required by the Dodd-Frank Act of 2012, the report examines ways to “modernize and improve” the insurance regulatory system in the United States. The FIO is a research and recommendation agency under the U.S. Department of the Treasury. It was created under Dodd-Frank to, among other things, monitor the insurance industry, including any regulatory gaps that could contribute to systemic crisis. The 71-page report makes numerous recommendations concerning hot button regulatory oversight issues such as solvency, capital standards, reserving, producer licensing, market conduct and more. Included are reforms that the FIO says the states “should” undertake, plus “areas for federal involvement” and a “hybrid approach to insurance regulation.”

Annuity Suitability Recommendation

The annuity suitability recommendation appears in the “marketplace oversight” section. It runs only 650 words, but annuity professionals will be perusing those 8

Michael McRaith is director of the Federal Insurance Office, which recommended that every state should “adopt and enforce” the Suitability in Annuities Transaction Model Regulation.

words very carefully. This is due, in part, to the high-profile role that the FIO seems to be assuming in the post-Dodd-Frank reform era – not as a regulator, but as a researcher/ recommender with voice and authority. It is also due to the implied federal oversight nature of the annuity suitability recommendation. “The suitability of an annuity purchase should not be dependent upon the state in which the consumer resides,” the FIO states. “Given the importance of national suitability standards for consumers considering or purchasing annuities, states should adopt the Model Suitability Regulation. In the event that national uniformity is not achieved in the near term, federal action may become necessary.” The last statement – that “federal action may be necessary” – will no doubt stir up a certain amount of industry murmuring. That is because, according to various

InsuranceNewsNet Magazine » January 2014

published reports, many states have already adopted one version or another of the annuity suitability model developed by NAIC. “So why even bring this up?” some professionals will ask. Apparently, this has to do with the lack of uniformity among those regulations. NAIC has adopted three versions of its suitability model over the years. The 2003 version applies to sales involving senior buyers. The 2006 version updates the model to apply to consumers of all ages. And the 2010 model substantially strengthens the standards (by clarifying insurer compliance and producer education requirements, for example). Twenty-five states are said to have adopted the 2010 version, with more on the way. But the other states adopted the earlier versions or, in a few cases, they have entirely different suitability approaches in effect. NAIC has put on a big push to spur the remaining states to adopt the 2010 version. But states handle NAIC model adoption in different ways and in accordance with their own laws. That means state adoption of this particular model, as with most models, has occurred over a period of years, not months. Relative to that point, the FIO’s call for the states to achieve uniformity in the “near term” will be another source of concern. Annuity professionals and state regulators will ponder what “near term” means in this context. Within a few months? A year? Five years? When?

Looking for Uniformity

From the discussion in the report, it appears that the FIO is recommending that the uniform adoption is to apply to the 2010 version of the model, not the earlier versions or the single-state versions. The researchers do not say it exactly that way, but it’s implicit in the description the report provides for the NAIC suitability model. As the FIO describes it, the model requires:



The blue states show where the NAIC Model Regulation has been or is in the process of being adopted. The District of Columbia is also included. Source: LIMRA

[1] Insurance producers to have reasonable grounds for believing that the recommendation to buy an annuity is suitable for the consumer; [2] Insurers to maintain procedures for the review of each recommendation to purchase an annuity to determine suitability prior to issuing the annuity; [3] Insurance producers to be trained on the provisions of annuities generally; and [4] A safe-harbor for variable annuity sales made in compliance with FINRA requirements. Annuity industry professionals will recognize those characteristics as belonging to the 2010 annuity model. To bolster its case, the FIO researchers point out that the Dodd-Frank Act has two sets of provisions that incorporate this suitability model. One set of provisions essentially involves voluntary adoption. Here, the act

provides “incentives” for state regulators to enact national suitability standards. These include grants for which states can apply to support efforts “to enhance the protection of seniors from misleading and fraudulent sales of financial products,” the researchers say. The catch is, in order to obtain the grants, the states must meet certain requirements, including a requirement to “adopt suitability standards that meet or exceed” those in the model regulation. They could choose not to adopt the standards, but then they won’t qualify for the grants. The second set of provisions moves closer to being an indirect requirement. Here, Dodd-Frank includes a direction to the Securities and Exchange Commission that involves both the suitability model and regulation of indexed annuities. This is the so-called Harkin Amendment, and it exempts indexed annuities from securities regulation. To get the exemption, an indexed annuity must meet certain standards. One of the standards is that the annuity

must be issued in a state that has adopted the suitability model or be issued by an insurer whose nationwide practices meet or exceed the suitability model standards.

Proposing Hybrid Regulation

The hybrid focus of the annuity suitability recommendation can be found in other recommendations throughout the FIO report. As the FIO phrases it in the press release that accompanied publication of the report, “In some circumstances, policy goals of uniformity, efficiency and consumer protection make continued federal involvement necessary to improve insurance regulation.” But the FIO is proposing a hybrid model – one “where state and federal oversight play complementary roles.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at

January 2014 » InsuranceNewsNet Magazine



OU ARE WASTING YOUR TIME. That sentence might resonate with you, even if you are successful, especially when you are stuck on a plateau. That’s likely because of the Pareto Principle. You might not know the Pareto Principle by name, but you will likely recognize it as the 80/20 rule: 80 percent of your busi10

ness is generated by 20 percent of your activity. Duncan MacPherson has long been fascinated by that equation, and he sees it show up consistently in the success of a business. Time and again, producers focus on the 80 percent of the business that consumes their time but contributes only 20 percent to the bottom line. Duncan, along with David Miller,

InsuranceNewsNet Magazine » January 2014

built Pareto Systems to help individuals and businesses lift off their plateau and find more fulfilling success. We’ve all heard about the 80/20 rule, but how do you find that 20 percent and grow from that group? This is where the guiding STAR comes in. In this interview with InsuranceNewsNet publisher Paul Feldman, Duncan reveals how to find that STAR and follow it.

THE GUIDING STAR FOR YOUR BEST YEAR EVER FELDMAN: Have you seen insurance agencies make a difference with processes? MacPHERSON: The breakthroughs were staggering with the deployment of a really substantial plan with a process for implementation. When somebody in the insurance space, for example, decides to get into wealth management, that’s not something you can really dabble with. That’s something you have to get right. FELDMAN: Why are a plan and a process so important? Why not just take the opportunities as they come? MacPHERSON: If you do business with me for insurance, that’s how you perceive me. You have somebody else who manages your investments. So, if I’m going to ask you to leave your current advisor and empower somebody you see as providing insurance with your entire portfolio, that’s not easy. It has to be predictable. It has to be precise. If you don’t have a process in place, it can unravel like a cheap sweater. FELDMAN: How should an insurance or financial professional use your system to create and implement a business plan for the next year? MacPHERSON: The key with the plan is that it serves as a guidance system as the year unfolds. A lot of people create a plan and when they’re done, that’s it. They got it out of their head and on paper, but it’s not acting as a road map or GPS. So that’s the first distinction. The second is to be very panoramic about what goes into the plan. FELDMAN: What’s the structure for that? MacPHERSON: The acronym for the structure is STAR, representing the four components of the framework. The first step in creating a plan is to do a strategic analysis, which is designed to reveal two things: your untapped opportunities and your overlooked vulnerabilities. We go into this with the assumption that the person is doing reasonably well, but might have plateaued. This is the first step to ensure that they’re not working


Think of STAR as a combination lock. Each of these letters represents a number in the combination. If you dial all the numbers in the combination in the right sequence, good things will happen.

S = the strategic analysis

It may sound trite, but it is crucial that you continually analyze your business. If you think about where you are today and where you want to be in the next 12 months, the space between those two places, between today and next year, is called the gap. It is important to conduct a gap analysis, as this process will enable you to analyze what needs to occur in your business to take you to that next level and achieve a breakthrough. Whether you’re currently humming along, have hit a plateau, or have simply run out of gas or new ideas, this process can be invaluable to you.

T = targets and goals

After the strategic analysis process, proceed to goal setting and examine where you see yourself in the future. This process will build anticipation and provide enduring motivation as you move forward.

A = activities

This is where the heavy work begins. These are the actions you’ll engage in to achieve your desired results. Based on the Law of Cause and Effect, you’ll identify the activities you should employ on an ongoing basis in order to meet the productivity goals you’ve set.

R = the reality check

This simple process will hold you accountable as you go forward. As you go through this process, you may come to one of the following three rationalizations: 1. I’m actually doing OK. This is a good validation. 2. I’m on the verge of a breakthrough, and this is going to tip me over to a whole new level. 3. I can’t believe how much I’m doing wrong! Breakthrough Business Development: A 90-Day Plan to Build Your Client Base and Take Your Business to the Next Level Duncan MacPherson and David Miller, Wiley, 2007

harder or working more hours but being more efficient in identifying these issues. FELDMAN: How do you find your untapped opportunities and overlooked vulnerabilities? MacPHERSON: For client acquisition, you focus on the concept of MVP, your most valuable prospect. MVPs are friends and family members of existing clients. Your clients will have more persuasive impact on their friends than you ever will. So the first thing we have to identify is a way of improving referability. The second MVP is an existing relationship that’s only dabbling with the agent or advisor, and this is where we see the big difference between a prospect and a suspect. This is also the difference between a customer and a client. A customer does some business with me but also does business with somebody else. A client empowers me fully but never sends referrals. Advocates are the dream clients. They’re fiercely loyal. They’re a joy to work with, and they shine a light on me whenever they get a chance.

When I ask people how many clients they have, they say 300 clients. Here’s what they really have: 150 customers, 140 clients and 10 advocates. You don’t need more clients. You need to convert customers to clients to advocates. The number of relationships you manage might not even change, but the amount of business you generate will change. The first step is to move people up the loyalty ladder and get them to “advocate” status. If somebody has 10 advocates, our objective is to create 50 advocates in 12 months, and that’s a process. FELDMAN: What is the process of converting clients into advocates? MacPHERSON: It’s a communication service model – how you communicate with clients and how frequently. The clients with the most potential will receive some communication as often as 24 times a year, between a phone call, review meeting, email update, birthday cards, holiday cards, value adds – anywhere between 20 and 24 touches. We tell people not to ask for referrals, because it makes them look needy. It’s

January 2014 » InsuranceNewsNet Magazine




like begging, and it’s not very attractive, especially from somebody who wants to go from insurance to full-service wealth management. They can’t use salesmanship; they have to use stewardship. That means they don’t ask you to buy things from them. They ask you to buy into a relationship with them. It’s a profound distinction between how those two types of people – salespeople and consultants – conduct themselves. The bottom line is, do you deserve referrals? We remind people that the word “deserve” stems from the Latin words “to serve.” They have to have a service model in place in order to be referable. But then they have to communicate the concept of referrals. This is the difference. Most people position the concept of a referral as a favor they’re asking of their clients.

MacPHERSON: That’s just it. It’s not what you say; it’s what they hear. If you say you are looking for new clients, you sound desperate, and that’s of no value to you. You are asking a favor or imposing an obligation. You’re saying I’ve served you well, so you owe me referrals, reciprocity. That’s brutally flawed. Tell people that you got into this business to help people make informed decisions, that it’s the most important thing you do. Then you can go into more detail about whom you focus on. I can say to you, “Paul, on occasion I meet with a friend of a client and we really hit it off. Let me tell you who those people are.” Then I proceed to describe my ideal client to you from the standpoint of fit and


DON’T TRY TO SELL THEM. We tell our clients to position the referral as a service they’re providing to their client. This changes everything. Here is the difference between these two approaches. I could say, “I’m trying to grow my business. I’m looking for some new clients. Is there anyone else you know who you think can use me?” Or, “I just wanted to remind you that as a value-added service to my clients, I make myself available to be a sounding board to friends and family members. I’m not asking you to think about it right now, but if somebody ever asks you about me or you feel compelled to introduce someone to me, I have a process where I will make myself available. They don’t need to become a client. The bottom line is if they’re important to you, they’re important to me. I’ll make myself available.” Do you see the difference? FELDMAN: The second approach is certainly stronger. In fact, when I get asked for referrals, I always tell them I don’t know anybody. 12

professionalism. Now what’s happening is I’m not only improving my referability, but the likelihood you’re going to steer somebody to me whose needs are perfectly aligned with my skills also goes up dramatically. I don’t want to get into this pattern of referring anybody who can fog a mirror to me. Ideally, I want you to introduce people to me who at least have an alignment of interest with me. FELDMAN: What are the overlooked vulnerabilities you see advisors facing? MacPHERSON: Overlooked vulnerabilities are what undermine the individual in terms of inefficiencies, breaking through the plateau. The process to resolve those revolves around the four Cs: credentials, consistency, congruency and chemistry. These are the sneaky little issues that prevent the individual from achieving full potential. Credentials are pretty straightforward. The bottom line is professionals have to

InsuranceNewsNet Magazine » January 2014

have the goods, the skill sets and the knowledge, especially if they want to go into full-service wealth management. Consistency – the world craves consistency. Do you follow a process? It’s funny. I’ll ask people, “What would happen if you took a month off, starting tomorrow? What happens to your business?” FELDMAN: Most people would be in trouble. MacPHERSON: That’s because the entire business is in their head. The even more important question is, what would happen if your assistant took a month off starting tomorrow? It’s just as bad. We’ve seen so many people who have had team members walk out with their business in their heads. These team members are talented, they’re professional, but they’re mavericks and their processes are in their heads. Not only is that not proprietary for the business, but it’s also not consistent. Things get missed. Things fall through the cracks. This is where we talk about the importance of a playbook. FELDMAN: What should be in that playbook? MacPHERSON: When you meet with a prospective client, what’s your process? Do you use the same process every time? Do you use an agenda for the meeting? Do you send out an introductory kit prior to the meeting? How do you onboard a client? Is it the same process? Do you have a welcome process, a fast-track process? Step by step, just add water. Are you consistent in the type of client you’re trying to attract? What’s your ideal client profile? Then when you start making connections at this point, is your ideal client profile connected to your service model? This is where we’re peeling back some serious layers. We’re saying if 80 percent of your business comes from 20 percent of your clients, do you spend 80 percent of your time on that 20 percent? Almost never. It’s common sense, but it’s not common practice. That’s why they hit a plateau. That’s why they don’t get many referrals from their best clients.

THE GUIDING STAR FOR YOUR BEST YEAR EVER FELDMAN: It seems businesses can get distracted from working with their best clients this way and prevent themselves from getting to the next level. MacPHERSON: Yes. This is where we get into a lot of detail about what’s undermining their ability to achieve a breakthrough. The next issue we talk about is congruency. This means if you say you’re a consultant, do you act like a consultant? People might have “financial consultant” on their business card, but they conduct themselves as financial salespeople, so they’re not congruent. It undermines their referability, their ability to get fully empowered and their ability to competitor proof clients. People naturally are not going to be as loyal to a salesperson as they are to a consultant. So we spend a lot of time on that congruency. FELDMAN: Where do you see people falling short on congruency?

MacPHERSON: Here’s one. Let’s say you’re about to meet me for the first time. We had a nice chat on the phone. We made a good connection. You’re coming to meet with me for the first time. Most people who meet a prospect for the first time try to convince that person to become a client. The irony is that prospects know that’s about to happen and they might look forward to the meeting, but they are still guarded. There’s some anticipation and apprehension. We suggest that when you meet with prospects for the first time, use an agenda, but have no hidden agenda. Don’t try to sell them. FELDMAN: I like that. You come with an agenda, but you don’t have a hidden agenda. How does that perspective relieve a client’s natural apprehension when they first meet you? MacPHERSON: I’m going to start off the conversation by saying, “I really appreciate that you made the time to be here. I know you’re busy, and I know you came


to get to know me and to talk through some of your issues. This is what I want to accomplish in this initial meeting: I want to get to know you and understand your situation and help determine whether we might be a good fit. Because this is so important to both of us, just so you know, at the end of our meeting, nobody has to make any decisions. When we’re done, I want you to absorb what we’ve discussed. I’m also going to assess the situation, really think it through and contact you in 48 hours. We’ll talk about how we feel and establish whether we think we’re going to be a good fit. I think that’s fair.” You know what you’re going to say? “Perfectly fair. It sounds great.” Your apprehension is melting away. I have an agenda, but you’re not fearful of what I’m going to spring at you at the end. You know what the irony is? Many people in this business using this approach tell me that at the end of their meetings the prospect tries to close the advisor. They say, “I don’t need to think about this. I’m good to go right now.” The difference is how I started the rela-


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THE GUIDING STAR FOR YOUR BEST YEAR EVER your strategy, it makes sense that you can move to your next step of establishing targets and goals. How does an advisor go about that?

PURPOSE • To choose and record what I want to accomplish over the next three months, one year and three years. • To determine my pinnacle of success, my ideal life. • To repeat the goal-setting process regularly. • To keep a long-term record of goals and objectives. • To review routinely what I recorded at previous goal-setting sessions. EXPECTED RESULTS I WILL: • Become aware of exactly what is important to me. • Notice a new level of awareness and accomplishment. • Be more likely to achieve my goals if I regularly review them and write them down. CURRENT STATUS: • Do I have a set of defining goals that inspire me? • Do I have a process for regularly reviewing my life’s goals? • Are my goals more about business or myself? ACTION ITEMS: • Do I need to create an ideal life statement? • Do I need to clarify and establish my life’s goals? • Do I need to put a process in place to make sure I regularly ground myself by reviewing my life’s goals? tionship. I’m not chasing. I’m attracting. That’s a perfect example of congruency. FELDMAN: How does chemistry fit into the equation? MacPHERSON: Chemistry speaks to a really important distinction. The products, the firm and services that I would sell as a financial consultant are the message, but I am the messenger. The message is not proprietary but the relationship I have as a messenger and what I 14

know about my clients are proprietary. As our relationship unfolds, I’m going to get to know you better. You’re going to tell me things about yourself that you’re not going to tell someone who’s cold-calling. It’s going to strengthen our relationship and build chemistry. There’s an old saying that it’s more important to be interested than interesting. Be interested in clients’ lives, holistically, don’t try to be interesting as a consultant. FELDMAN: Once you have analyzed

InsuranceNewsNet Magazine » January 2014

MacPHERSON: The key here is to take a panoramic view in terms of what the individual is trying to accomplish, because everybody has different goals. The idea is to get it out of your head, put it on paper, and create a beacon that will become the focal point to see past the work that’s involved and any adversity along the way. We want the view to be panoramic because a lot of people just talk about money-oriented goals. That’s definitely an important piece of the puzzle, but for some people, their goal might be to sell their business at some point. We want people to make meaningful and measurable progress in a reasonable period. FELDMAN: How do you use targets and goals in relation to client acquisition? MacPHERSON: Targets and goals relate to the ideal client, and for that we use triple As. A panoramic view of ideal clients involves understanding their assets, their attitudinal qualities and their predisposition to advocacy. We tell financial advisors or professionals to strive to attract only triple-A clients. Don’t be all things to all people. Be all things to some people. Create an aspirational environment where people desire to work with this advisor. That’s the one issue; then the other issue is, where do the individuals see themselves in the future? What are their goals? What’s their vision for the future? FELDMAN: If clients don’t fit into these targets, do you recommend firing them or passing them off to someone else? MacPHERSON: Well, not to get into semantics, but we never tell somebody to fire a client. The last thing this business needs is people literally getting to a point where they’re elitist or disrespectful. But, if you become a B client of mine, you’re somebody else’s A client, so I’m doing a disservice by keeping you, and I need to respectfully disassociate. This is



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a very important issue, because a lot of advisors and professionals in this business hit a plateau because of their natural capacity. There are only 24 hours in a day. If you don’t do this, people start to believe they’re compensating you for your time, not for your skills. There’s a big difference. FELDMAN: You made a really good point earlier about money-oriented goals. It seems many people often have just numbers in their heads, but they don’t think about why and what they ultimately want to do. When it’s just money-related, reaching that goal can be a little bit anticlimactic. The next one, which is arguably the most important, is your activities, right? MacPHERSON: Activities are rooted in cause and effect and habitual deployment. What’s the best use of your time based on the uniqueness of your business? What activities can you repeatedly do over an extended period of time, habits and rituals as opposed to random activities? This is designed to be

travel insurance isn’t all that lucrative, but based on this demographic target market, it’s the thin end of the wedge that gets the business. Over time, he develops a relationship with these clients, which leads to wealth management and insurance products. So that’s an activity that he does consistently at a certain period of time, and it serves him unbelievably well, but not everybody wants to do that or is good at that. FELDMAN: How do you focus your activities? MacPHERSON: The key there is to remember the 80/20 rule, the Pareto Principle, that 80 percent of people’s productivity stems from about 20 percent of their activity. We want them to identify what those activities are, then create a plan that enables them to deploy those activities consistently and not get faked out in terms of just being busy. A lot of people confuse motion with action. It’s got to be from a business development perspective. Most people make about 80 percent of their income

“I’D MUCH RATHER SEE SOMEBODY CONTACT AN EXISTING CLIENT AND HAVE MEANINGFUL CONVERSATION TO STRENGTHEN THAT RELATIONSHIP, AS OPPOSED TO COLD-CALLING ANY SUSPECT WITH A PULSE.” process-driven and consistent, moving in the direction of the targets and goals they’ve established. This also speaks to their strengths. Somebody’s good at presenting and they want to do events and seminars, that’s fine. I know somebody up in Canada whose Trojan horse for creating insurance and wealth clients is travel insurance, because a lot of his clients are snowbirds, and if you go to the States, you have to buy insurance so if you get sick down in the States, you’re covered. You don’t have to fly home. You can go to the hospital and you’re covered. So he does seminars with travel agents. That’s his Trojan horse, because the 16

every day in about an hour. So we want them to have mastery of what goes into that hour, then let that activity compound over time. They’re not just busy. They focus on what they get paid to do. FELDMAN: What are some good activities versus some bad activities for an insurance professional? MacPHERSON: It depends on what the focal point is, but when it comes to client acquisition, it comes back to developing what you have. I’d much rather see somebody contact an existing client and have meaningful conversation to strengthen that relationship, as opposed

InsuranceNewsNet Magazine » January 2014

to cold-calling any suspect with a pulse. It takes the same amount of time, but the only problem with the call with the current client is that it’s not always going to move the needle right away. It’s a lot easier to measure the cold-calling activity, but here’s the mantra: Don’t try to convince new people. Work with the people who are already convinced, then show them how to convince people on your behalf. That is very, very effective. FELDMAN: The R is the reality check. MacPHERSON: That really brings it full circle to accountability. Many people create a plan, identify a bunch of good ideas and the whole exercise has the lasting value of a Red Bull. It’s so temporary. The ideas just go to their head to die, then nothing happens and nothing changes. The reality check is basically a process that we use just to get the individual thinking in terms of accountability. The mantra on this is “For things to change, I have to change.” You have to refine, optimize, look for the gaps, make sure you’re focused and keep going from there. FELDMAN: What do you ask yourself in the reality check? MacPHERSON: “What kind of person do you need to become to make this plan a reality?” That means what kind of skills, resources and commitment do you need to apply so that the odds are in your favor, that this is actually going to get done? By building the answer into the plan, it becomes more accountable and motivational. Eventually, this entire process will make you stand out in contrast with other advisors, and clients will see a clear difference that overcomes the inertia to change. But it takes patience. A very common mistake people make is meeting with a prospect and springing a plan on them and being disappointed when nothing happens. That’s a one-and-done, taking a stab at it. You have to be more methodical and patient. It’s not like you’re selling an extended warranty on a car. You’re asking people to trust you with their financial future.




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The National Conference of Insurance Legislators (NCOIL) is examining the issue of unclaimed life insurance death benefits. o! o-ho Who

This ‘Life’ Is Confusing

o! o-ho Who

o! o-ho Who

ers include people in early retirement who are living off taxable investments that are generating little taxable income and those ? o o o-h Who who have large deductions, possibly for charitable gifts or high medical expenses. If these individuals own traditional IRAs, chatting with them about convertoo? h ing some of that traditional IRA money o o B to a Roth IRA might be time well spent. o ho

In the first nine months of 2013, total individual life annualized premium rose 4 percent over the same period a year earlier, according to LIMRA. That sounds good, right? But in the third quarter alone, sales were flat compared to the third quaroo Boo ter in 2012, the researcher said. Booh What’s to explain the zigzag? Blame it on the 8 percent decline in sales of universal life in the third quarter. In particular, blame it on the 98 percent plunge in term universal life premium and the 31 percent decline in lifetime guaranteed universal life premium. Sales in this line were “hampered by sus-

tained low interest rates, a volatile investment environment and increased reserve requirements introduced in 2013,” said senior analyst Ashley Durham. Yet, other product lines experienced positive third-quarter growth. That includes some winners. For instance, indexed universal life premium rose 10 percent in the third quarter and 18 percent for the first nine months compared to the results for the same period last year. In fact, that product’s market share hit a record 35 percent of total universal life premium as well as 13 percent of total individual life insurance new annualized premium, LIMRA said. Other notables in the LIMRA numbers include variable universal life, with new annualized premium up 33 percent in the third quarter and up 19 percent for the first nine months; term life, with sales up 5 percent for the quarter and 4 percent for the first nine months; and whole life, with sales up 2 percent for the quarter – making for the 17th consecutive quarter of positive whole life growth – and up 5 percent for the first nine months.


More than 60 percent of pre-retirees told Nationwide Financial that they are now “terrified” of what health care costs may do to their retirement plans. That’s up 30 percent from last year’s survey, the company said. Nationwide polled Americans over age 50 with at least $150,000 in household income, so it’s unlikely that they don’t have some retirement resources squirreled away somewhere. Still, it seems they’ve become a fearsome lot. Despite that, 64 percent said they have

not discussed their retirement plans at all with a financial advisor. And among

those who have talked with an advisor, only 22 percent have discussed health care costs not covered by Medicare. DID YOU




That reminds us of the old saying about how ignorance is bliss. Only in this case, ignorance might be terrifying too.


Some advisors think that conversion to a Roth individual retirement account (IRA) from a traditional IRA no longer makes sense for clients, because there is no longer a special tax break involved in the conversions. That’s not the way Dave Littell sees it, though. The Retirement Income Certified Professional (RICP) program director at The American College said Roth conversions

make sense for anyone who is in a lower-than-normal tax bracket. Examples in-

clude people who are in a lower tax bracket due to a change in jobs or loss of a job. Oth-

MOST ORGANIZATIONS (94 PERCENT) say they definitely/very likely will continue providing health care coverage when the exchanges open in 2014, primarily to retain and attract talented employees. Source: The 2013 International Foundation of Employee Benefit Plans Commissioners

InsuranceNewsNet Magazine » January 2014


Morningstar wants to put the brakes on automatic reliance on common retirement income planning assumptions. These include the assumption that retirees should plan to draw down 70 percent or 80 percent of pre-retirement earnings, assume that income needs will rise with inflation and anticipate they will spend 30 years in retirement. Actual spending patterns and life expectancy indicate that those assumptions may sometimes “significantly” overestimate the amount a retiree needs, the researcher said. For example, if a high-income couple living in a high-income-tax state like California is a big retirement saver but then moves to a state with no income tax for the retirement years, “the replacement rate might be closer to 60 percent,” said David Blanchett, Morningstar’s head of retirement research. But if a low-income couple saves very little and then retires in California, that couple could need a replacement rate as high as 85 percent. Morningstar modeling indicates that many retirees “may need approximately 20 percent less in savings than the common assumptions would indicate,”

he said. What’s an advisor to do? Take a more personalized approach to planning. For instance, consider the person’s level of pre-retirement household income, expenses that discontinue after retirement and post-retirement taxation, Blanchett said.



In November, life insurance applications submitted to carriers were down by 3 percent compared to November 2012. That’s even though the previous month had shown


[NEWSWIRES] a 5.3 percent year-over-year gain, according to the MIB Life Index. In addition, life apps submitted from January through September were down as well, so overall app volume for the first 11

months dropped by 1.4 percent from the previous year. That’s a definite ouch.

A major culprit just might be the estate tax law that took effect in 2013. As the industry knows quite well, that 11th-hour change in the law made the estate tax exemption level permanent, at $5 million, indexed for inflation. Next thing you know, growth in applications by those age 60 and older slowed “dramatically” in 2013, MIB said. In fact, the MIB Life Index values fell to a range not seen since 2010, the researcher said. Many brokers at the 2013 annual meeting of National Association of Independent Life Brokerage Agencies were feeling the pain. They huddled in countless hallway confabs, trying to figure out some new strategies for this market.


From a practical standpoint, the use of ETF (exchange traded fund) wrap accounts is still relatively new, but considering the tremendous demand for ETF products, there is certainly room for growth. — Meredith Lloyd Rice, senior product director at Cogent Reports


Men are from Mars but women are from Venus. Men speed by fast but women stroll in bazaars. Men take investment risk but women want sidebars. So go the stereotypes. But Merrill Lynch begs to differ, at least where investing is concerned. Men and women are far more alike in investment behavior than many people have thought, according to a new study from Merrill Lynch. For instance, 85 percent of women agree that risk-taking is beneficial, and 81 percent believe they can adapt to changing market conditions and

Banks Are Gaining Annuity Mojo




At the end of second quarter 2013, the bank distribution channel controlled $166 billion, or 40 percent, of the $414 billion in total retail fixed-rate annuity assets, according to estimates from LIMRA’s Secure Retirement Institute (SRI). Forty percent is a big chunk. In addition, banks sold nearBILLION IN FIXED-RATE ANNUITIES ly $60 billion in fixed-rate annuities in 2008 and 2009, the institute points out. That is significant to the annuity marketplace because the fiveyear contracts sold in those two years will be coming out of surrender charges in 2013 and 2014, the researchers say. In addition, 40 percent of the assets controlled by the bank channel have already exited the surrender penalty period. Bottom line? Given the assets under management, the bank channel is in a unique position to influence fixed-rate annuity surrenders and sales in the next few quarters, SRI said. investment outcome, the researchers said. In addition, 50 percent of women and 55 percent of men want to be personally engaged in making investment decisions.

In fact, men and women who have a similar level of financial knowledge share similar risk behavior, Merrill said. What’s that have to do with advisors? “Our research reinforces the importance of concentrating on the unique, personal goals of each investor,” said Michael Liersch, head of behavioral finance for Merrill Lynch Wealth Management. This can help identify a deeper understanding of an individual’s concerns and priorities, and this may help with aligning investments to the person’s desired outcomes.


Many producers have been hoping to see more combo policies on the market, and that finally seems to be happening. (Combos are the hybrids that marry a life or annuity policy with other types of protection.) In December, American General Life, an AIG company, unveiled Accelerated Access Solution, an accelerated benefit rid-

er for its AG Secure Lifetime Guaranteed DID YOU



Universal Life policy. It will accelerate the life policy death benefit if the owner is diagnosed with a chronic illness. The owner can use the accelerated funds to help pay for assisted living, nursing home care, adult day care and other expenses, including those not directly related to the illness, the company says. Also in December, Nationwide Financial rolled out CareMatters, a universal life policy rider that also accelerates the death benefit – in the event of long-term care. The rider pays indemnity-style benefits, the company points out, so the policyowner can receive a check each month for the maximum amount of monthly longterm care benefit purchased, even if longterm care expenses are lower. These products are in addition to Guardian Life’s September debut of a whole life policy rider that accelerates the

death benefit if the owner is chronically ill and receiving qualified long-term care services and to Prudential’s July debut of BenefitAccess, a guaranteed universal life rider that allows use of the death benefit to cover costs associated with a chronic or terminal illness. The industry seems to be heading toward all-aboard time in combo-land. Next stop: sales?

FORTY PERCENT OF AMERICANS are saving less than 6 percent of their salaries today — far less than the recommended 10-15 percent of salary. Source: Fidelity Investments Retirement Preparedness Measure

January 2014 » InsuranceNewsNet Magazine


From “sales agent” to “wealth advisor,” how those in the insurance business

choose to describe their jobs

reflects the changing identity of the insurance professional.


InsuranceNewsNet Magazine » January 2014



hen Tony Goebel decided to become an independent life and health producer in early 2013, he had to decide how to present himself to clients.

His official title at the agency was clear enough. He had become executive vice president of Goebel Insurance and Financial, a Green Bay, Wis., firm founded by his father. But the younger Goebel, who previously had been a career agent, realized that he also needed to identify himself in a way that would let customers know what he did. Should he say he is an insurance agent? An insurance salesman? An advisor? An insurance professional? How about a financial advisor, financial planner or financial counselor? What about producer? Or sales agent? Maybe an insurance advisor?

A Matter of Compliance

nancial degrees, certifications and designations in their field of specialty. It is much the same with financial planners, wealth managers and others who take an advisory approach to client service.

in this area can face substantial fines. “I’ve seen producers being fined $5,000 to $10,000,” she said. Does this apply even if the producer presents as an “insurance advisor” – i.e., one who provides advice on insurance needs, pros and cons of various products, and which insurance to buy? It depends on whether the producer charges a fee for the advice, receives a commission for placing insurance or both, Currin said. “It needs to be clear to the consumer what the consumer is paying for, and the insurance producer cannot be paid for the same service twice.” Her suggestion is that insurance-onlys who primarily sell insurance identify themselves by using words that signify insurance sales. Examples include “insurance agent,” “insurance producer” and “insurance sales agent.” “Use a title that is clear and that tells the person that ‘I sell insurance and I am paid a commission,’ ” she said.

Advisor lingo has become embedded in the insurance industry, right along with terms such as “agent,” “broker” and “planner.”

The question is one that compliance expert Cailie Currin wishes more agents would ask, and not just new or younger agents. Insurance producers of all ages today are using a wide variety of job titles to identify themselves, but state insurance regulators are concerned that this may confuse consumers, if not entirely mislead them, she said. In fact, insurance-only producers face “significant regulatory risk” by referring to themselves as a “financial advisor,” “financial planner,” “wealth manager” and a number of other appellations that suggest the person works in the advisory business for a fee, said Currin, who is president of Currin Compliance Services, Greenwich, N.Y. Over the years, financial advisors have become regarded as having the education, experience and expertise to provide broad-based advice and counsel to their clients, primarily for a fee. But some advisors may hold securities and insurance licenses that entitle them to sell products on commission too. They often hold fi-

Insurance-only producers typically do not provide such broad-based services, Currin said. “They are primarily salespeople, so most states specifically prohibit such producers from using advisory terminology to represent themselves.” This is so even if they only sell insurance through a registered investment advisory firm, which offers securities as well as insurance. State insurance laws and regulations in this area are designed to ensure that insurance producers represent themselves in such a way that consumers will understand the scope of work the producer will do, Currin said. “This is serious stuff,” she maintained, noting that those who violate state rules


Advisor Lingo Is Embedded

It might take some work to have this approach go national. One reason is that advisor lingo has become embedded in the insurance industry right along with terms such as “agent,” “broker” and “planner.” The Gramm-Leach-Bliley (GLB) Act of 1999 contributed to that. This federal law officially yoked insurance, securities and banking together as “the financial services industry.” When that happened, the types of products and services available for sale expanded and converged, and consumer need for advice increased. Client-facing insurance representatives, whether dual licensed or not, increasingly took on (or added) the title of “financial advisor,” “planner” or something similar to signal that they provided advice and needs-based planning along with insurance product sales. (This trend had begun even before GLB, but it broadened in the blossoming financial services milieu.) Today, although many insurance-onlys still use time-honored titles like “field agent,” “life underwriter,” “insurance salesman” and “insurance agent,” others

January 2014 » InsuranceNewsNet Magazine




use “advisor,” “planner,” “specialist,” “expert,” “wealth manager,” “professional” and more. Sometimes they show the “advisor” title along with the “sales” title. Other times, they may just use “advisor” or “planner” if they believe that word accurately represents what they do. In the United States, “advisor” has become an especially popular term, said Brian D. Heckert, who is secretary of the Million Dollar Round Table (MDRT) and founder of Financial Solutions Midwest, Nashville, Ill.. “It’s an all-encompassing term, like the word ‘doctor.’ The word ‘doctor’ can refer to a chiropractor, someone with a doctor of medicine degree (M.D.) or someone with a doctorate in philosophy (Ph.D.). Each does different things but they are all called ‘doctor’. ” In the insurance and financial world, “advisor” is the general term, continued Heckert. But Currin insisted that insurance-only producers who market themselves using advisory terms are treading on thin ice. Language in National Association of Insurance Commissioners (NAIC) models on advertising and unfair trade practices specifically prohibit use of such terminology when the person’s business is primarily insurance sales, said Currin, who is an attorney as well as a compliance expert. For instance, the NAIC advertising model regulation says that “No insurance producer may use terms such as ‘financial planner,’ ‘investment advisor,’ ‘financial consultant’ or ‘financial counseling’ in such a way as to imply that he or she is generally engaged in an advisory business in which compensation is unrelated to sales unless that actually is the case.” NAIC’s unfair trade practices model act also says that it is an unfair trade practice for an insurance producer to hold “himself or herself out, directly or indirectly, to the public as a ‘financial planner,’ ‘investment advisor,’ ‘consultant,’ ‘financial counselor,’ or any other specialist engaged in the business of giving financial planning or advice relating to investments, insurance, real estate, tax matters or trust and estate matters when such person is in fact engaged only in the sale of policies.” Most states use similar language in 22

InsuranceNewsNet Magazine » January 2014


Acts on Agent/Advisor Terms One insurance association has decided to do something about the confusion that exists over agent/advisor terms.

with full disclosure about the license. Tell what it is and explain what that means to the customer.”

“In general, we refer to everyone, regardless of license, as an ‘annuity professional’ if the person is selling annuities to the public as a main business line,” Kim O’Brien, executive director of the National Association for Fixed Annuities (NAFA), said in an interview. The trade group represents the interests of fixed annuity insurers, distributors and producers.

For fixed annuity sales. Where fixed annuity sales are concerned, “there has always been an annuity seller exemption from laws governing investment advice,” O’Brien said, noting that NAFA is reminding government officials about proposals to expand the fiduciary standard to professionals outside of the field of investment advice. Fixed annuity agents have no impact over the investment performance of the products they sell, she explained. “The outcome (in terms of performance) is between the insurance company and the client, after the sale is made.”

Here are some specific suggestions that NAFA has developed concerning identification of people in the field. Suggestions Stick to the license. The “license you hold should be the activity in which you engage,” O’Brien said. For example, “if you are an investment advisor representative of a registered investment advisor, you provide investment advice under the fiduciary standard and you are an investment advisor. If you are Series 6 or 7 licensed at a broker-dealer, you are a broker. If you are licensed to sell insurance and you sell only insurance or fixed annuities, you are an insurance agent or producer.” Avoid licensure if not in that field. If a rep, advisor, broker or agent gets a license but doesn’t do that work as a business activity or service, he shouldn’t get the license in the first place. “For instance, if you don’t plan to give investment advice, don’t get a securities license,” O’Brien said. Provide disclosure. “Respect the fact that the customer may be confused over the license you hold,” she said. “That means you provide the customer

Getting Active NAFA is conveying those messages in multiple venues that go well beyond testimony at regulatory and federal committees and meetings. For instance, disclosure and licensure are frequent topics in NAFA webinars and meetings, a guiding principles paper for members, direct mailings about association resources and a continuing education course on consumer disclosure that the association will offer. “We also include it in a disclosure paper for insurance-only agents,” said O’Brien, noting that the agents can give that paper to customers and ask them to sign it. This is not to say that insurance professionals will not get in trouble with regulators if they provide services only in the field of their licensure, O’Brien added. “We do know that the biggest area for regulatory action is misrepresentation.”

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their own regulations and laws, so insurance-only producers would be wise to heed those provisions, Currin maintained. She pointed out that consumer confusion on this issue does show up in complaint filings, lawsuits, market conduct reviews and advertising reviews. The cases involve both life and annuity agents. What about those who are members of professional or trade groups with “advisor” or advisor-like terms in their organizational names? National Association of Insurance and Financial Advisors (NAIFA) is one example. It has the term “advisors” in the name. The advertising model doesn’t say that producers can’t use the word “advisor,” said Gary Sanders, vice president-securities and state regulation at NAIFA. Rather, the model says they can’t use the word to imply they are advisors when they are primarily selling. NAIFA is not a compliance organization, he noted. And although NAIFA encourages members to comply fully with in-force laws and regulations, it is the insurance companies, not the association, that monitor, review and approve business cards, letterheads and similar items where titles appear. His suggestion is that producers should look to their companies for guidance.

term “insurance and financial advisors.” Likewise, insurance-only sales agents who are members of MDRT can show their affiliation even though the MDRT tagline (The Premier Association of Financial Professionals) includes the term “financial professionals.” (Note: The NAIC models do not prohibit use of the specific term “financial professional,” but compliance experts caution that this term could be taken as borderline advisory, especially if the producer uses it as the main identifier on, for example, a business card or marketing material.) Many professional designations also

Insurance-only producers who market themselves in advisory terms are treading on thin ice.

The Agents’ Dilemma

Sorting this out can get a little confusing. The NAIC models do permit insurance producers to continue to show their affiliations with trade groups and designation programs that include the word “advisor” or similar terminology in their official name. For example, the NAIC advertising model says “persons who hold some form of formal recognized financial planning or consultant designation” are not precluded from using the designation “even when they are only selling insurance.” This means that insurance-only sales agents who are members of, say, NAIFA can show their membership affiliation even though NAIFA’s name includes the 24

include advisory-type words, and insurance-only sales producers who hold those designations can continue to use them, under the terms of the NAIC models. However, insurance-onlys still need to clarify their role in insurance sales if that is their primary business, Currin reiterated. Richard M. Weber, national president of the Society of Financial Service Professionals, is of similar mind. States have increasingly moved toward solving the nomenclature issue by using the word “producer” to refer to someone who is licensed to sell insurance, he said. The advantage is that the term is “license-neutral,” in the

InsuranceNewsNet Magazine » January 2014

sense that it avoids existing connotations for the terms “agent” and “broker,” Weber said. But the term “producer” doesn’t include reference to other qualifications a person may have, he added, such as designations and certifications that require holders to pledge to put the client’s interests above their own.

The Insurance Advisor

What about using the term “insurance advisor” (as opposed to “financial advisor,” other financially linked names or “insurance producer”)? There is no statutory definition or certification for the term “insurance advisor,” Weber said. A producer may well provide advice about insurance in the course of a sale, Weber allowed. But if the insurance-only uses the term “insurance advisor” in his title, “this is often held to be [an indication that] you have a self-proclaimed duty to a higher standard of care than you probably intended.” The insurance producer has the duty of honesty and fairness, for instance, but if the word “advisor” appears in the title, “that may raise an expectation greater than just selling insurance. It’s taken as a sign that you intend to be someone who conveys advice.” Once the fiduciary issue is settled (concerning broadening the fiduciary standard of care – which calls for putting the client’s interests first – to a wider group of client-facing individuals), some of the debate will dissipate, Weber predicted. Until then, he suggested that those who want to be insurance advisors provide advice for a fee, not sell insurance, and operate under the fiduciary standard of care. Tom Hegna, president of TomHegna. com, Fountain Hills, Ariz., points out that many insurance agents review their clients’ investing, bank accounts, hopes and dreams. “If they only sell life and fixed annuities, there may be a difference in the words used to describe that activity, but it’s splitting hairs. Let’s focus on the bad agents. Bad conduct has nothing to do with titles. We’re wasting



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resources chasing the wrong problem.” That comment gives voice to the frustration that many insurance-only agents feel whenever this topic comes up. It also raises a relevant question – namely, in a world where sales roles are changing and advice of various types has emerged, can and should the use of titles for insurance-onlys be revisited? Guidelines and regulations do exist, and compliance professionals can help light the way. But how to resolve the conflicts and reduce the confusion that agents are encountering?

Weighing the Pros and Cons

Not all insurance agents are aware that some state regulations prohibit insurance-onlys who primarily sell insurance from using advisor-like terminology. Some agents, especially those in the independent agency channel who represent several carriers, choose the title they believe best represents their services. Some acknowledge that they’ve begun receiving cautionary notices from carriers about what titles to use, but add that they are a bit mystified. As may be expected, they view the issue and solutions differently. Thomas C. Sellin has the words “insurance agent” on his business card for Sellin Advisor Group, the Eagle, Idaho, firm of which he is also president. Even so, he shares the view that it really doesn’t matter what insurance producers call themselves. “It matters what they do,” he said. A lot of agents say they are financial planners, Sellin pointed out. “But that doesn’t mean anything because everyone says the same thing. What’s important is to say what you do – for instance, plan for retirement.” Sellin said that in the course of his own career, he has used various titles, among them “special agent,” “underwriter,” “life insurance agent” and “wealth manager.” He also said he has used the name of his firm, Sellin Advisor Group, in many states and “has never had a problem.”

Sellin pointed out that he is principal and compliance officer of American Independent Securities Group, a broker-dealer, so he works on the securities side too. But whether the business is insurance or securities, he said his recommendation is the same: “Say who you are and what you are doing, and communicate the value of what you do, but don’t overstate what you’re doing. Connect and communicate with the client, and help the client identify what is important. Once you do that, help the client get what he or she needs.” People who hold both insurance and

Some agents choose the title they believe best represents their services.


securities licenses do have skin in the game, even though they are not insurance-onlys. That’s because when selling insurance and annuities, they operate as insurance agents, but when they sell securities, they operate as registered representatives. So what do they call themselves? “I call myself a wealth advisor,” said Brian Noe, who is dual-licensed and also provides fee-based advice. The title on his business card is financial representative for NW Financial Group and financial advisor at Park Avenue Securities, Farmington, Conn. To him, an advisor is the hub of the wheel, the person who coordinates the client’s managers (of money, taxes, legal

InsuranceNewsNet Magazine » January 2014

matters, etc.). He tells clients that his job is to “find out what you need, why you want to do something” and then help facilitate that. In one case, he brought everybody together, the team worked out a plan and then they implemented the plan. Noe received a fee for his work; the others received commissions. But he said that when he is the one who places the insurance, then he is serving as a manager. What does Noe think insurance-only sales agents should do? “They shouldn’t be embarrassed to say they are agents, salesmen or insurance specialists,” he said. “Be proud of it, brand yourself that way, be the best you can be – and function and help the client as part of the team.” What about those who hold other credentials in addition to insurance and securities? Ronald E. Ruff is one such individual. A certified public accountant, he is owner of Fairfield Financial Solutions, a Lancaster, Ohio, registered investment advisory firm that handles not only investments, but also insurance (life, annuities, long-term care and disability) and tax and accounting services. He identifies himself as a CPA and registered rep. In the course of his work, Ruff said, he has noticed that clients do get confused by all the terms being used for insurance and financial people. This is especially the case among seniors, whom he said often don’t know that there are different types of advisors and that they hold different types of licenses. This has led Ruff to conclude that insurance-onlys who are primarily in sales should have a uniform name, such as “agent” or “producer,” to distinguish themselves from registered reps. “The public needs consistency,” he said. Then there is Lawrence F. Kolasa of Birmingham, Mich. At the time of the interview, he was dual-licensed and had several designations but he wasn’t using a title. He just said he is “in insurance and investments.” A key reason for not mentioning a job title is that he was planning to drop his securities license within a few months,

A Very Short History of the Life Insurance Producer The term “producer” began as a way to create an independent identity for insurance salespeople, said Richard M. Weber, president of the Society of Financial Service Professionals. Different descriptions for insurance salespeople evolved in earnest during the 1970s, Weber said. This was the time when insurance brokers commonly associated with property/casualty and surplus lines started expanding into selling other products, such as life insurance for people with substantial medical histories. Soon, those who sold insurance through captive and career insurance companies were called “career agents” or “captive agents.” Meanwhile, those who placed cases through distribution outlets called independent life insurance brokerage agencies began referring to themselves as “independent agents and brokers.” The companies serving the brokerage community became known as “brokerage companies.” Some life brokerage companies made moves to distance themselves from legal responsibility for acts of the independent agents and brokers who sold their products as independent businesspeople. That sparked heated industry debate over the rule of agency law, Weber said. States took note and, in drafting new regulations and documents, they started using another word – “producer” – to signify someone who is licensed to sell insurance. That did not resolve the legal responsibility issues, Weber said, but it did bring a new and more neutral word into the industry.

Today, the Center for Insurance Policy Research of the National Association of Insurance Commissioners says, in an online posting, “People who wish to sell, solicit or negotiate insurance in the United States must be licensed as a ‘producer.’ ” The term “producer” includes insurance agents and insurance brokers.

Evolution of the Insurance Producer The Olden Days • Agents handled life/health insurance sales. • Brokers handled property/casualty insurance and surplus lines sales. The 1970s • Captive/career agents still dominated sales.



The 1990s • Dual-licensed (insurance and securities) agents became commonplace. • Planner/advisor terms were used by client-facing individuals. • Debate surfaced on legal responsibilities of independent agents and brokers. • Gramm-Leach-Bliley Act of 1999 ushered in financial services convergence. The 2000s • Many added “financial services” to their names and menus of services. • There was growing use of the term “producer” in lieu of “insurance agent.” • The terms “planner” and “advisor” continued to be used. • Dodd-Frank Act of 2010 raised fiduciary questions.

• Modern-style financial planners/ advisors emerged.

The 2010s+ • Wide variety of representative/advisory terms in use.

The 1980s • Independent life brokerage agencies developed.

• Should the term “producer” be reserved for those in insurance sales?

• Independent life agents and brokers placed cases through brokerages.

• Should advisory terms be reserved for those who provide advice without sales?

•F  inancial planner/advisor terminology became more commonplace.

The debate goes on...

• Brokers handled life insurance too.

January 2014 » InsuranceNewsNet Magazine




after which time he would be an insurance-only producer selling insurance under his life and health license. But Kolasa also was planning to obtain an insurance counselor license. (In Michigan, a licensed insurance counselor is allowed, for a fee, to counsel clients on the pros and cons of various insurance contracts and issues, and provide advice on benefits.) As a result, he would then identify himself as a “licensed life and health agent” and as a “licensed insurance counselor.” Heckert, the MDRT secretary, thinks the concern over what title to use is compliance-driven. But the terms agents actually use are marketing-driven. Agents tend to settle on titles that describe what they do within the scope of their licensure but in a way that differentiates or creates a marketing edge, he explained.

tection Bureau (CFPB) takes a different approach. Created by the Dodd-Frank financial reform law, this 2-year-old federal body released a report to Congress in mid-2013 charging that “financial advisors” are using senior designations that may confuse or mislead older consumers. The report says these “professionals” include “investment advisors, broker-dealers, accountants, insurance agents and financial planners, and other general financial professionals.” It’s easy to see, from the CFPB wording, that someone might draw the conclusion that insurance agents are a type

Incidentally, the FINRA discussion says financial planners could be brokers or investment advisors, insurance agents or practicing accountants, or individuals who have no financial credentials at all – a recognition, it would seem, of how interchangeable these terms are in the current environment. FINRA also tries to clarify some advisor terminology. For instance, it says an investment advisor is paid for providing clients with advice about securities and is registered with either the Securities and Exchange Commission or a state securities regulator. A financial advisor, meanwhile, “is a generic term that usually refers to a broker (or, to use the technical term, a registered representative).” FINRA cautions that the two types of advisors are not the same “and should not be confused.” But confusion will certainly arise. Just taking insurance as an example, four national bodies have discussed the insurance salesperson in four ways – as an insurance sales agent, an insurance producer, a financial advisor or professional, and an insurance agent.

Four national bodies Governmental have discussed the Terminology The state requirements defiinsurance salesperson in nitely are important, he said. But what if a producer four ways – as an insurance is licensed to sell insurance in multiple states? Is sales agent, an insurance the same title acceptable in each state? producer, a financial advisor Changing Times, A related question is: Are federal and state governmenChanging Titles or professional, and an tal bodies consistent on which Insurance producer nomenclaterms to use? ture is evolving, right along with insurance agent. The answer: It’s a mixed bag. the business environment, laws, There have been many governmental efforts to define and refine occupational titles. However, a review of various government reports, laws, codes, regulations, databases and similar documents shows the language does vary. At the national level, for instance, the U.S. Bureau of Labor Statistics refers to insurance producers as “insurance sales agents” and defines their duties as selling “life, property, casualty, health, automotive or other types of insurance.” It also says they “may refer clients to independent brokers, work as an independent broker or be employed by an insurance company.” Meanwhile, the National Insurance Producer Registry, a Kansas City database affiliate of NAIC, always uses the word insurance “producer.” No surprise there, considering the organization’s name. But the U.S. Consumer Financial Pro28

of financial advisor or professional. To learn more about the various advisors, the CFPB report sends the reader to a section of the Financial Industry Regulatory Authority (FINRA) website. That section includes a definition of insurance agent as “a salesperson who can help individuals and companies obtain life, health or property insurance policies and other insurance products.” This definition does get the agent’s sales role down correctly, although it makes no mention of the word “producer.” However, because the definition is linked to the CFPB discussion of financial advisors and professionals, some consumers may not grasp the distinction.

InsuranceNewsNet Magazine » January 2014

regulations and marketplace realities. But uniformity has not yet arrived. That means insurance agents, whether insurance-only or dual-licensed, have to do some homework on how to identify themselves. Independent agent Goebel – the young producer quoted in the beginning of this article – did just that. He decided to rule out using any title that includes the word “financial.” “I don’t have my securities license yet, so I don’t want to use the term ‘financial advisor’ right now,” he explained. What then? “I’m calling myself an ‘insurance and group benefit consultant,’ because that’s what I’m doing.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@


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Advisors deal with a daily juggling act.

Net Income Skyrockets in 3Q Net income for U.S. life insurers shot up to $6.4 billion in the third quarter. This is an increase of 188 percent over $2.2 billion in the year-ago period, thanks to big gains by AIG, MetLife and Prudential, according to Moody’s Investors Service. Excluding these three companies, net income from the rest of Moody’s 19 rated life insurers was up 10 percent compared to the year-ago period.


AIG, MetLife and Prudential were responsible for contributing half of the $4.2 billion improvement in net income, Moody’s said. AIG posted net income

of $1.2 billion, an increase of 40 percent from $889 million in the year-ago period. MetLife reported net income of $942 million, compared to a $984 million loss in the third quarter of 2012. Prudential said that net income reached $981 million, compared to a loss of $627 million in the year-ago period.


One life insurer isn’t just providing financial support for families. It’s providing emotional support as well.

MetLife announced it will provide grief counseling services on its basic group life

insurance programs, beginning this month. MetLife’s grief counseling service is provided by Harris, Rothenberg International. Employees and their dependents may consult with a counselor up to five times per event. Services provided may include locating a funeral home, identifying a monument vendor, locating backup care for children or adults, and finding specific support groups.


Forget the baby boomers. Don’t worry about Generation X. It’s the millennial generation that the life insurance industry needs to focus on attracting, according to a speaker at the annual meeting of the National Association of Independent Life Insurance Brokerage Agencies (NAILBA). DID YOU




What brokerage general agents (BGAs)

need is a fresh perspective on how younger adults see and value the life insurance business, said Mike Maddock.

Where life insurance sales are concerned, he said millennials – now ages 22 to 34 – aren’t living in an era where people worry about the breadwinner not coming home due to death caused by an accident at work. Millennials do care – and deeply – but about other things, Maddock added. The life insurance industry leaders need to learn about those other things and innovate around that, he said.


American General is the latest carrier to offer a critical illness living benefits rider on one of its life products. The rider, branded as Accelerated Access Solution, is available on American General’s Secure Lifetime Guaranteed Universal Life II. Policyholders who meet the criteria under the critical illness clause can use

the funds to help pay for assisted living, nursing home care, adult daycare, “virtually any expense, even if not directly

related to the illness,” said Jay Drucker,

CONNECTICUT RANKS FIRST AMONG THE 50 STATES in insurance employment as a percentage of total jobs in the state and insurance payrolls as a percentage of total state payrolls. Source: Connecticut Insurance and Financial Services Cluster

InsuranceNewsNet Magazine » January 2014

QUOTABLE As demands from existing clients grow, advisors are finding it difficult to balance that work with marketing efforts to attract new business. — John T. Hailer, chief executive officer, Natixis Global Asset Management

vice president, product management with American General. Such riders are becoming more popular with carriers. In September 2012, about five life carriers were offering the riders, but as many as eight new carriers were planning to offer them by 2013, brokerage general agent Michael Smith said in an interview with InsuranceNewsNet early last year.


If the title of Celent’s recent webinar, “The End of Life Insurance As We Know It,” didn’t scare attendees half to death, the content surely did. Jamie Macgregor, senior vice president of insurance for the consulting firm Celent, said that changing demographics, combined with greater economic uncertainty, have increased the burdens on life insurance providers. Macgregor said that life expectancy is

increasing while the average age of the world’s population is becoming younger.

More fluid work-life patterns in which workers are employed not by one or two employers, but by as many as two dozen before entering semiretirement, means life insurance policies will have to change the way they protect policyholders. “The pattern of both accumulating wealth and then spending it, and supporting yourself through life, plus the protection needs you potentially have during that life journey, have changed quite radically within one to two generations,” Macgregor said.

January 2014 Âť InsuranceNewsNet Magazine



What Can Clients Expect After the Life Settlement Sale?  hose who are selling their life T insurance policies are often concerned about whether the follow-up tracking process will be intrusive. By Stephen Terrell

One of the common questions from clients in life insurance settlements is how the companies know when to collect the death benefit. These sellers worry that the policy-tracking process will be intrusive and uncomfortable. The industry has, in fact, honed processes and procedures over the past 20 years that make the entire post-settlement experience easy and discreet. Once a life settlement is approved, policy ownership is transferred and commissions are doled out, what happens next? How does a settlement company keep track of the original policyholders? The post-settlement process and relationship with policyholders are rarely discussed aspects of life settlement transactions, but they aren’t macabre. In fact, settlement company employees and their clients often develop a mutually beneficial and rewarding relationship after the policy has been sold. Below is a description of what policy sellers and loved ones can expect to experience after receiving a settlement.

Who Will Be Talking to Your Clients?

If possible, work with a life settlement provider that employs certified nurse practitioners in its client services department. This practice isn’t required by industry regulations, but nurses are uniquely qualified and instrumental when speaking to policy sellers. Nurses are trained to be empathetic as they discuss relatively difficult topics such as updating medical records, describing current health conditions and, ultimately, reporting the death of a loved one. 32

Before Signing on the Dotted Line

The life settlement provider should conduct a pre-funding telephone interview during which the policyholder will need to provide questions and answers only he or she recognizes and can answer correctly. These questions will serve to screen future calls with the settlement recipient to ensure that accounts and records remain accurate, private and safe. During this interview, policyholders also determine several important decisions

InsuranceNewsNet Magazine Âť January 2014

regarding the nature of their relationship with the settlement provider, including selecting their preferred method of communication, assigning a designated contact person, and providing the contact information of three separate, trusted secondary contact people in the event the policy seller and/or designated contact person is unresponsive. The primary contact can be the policy seller, a close relative, a roommate or even the life insurance agent. Policyholders also

WHAT CAN CLIENTS EXPECT AFTER THE LIFE SETTLEMENT SALE? LIFE select how they wish to be contacted and how they wish to respond (typically via phone call, email or postcard).

Show Me the Money

Policyholders should be able to receive funds from a life settlement in one of two ways: as a wire transfer to a checking or savings account of their choice or as a certified check delivered via FedEx. Settlement providers often recommend opting for the wire transfer because funds are wired immediately. However, if policyholders prefer a physical check, the check typically arrives within three business days (depending on the state of residence). As soon as policyholders receive the settlement funds, they can instantly use the money. Often, clients use the settlement funds to pay off any outstanding debts, transfer the money to a savings account, finance medical bills or retirement, donate the money to a family member or charity, or go on a dream vacation.

Keeping in Touch

Ask a life settlement provider how often the company contacts settlement recipients. Ideally, providers should contact a policy seller only once every six months. Regardless of the seller’s deteriorating health conditions, unexpected relocations or other major life changes, a legitimate settlement provider should never increase the frequency of tracking calls. Several states prohibit client tracking more frequently than three months; most prohibit frequency more often than six months. A settlement company should practice a high level of respect toward clients’ privacy and personal time and take extra precaution to avoid any intrusion on this freedom. There is only one exception to the sixmonth contact industry standard. If a policy seller becomes unemployed due to an injury or disability, the settlement provider may provide more frequent contact temporarily. This is because the provider needs to file a disability claim with the insurance company to waive premium payments for the duration of the policy seller’s unemployment. Otherwise, every six months the policyholder is responsible for answering the same questions, which should look something like these: Has your address changed in the past six months, or do you expect it to change within the next six months? Has

your health condition changed in the past six months? When was the last time you visited a physician? If the policy seller opts for contact via phone, the calls can be completed in less than 10 minutes. A reputable settlement provider should strive to maintain a consistent contact person for each policy seller so the seller can speak with the same person every six months and develop a relationship with that company representative. Situations where a policy seller does not respond to tracking calls are extremely rare. However, if a seller does actively avoid contact with a settlement provider, agents and sellers can be confident that credit bureau information will never be requested or used in order to track down an unresponsive seller. In the past, provider companies have successfully reached out to sellers’ neighbors in order to contact sellers who had moved to another address. As a precaution, before accepting a settlement offer, sellers must sign a form granting a settlement provider access to updated medical records and power of attorney in case they do not volunteer information.

When Clients Should Contact Their Settlement Providers

Policy sellers should contact their settlement providers in between six-month tracking periods if they have moved to another residence or relocated to a nursing home or hospice, if they stop working due to a disability, if they experience a major change in health or if they change primary physicians. If the seller’s health is deteriorating quickly, the seller or a trusted contact person should contact the provider directly. Ultimately, when the seller dies, the provider company needs a certified copy of the death certificate so that it can file the insurance claim. As a cross-reference, a settlement provider usually pulls a Social Security death report every month to double-check the status of its clients against a death master file.

What Are Tracking Calls Like?

Most clients find the tracking calls to be a positive, memorable experience. Tracking callers frequently are the only people to phone elderly policy sellers in several months. Many calls last one hour due to friendly conversation, and some calls have

lasted as long as three hours. Many sellers don’t have anyone else to speak to, and most confess that they miss their grandchildren. Often, policy sellers develop relationships, and frequently begin friendships, with their settlement provider tracking representative. In turn, tracking callers are famous in the settlement industry for how much they genuinely enjoy making calls and conversing with policy sellers. Provider company tracking representatives often comment that they have learned a lot about how the world has changed and about what it was like growing up during World War II and other historic events. Callers also witness policy sellers, typically 80 years old or older, as they adapt to and experience new technology. Policy sellers have called their provider representative simply to announce their excitement about using a computer for the first time or sending their first emails.

An Industry Still Reinventing Itself

Life settlements first entered the financial planning scene during the 1980s as a way to help the terminally ill. Redefined for seniors with life insurance policies they don’t need or can’t afford, the life settlement industry has evolved into a fast-growing, regulated and sophisticated secondary insurance market. All parties participating in settlement transactions are winners; the policy seller is paid up front (and paid significantly more than he or she would receive by surrendering the policy), the life insurance company continues to collect more premiums and the agent receives commissions. Policy tracking has always been an integral part of the life settlement transaction. Although some may find the task creepy, the procedures and techniques honed over the past 20 years make tracking relatively seamless to the policyholder. Agents and individuals who are interested in life settlements should always inquire about tracking methods when evaluating provider companies. Stephen E. Terrell is senior vice president of market development and branding of The Lifeline Program, a life settlement provider based in Atlanta, Ga. Stephen may be contacted at stephen.terrell@

January 2014 » InsuranceNewsNet Magazine



Premium Financing the Key to Closing the Big Cases  aying attention to the details P will help you close that large sale. By Dale Humphrey


remium financing helps facilitate “big” or “jumbo” sales. But like any powerful tool, it has to be used appropriately and with careful preparation. The close case definition of a big or jumbo case may vary, but if a policy must be financed, most premium finance lenders will set a minimum annual funding limit of $100,000. For the purposes of this article, let’s use $500,000 of annual funded premium as the benchmark. Assisting clients at this premium level and with the application of premium financing requires a careful and thoughtful approach. No detail should go unchecked. Let’s start with some basic steps:

» Using premium financing as the primary sales “igniter” for large cases may cause difficulties. You should recommend life insurance for well-established planning needs. The discussion of financing should evolve as the case develops. Placing financing as a means to an end can distort the client’s expectations of the costs associated with a complex transaction. Of course, avoid the dreaded “free insurance” pitch – there is no such thing as free insurance. » Do not go solo when working on more complex cases. The use of financing increases the case’s complexity and risk. The client should have the proper advice and counsel from varied practitioners to assist with due diligence and accounting for the client’s end-state planning objectives. » Compare and contrast different methods of facilitating premium payments, which, at a minimum, should include full out-of-pocket with no financing, partial financing with some premium paid out-of-pocket, or the majority of pre34

mium and costs financed. With all factors remaining equal, the two most affected variables between these scenarios will be the loan balance and collateral. The client should be briefed fully on the differences, and the client’s financial condition (current and anticipated) should be more than sufficient to meet the loan obligation. » Consult the client about the projected collateral requirements of the loan. Stress test any financial (loan) model via rising interest rates and varying life policy performance. This process is particularly important when recommending indexed universal life insurance. Too often, clients expect the life policy cash surrender value to collateralize the premium finance transaction entirely without understanding the inherent long-term variation in policy performance and other variables. » Develop a plan, work as a team and have a shared objective. Large premium

InsuranceNewsNet Magazine » January 2014

finance cases require an organized process. Information sharing is critical. Always have planned, preagreed-upon exit strategies. » Differences exist between lenders, so do your best to examine the terms, conditions and pricing of the loan. Given the size of these loans, a difference of even 0.25 percent over time can make a substantial difference, all other factors being equal. Also, involve legal and accounting resources during the review. In considering these earlier points, which are fundamental for every potential transaction, let’s highlight a few areas for which you may want to plan or at least keep in mind. Collateral is often the most difficult aspect of the transaction to manage. The client’s personal financial statement will provide insight into assets and sources of liquidity. Most premium finance lenders will place an emphasis on assets that are liquid and

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Introduces Clients


Loan Application & Associated Documents

Insured/Grantor/ Guarantor






Loan Agreement

Collateral Is Pledged

Acceptance of Insurance


Loan Advanced

Establish Trust or SPV


Applies for Insurance

Borrowing Trust/SPV



Policy Collateral Assignment Completed

Life Insurance Company

O er of Insurance


Premium Payments Released This information is for the exclusive use of professional financial advisors. It is not approved for promotional purposes and should not be distributed to or relied upon by private clients. All information is subject to change and may be altered by IPF at anytime. Only IPF Originators are permitted to present IPF information to retail clients and solicit life insurance sales that may utilize IPF as a funding mechanism. IPF

distributionadvisors. partners. AllItrequests be accompanied by a compliant sales illustration and thenot soliciting agent must hold therelied proper upon by proposals are generated directly IPF or qualified financial This information is forupon the request exclusive usefrom of professional is not must approved for promotional purposes and should be distributed to or licenses, authorizations and applicable appointments prior to solicitation. private clients. All information is subject to change and may be altered by IPF at any time. Only IPF originators are permitted to present IPF information to retail clients and Premium General Transaction Flowutilize 121411 IPF as a funding mechanism. IPF proposals are generated upon request directly from IPF or qualified distribution partners. All solicit life Finance insurance sales that may requests must be accompanied by a compliant sales illustration, and the soliciting agent must hold the proper licenses, authorizations and applicable appointments prior to solicitation. Premium Finance General Transaction Flow 121411 Source: Insurative Premium Finance.

that can be secured properly. This usually entails separate agreements or processes that should be addressed early on. Leaving details for later could delay the transaction or, worse, derail the loan because the lender determines the collateral to be unacceptable or determines that it cannot be secured contractually. The majority of clients pursuing life insurance cases with $500,000 or more in premiums will be defined as high-net-worth individuals. However, it is important to review (with other advisors) the source of that wealth and future projections. Regarding the collateral discussion, not all worth is created equal when it concerns premium finance. If the prospective client already is high36

ly leveraged, it may impair their ability to provide long-term collateral and/or decrease the probability of a prearranged exit strategy. Large cases combined with premium finance entail a fair amount of documentation. Work closely with all advisors and with the lender to assemble the required documents for loan underwriting and to present a uniform, complete package. It is very difficult to complete this part of the process with 100 percent accuracy, although getting close to 100 percent helps tremendously to move the transaction along in a steady and professional manner. Work in concert with the issuing life insurance company, assigned sales area and the advanced markets team. Most

InsuranceNewsNet Magazine Âť January 2014

large carriers have a distinct process for evaluating premium finance cases, so make sure early on that the lender is accepted and the particulars of the case meet designated standards. Life insurance premium finance is an exciting and challenging area. Taking a careful step-by-step process can limit the inevitable difficulties you will encounter. Solid preparation and a detailed approach can help close that large case and pave the way for future success. Dale Humphrey is president of sales and marketing with Insurative Risk Solutions US in Greenwich, Conn. Dale may be reached at dale.humphrey@



practice will be trapped from rolling over millions of dollars of annuities you have on the books, regardless of whether it’s in your clients’ best interests.

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Annuity Sales Hit Highest Level in 2 Years Fixed annuity sales provided the fuel that drove industrywide annuity sales to their highest level in two years. Industry-



3Q 2012 vs. 3Q 2013

wide annuity sales surged to $57.5 billion during the third quarter. This is a 5.5 percent increase from $54.5 billion in the previous quarter and an 8.7 percent increase from $52.9 billion in third quarter 2012, according to Morningstar and Beacon Research. Variable annuity net assets reached a record high during the same period, despite a drop in sales. Quarterly fixed annuity sales hit their highest mark since 2009. The third quarter number of $22.5 billion was an increase of 31 percent from $17.1 billion in the second quarter of 2013 and 35.2 percent from $16.6 billion in the third quarter of 2012. “Fixed annuity sales growth during the third quarter was attributable largely to some of the highest interest rates and spreads we’ve seen in more than a year,” Beacon Research President Jeremy Alexander said. “The one-year versus 10-year Treasury rate spread increased more than 100 basis points since the end of 2012, and credit spreads are rising, which enabled carriers to raise the credited rates on their products.” Meanwhile, variable annuity net assets reached a record high of $1.79 trillion. This was despite the fact that VA total sales during the third quarter of 2013 were $35.1 billion, down 5.9 percent from $37.3 billion in the previous quarter and down 3.3 percent from $36.3 billion during the third quarter of 2012.


Low interest rates have been a plague on annuities, but a few carriers are watching the slowly rising interest rate environment with – well – interest. For example, American Financial Group, in its third quarter report, said that its annuity business and “the entire annuity industry” have benefited from the rise in interest rates. Genworth Financial also credited the higher interest


rate environment for increases the carrier experienced in fixed annuity sales. Compared to the prior quarter,

the company said in its third quarter report, fixed annuity sales were up due to “more competitively priced products in the higher interest rate environment.” Although no one knows what will happen in the future, many experts are predicting that rates will stay in the 2 percent to 3 percent range for quite a while. 38


Allstate announced in July that it would no longer issue fixed annuities after 2013. Now, the company announced it is team-

ing up with ING U.S. to offer a full suite of ING’s fixed annuity products to Allstate customers, beginning this month.

“Working with Allstate will help expand our growing footprint in the fixed annuity marketplace,” said Chad Tope, president of ING U.S. annuity and asset sales. Allstate will offer the following ING U.S. fixed annuities: ING Single Premium Immediate Annuity, ING Secure Index fixed index annuity product series and ING Lifetime Income deferred fixed annuity with an indexed minimum guaranteed withdrawal benefit.


The Supreme Court has struck down a key portion of the federal Defense of Marriage Act, resulting in sweeping changes in retirement, estate

InsuranceNewsNet Magazine » January 2014

QUOTABLE Unpredictable retirement dates, compounded by misperceptions about retirement expenses and the uncertain futures of traditional sources of retirement income may leave many retirees at risk for outliving their retirement savings if they don’t prepare properly. — Eric Taylor, vice president and national sales manager for annuities at Genworth

and tax planning for same-sex couples. This can lead to opportunities for advisors to reach an underserved portion of the market. Research by the Insured Retirement Institute (IRI) found that four in 10 same-sex couples are motivated to make financial plans, but 86 percent ac-

knowledge that they require assistance with some aspect of financial planning. Nearly nine in 10 have money saved for retirement, and 78 percent have added to their retirement savings during the past year. Yet, seven in 10 lack full confidence in having sufficient savings to live comfortably in retirement. About a quarter of same-sex couples are uncertain as to when they will retire, and 40 percent have not determined how much they will need to save to live comfortably in retirement.

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Fixed Annuity Carriers See Mixed Messages in Interest Rates Interest rate movement is leading to a “good news/bad news” scenario where fixed annuities are concerned. By Linda Koco


he fortunes of the fixed annuity business are so closely tied to the movement of interest rates that fixed annuity professionals follow rate developments closely. Right now, some professionals might be getting cross-eyed due to what seem to be mixed messages in this area. On the one hand, many carriers that issue fixed annuities are continuing to report that the prolonged low interest rate environment of the past year still puts pressure on capital reserves and carrier ability to support certain fixed annuity guarantees. Analysts and other annuity watchers carry that message forward. For instance, Boris Lukan, leader of Deloitte Consulting’s insurance mergers and acquisition practice in the U.S., told InsuranceNewsNet last month that low interest rates are “putting pressure on the bottom line” of annuity and life insurers that typically espouse conservative investment philosophies due to the financial guarantees for which they are on the hook. Meanwhile, analysts at A.M. Best Co. just published a special report touching on the issue. Low interest rates continue to challenge the investment portfolios of life insurers, particularly among companies with significant exposure to fixed annuities, they said. This is impacting exposure to liquidity risk, as will be seen below. On the other hand, there is a lot of talk about the rising interest rate environment and how it is helping fuel annuity sales. For instance, Beacon Research recently reported that fixed annuity sales in the third quarter reached $22.5 billion, the highest fixed annuity sales since the second


quarter of 2009. That growth is largely due to “some of the highest interest rates and spreads we’ve seen in more than a year,” said Beacon President Jeremy Alexander in an industry sales report from the Insured Retirement Institute (IRI). Alexander pointed to the current spread between the one-year Treasuries and 10-year Treasuries as an example. “This spread has increased by more than 100 basis points since the end of 2012,” he said, adding that “credit spreads are rising, and this has enabled carriers to raise the credited rates on their products.” The rate increases are more like small upward blips than giant leaps. But they are, on average, approaching 3 percent, a level that makes them more competitive with bank certificates of deposit than last year. Specifically, according to the Fisher Annuity Index, the average fixed annuity crediting rate on Dec. 10 was 2.87 percent. Last year on the same date the average was 2.48 percent. On CD-type fixed annuities, the rates vary by guarantee

InsuranceNewsNet Magazine » January 2014

period, but they are still up. (See tables on page 42.) There have also been various thirdquarter reports from a few carriers that also point to how the rising interest rate environment is helping with annuity sales (or management of risk exposure, in some cases). The combination of these things means a modest form of rate relief – in the form of higher crediting rates – has arrived for fixed annuity professionals and their customers, but carriers are still struggling with the consequences of the lengthy low rate environment. Both trends are happening at the same time. This is not so much a matter of mixed messages as of two sides of the same coin.

Carrier Challenges

Best’s comments about life carrier challenges in the low interest rate environment are illuminating. The Best special report does not deal with the impact of interest rates spreads

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Number of Companies

Number of Annuities

Lowest Rate

Low Norm

Normal Annuity Range

Average Rate

High Norm

Highest Rate

Standard Deviation

12/09/2013 69


0.50% 0.98% 2.87%

4.75% 12.59





























Note: Rate includes “Non-Forfeitable” first year interest bonus.


1 2 3 4 5 6 7 8 9 10













































Source: Fisher Annuity Index, Dallas

Data as of 12/11/2013

on fixed annuity crediting rates or sales, George Hansen pointed out in an interview. But it does look at what is happening at life carriers offering fixed annuities in the context of their own investments. As it turns out, the two trends are linked. According to the report, fixed annuity carriers are “under increased pressure to maintain portfolio yields in an effort to support credited interest rates offered in the highly competitive fixed annuity marketplace.” In response, the carriers – especially the larger carriers – are taking more risk in their investments today than three years ago, said Hansen, who is managing senior financial analyst at Best. “They are doing this to get yield,” he said. Specifically, they are increasing investments in asset-backed securities and commercial mortgages, which are not liquid, he said. Should a “run on the bank” (i.e., an annuity company) occur, these carriers could encounter potential liquidity risk, said Hansen, who is an actuary. This matters because “it will be harder for the larger carriers to handle a large spike in fixed annuity surrenders” during 42

stressful market conditions, Hansen said. What about midsized annuity carriers? They have “more of a cushion,” he said, because, so far, they have been “less aggressive” in their investment portfolios than the larger carriers. Put another way, they are not stretching for yield by increasing their investments in asset-backed securities and commercial mortgages. They are therefore “slightly higher” in terms of liquidity. But if the midsized fixed annuity carriers should start following the investment path now being taken by the larger carriers, they too would have less liquidity, he said. The higher yields the carriers are seeking for their investments may improve profitability, Hansen allowed, but the trade-off is that carriers face increased liquidity risk due to some of the investments. This has been an ongoing issue for the past few years, he indicated. “Liquidity ratios peaked at over 200 percent in 2009,” he said. “Now, they are down to 170 percent.” To keep on top of trends in this area, Best is “closely monitoring” the increasing

InsuranceNewsNet Magazine » January 2014

liquidity risk with the emerging changes in company portfolios. It is using liquidity modeling to measure a company’s cash needs under stress scenarios. In general, stress scenarios have greater impact on companies with fixed annuity business than on life companies that do not offer fixed annuities, according to the company. That’s because fixed annuities allow greater policyholder access to funds than do life policies and are held for shorter periods of time, Hansen explained, so they are more likely to see rapid cash outflows than life policies are. Agents and advisors who are doing due diligence on fixed annuity policies might want to add that issue to their list of considerations (as well as crediting rate, policy features, etc.). “For instance, they might want to find out what the company is investing in,” Hansen said. That information might not be easy to get, but agents and advisors can always ask. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at



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January 2014 » InsuranceNewsNet Magazine



Indexed Annuities Increase Retirement Success to 97.5%  ombining a mutual fund C drawdown strategy with a contemporary fixed indexed annuity with guaranteed lifetime withdrawal benefits can provide a successful income-generating plan. By Douglas Wolff


efore 2007, whenever Americans were asked about their retirement goals, the most common responses boiled down to “retiring early” and “accumulating as much wealth as possible.” Pose the same question today, however, and the dominant answers are more likely to be “dealing with health care expenses” and “not outliving my income.” As an industry, we have a great opportunity to respond to this attitudinal shift by developing a new and improved game plan for helping clients generate retirement income. New approaches combining traditional vehicles with innovative income guarantees can reduce the risk of failure and improve the odds of creating a successful income-generating strategy. More specifically, retirement income plans using mutual fund systematic drawdowns and an indexed annuity (IA) with guaranteed lifetime withdrawal benefits (GLWB) may be a great addition to an advisor’s playbook.

Variable Annuities and Mutual Funds Not Fully Up to the Task

Americans are concerned about health care expenses, the volatile equity markets and the thought of living 30 to 40 years in retirement. In fact, a substantial percentage of your pre-retiree and retiree clients – roughly one third to one half, according to recent surveys by major organizations – said they are no longer focused exclusively on the size of their retirement accounts. Instead, their chief concerns are safety of principal and achieving a lifetime income stream. This new emphasis on safety of principal, along with providers’ de-risking and re-pricing, has made 44

variable annuities (VAs) less attractive to aging baby boomers. Today’s income-oriented retirement portfolios demand a different balance of growth and security than VAs, even those with lifetime benefits, can provide effectively. Investors’ caution with regard to VAs as retirement income tools is well-deserved. A leading independent actuarial consulting firm studied the effectiveness of three popular investment strategies in creating a sustainable retirement income for various joint and single life retirement scenarios. Success was defined as annually meeting the needs of an inflation-adjusted income. The study assumed a $1 million investment, an initial withdrawal rate of 4.5 percent and annual inflation adjustment every year until death. The base case analyzed systematic withdrawals from hypothetical mutual fund portfolios comprising a combination of equity and fixed income. Next, the mutual fund portfolio was paired with an annuity providing a GLWB. Using a Monte Carlo analysis, the study sought to determine the best allocations to optimize chances for success in each case. The resulting portfolios from the study were graphed to create an efficient frontier representing those points with optimal risk/return trade-offs. Risk was defined as the probability of running out of money while still alive. Return was defined as the average amount of remaining assets upon death.

Mutual Fund Spend-Down Strategy

The results were consistent among the joint and single life scenarios, and for this article, we will use the results of the joint life study to illustrate the point. Not surprisingly, a balanced portfolio of 60 percent equities and 40 percent fixed income provided a maximum probability of success (82 percent) when using a mutual fund-only investment strategy. In short, the best-case scenario for a mutual fund-only strategy suggested that one in five retirees could run out of retirement

InsuranceNewsNet Magazine » January 2014

income prior to death.

Mutual Fund Spend-Down Strategy + Variable Annuity

Combining the mutual fund strategy and a VA with GLWB revealed that a 45 percent allocation to the VA and, for the remaining 55 percent of assets, a fund portfolio of 55 percent equities and 45 percent fixed income would be the most effective or optimal mix. However, the likelihood of success increased by just 3 percent to 85 percent. Withdrawals from the mutual fund portfolio would provide income during the first 10 years. Thereafter, lifetime benefit withdrawals from the VA combined with withdrawals from the mutual fund portfolio would fund the income stream. While there is improvement over the mutual fund spend down alone, there is still a one out of six failure rate – meaning a one in six chance that your clients could outlive their retirement income.

Today’s IAs Enhance Odds of Success to 97.5 Percent

Finally, the study examined mutual fund systematic withdrawals paired with a contemporary IA with GLWB. The probability of success was greatly enhanced, to 97.5 percent, when a 50 percent allocation to the IA was combined with a mutual fund mix of 25 percent equities and 75 percent fixed income. As with the VA/mutual fund strategy, mutual funds would provide income for 10 years before lifetime withdrawals from the IA were initiated. With clients seeking retirement income, this strategy provides the greatest probability for success, moving from a one in five or one in six failure rate to a one in 40 failure rate. That is a significant improvement as compared to the VA with GLWB strategy.

A Well-Timed Solution

The more attractive results for the IA/ mutual fund combination are no ac-

INDEXED ANNUITIES INCREASE RETIREMENT SUCCESS TO 97.5% ANNUITY cident. In recent years, IAs have been re-engineered to provide the combination that aging boomers moving from asset accumulation to asset decumulation need most: guaranteed future payout over time coupled with liquidity and upside opportunity. Increases in account values are achieved via crediting options linked to performance of a stock or bond market index but, in most cases, there is no downside risk to the investor from market movements. The bulk of the premiums are invested in the insurer’s general account, which gives the insurer greater control over the assets and makes account values less volatile. The insurer’s hedging efforts are centered more on longevity risk, which is predictable with a fair degree of accuracy, and less on market risk, which can be highly unpredictable and volatile. Traditionally estimated by actuaries, longevity risk is less costly to manage, and the cost savings can be passed along to consumers in the form of more attractive and/or lower cost benefits, including specific future payout levels that (generally) are higher than those guaranteed by today’s VAs. Simply

AAIt'sPersonalINN1216 12/16/13 11:02 AM Page 1

put, IAs offer retirees the best of several worlds: a guarantee of principal, the potential of market-linked growth with no market-related risk of principal loss and the ability to generate retirement income without having to annuitize.

More Options for Tailoring the Strategy to the Client

Providing well-reasoned, compelling retirement income options is critical, as clients require a “game-changing approach.” Investors are demanding a smarter balance of growth and security to achieve their retirement goals effectively and to create a sustainable stream of lifetime income. As IAs continue to gain share, the popularity of guaranteed income riders attached to IA products is increasing. Our research demonstrates that the highest probability of success in creating sustainable income throughout retirement results from combining a mutual fund drawdown and an IA with a GLWB. At its highest probability of success, a 97.5 percent success rate was achieved, which translates to a failure rate of one out of 40. That compares


to a one out of five failure rate for mutual funds alone and a one out of six failure rate for a mutual fund drawdown plus a VA with a GLWB. The significant improvement in the probability of success should capture the attention of pre- and post-retirees. Positioning clients for little to no market risk, a guarantee of principal, potential for portfolio growth and retirement income requires a series of well-executed plays. Improved retirement outcomes, flexibility to respond to a variety of needs and market conditions, and retaining control of the assets are driving today’s retirement game. All these goals are achievable by combining the mutual fund drawdown strategy with a contemporary IA with GLWB. Douglas Wolff is president of Security Benefit Life, overseeing product development, pricing and operations. He brings 25 years of experience in investments, financial consulting, actuarial pricing, product development, marketing and strategy formulation to his role. Contact him at douglas.wolff@

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

January 2014 » InsuranceNewsNet Magazine



Millennials say they are unlikely to enroll in health care.

1 in 4 Would Move for Insurance We’ve heard of moving in order to take a new job or moving so you can live closer to family or even moving so you can get away from your family. But moving for health insurance? That’s a new one, but growing more common. More than one in four Americans (28 percent) would consider moving to another state or county to get better and/or cheaper health insurance, according to Young adults (ages 18-29) are the most likely to consider moving. More than four in 10 members of this group – which is generally more mobile than its older counterparts – say that health insurance would factor into their decision on where to live. About one-third of the lowest-income respondents (annual household income under $30,000) would consider moving for health insurance reasons. Since half of the 50 states are not expanding the Medicaid program, this is one of the groups most affected by geography.


What do Liberty University, Conestoga Wood Specialties and Hobby Lobby have in common? All have brought challenges to the U.S. Supreme Court regarding the Affordable Care Act (ACA). In the case of Liberty University, the court refused to hear the university’s argument against the federal health care law. It was the fourth time courts have rejected the university’s claim that ACA violates the Constitution by requiring employers to provide health insurance to full-time employees. The court did, however, agree to review two challenges involving Conestoga Wood Specialties and the Hobby Lobby craft store chain. Those cases focus on the law’s requirement that insurance plans provide contraception coverage, which they say violates the owners’ religious principles.


UnitedHealth Group is the latest company to detail the hit its business will absorb from the health care overhaul. The nation’s largest DID YOU



health insurer said that it expects to pay as much as $1.9 billion in taxes and fees imposed by the law next year and absorb a funding cut for a key product, Medicare Advantage plans. Insurers widely expect the law to add fees and expenses to their balance sheets, but few have detailed the impact like UnitedHealth. Other companies also will see more of a gain from the law, when uninsured people start buying coverage. But UnitedHealth has a small stake in the individual insurance market affected by that expansion. UnitedHealth is the nation’s largest provider of Medicare Advantage plans with more than 2.9 million people enrolled. Cuts to these plans in addition to the hit from the overhaul will hurt earnings by 50 cents per share next year, the insurer estimates.


What is the most urgent health problem facing the U.S.? It’s cost, according to a Gallup poll. Nearly one-quarter of Americans said cost is the most urgent health problem, replacing access, which was named as the top health problem from 2007-2012.

43 PERCENT OF AMERICANS said they are likely to shop for a new health insurance policy. Source: MPO Research Group

46 InsuranceNewsNet Magazine » January 2014

QUOTABLE Medicare Advantage has a couple of difficult years ahead. — Stephen Hemsley, chief executive officer of UnitedHealth, the nation’s largest provider of Medicare Advantage plans

Fewer Americans now see access as the foremost health dilemma (16 percent) than in any year since 2005. This year’s figure represents a 13-point decline from 2007 and 2008, when nearly three in 10 Americans named access as the nation’s main health concern. When asked to name the top health ailment facing America, poll respondents ranked obesity as No. 1, with 13 percent naming it. Cancer, the second-leading cause of death in America, has fallen to fourth place on the list. Two percent mention heart disease, the nation’s leading cause of death. The percentage of Americans naming “government interference” as the top problem has increased the most this year versus 2012 – at 9 percent, compared with 2 percent last year.


Does having health insurance make you careless about taking care of your health? Are you more likely to try to stay healthy if you have no coverage and are responsible for paying for all your health care? Apparently, there’s not much difference between the health insurance haves and have-nots. Researchers at the University of California at Davis and the University of Rochester found that those with health insurance are more likely to do proactive things like getting a flu shot. But they are no more likely than those who don’t have insurance to engage in risky health behaviors such as smoking or gaining weight. The findings, published in the November-December issue of the Journal of the American Board of Family Medicine, contradict the common concern that expanding health care coverage may encourage behaviors that increase use and costs.

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Keeping Out of Jeopardy: How to Win in Today’s Health Market  he health insurance market T has changed rapidly in the past few years. Advisors and carriers who adapt to the changing times will remain relevant. By Andrew Bard


verything changes with time, and no industry is exempt from this fact. This is particularly true in the insurance industry. In the past five years, the health insurance industry has changed in incredible ways. Depending on your point of view, these changes may be good or bad, but I believe that any ad48

visor or provider who is able to adapt to the changing environment can see these changes as beneficial to the industry. Here are the five primary ways I have seen the health insurance business change over the last five years and what I see coming in the future.


The Affordable Care Act (ACA) may be the biggest change in the business. The primary thing we are seeing out of ACA, from an advisor perspective, is that the best agents in the business are rising to the top because of it. ACA is a complicated piece of leg-

InsuranceNewsNet Magazine Âť January 2014

islation. Members of the public have countless questions about it, and they can glean only so much correct information about it from the media. Consumers want answers from their advisors. The advisors who are prospering and who will continue to prosper are those who have taken the time to understand the bill and its effects on the market and who have become engaged with their peers and carriers to learn as much as they can about the law. Advisors at the middle and lower range either are losing business or are getting out of the health insurance business completely. The best advisors are learning not only what

HOW TO WIN IN TODAY’S HEALTH MARKET their customers want, but they also are guiding those customers toward what they really need.

Reduced Commission

The implementation of ACA will mean a great deal of number shifting as companies and individuals shop for new policies that best fit their needs and budgets. As a result of ACA, many advisors are experiencing reduced commissions. That alone stands out as a negative. But the bright side for the industry is that advisors are finding ways to replace those lost commissions. Many advisors are cross-selling more products and ancillary products, such as life insurance. Lost commissions on specific policies are being replaced with sales of new products, and that is a great thing for the market as a whole. The best advisors will be diligent in what they are offering, and sales of products such as cancer policies, critical illness policies and short-term disability policies will help the market grow in the ways it needs.


Members of Generation Y, or millennials, entering the risk pool have changed things from both an advisor and a carrier perspective. Your brand, as an advisor or as a carrier, is extremely important to the baby boom generation. Millennials, on the other hand, do not care as much about your brand identity. Instead, they trust the opinions of others – especially those of strangers. A recent study by the online network Bazaarvoice found that 84 percent of millennials have stated that user-generated content from strangers has influenced what they buy. In fact, 65 percent of millennials believe that online user content is more genuine and a good indicator of quality and service. While boomers would work with you simply because they recognized your brand, attracting millennials requires a new methodology. Insurance carriers have introduced consumer review sites, and advisor review sites are likely to be on their way, if not already in existence. While a brand is still important, it is much less so than it was five years ago. Meanwhile, good customer service is more important than ever.

Within the next five years, we likely will see: » The health insurance industry become very consumer-driven. » A rise in consumer-driven health plans and highdeductible health plans. » Many employers move toward plans such as these in order to keep their premiums down. Social Media

With millennials entering the risk pool, we also are seeing the balance of power shifting away from carriers and into the hands of the consumer. Today, we have a complete range of information at our fingertips anytime we want it. If a company provides poor service, it will undoubtedly be reported online within minutes and others will read about it. However, the same is often true for good customer service. People trust the comments they read online. That can be dangerous for some companies. But if good customer service is a key focus, online comments should work in your favor. The way companies are marketing both themselves and their products has shifted: Companies are moving away from a generic brand strategy and instead are moving toward a strategy focused more on ensuring that their customers are engaged with the business and happy with the service they are experiencing. Overall, the shift has been a positive change. It has given the industry a new transparency, allowing consumers to trust and understand both carriers and advisors much more.

Predictive Analytics

Predictive analytics is evaluated historical data used to predict future probabilities. For years, the insurance industry has used the data from an actuarial standpoint. Now, carriers and advisors are starting to dig into legacy systems to use that data to shape both the products and the benefits they offer and, more


important, to shape their marketing efforts. By reviewing the data, carriers and advisors can figure out who is most likely to purchase a policy, what benefits are important to those people and why they choose to purchase. We now can target those who are most likely to buy, and carriers are able to sell consumers on their most profitable products.

A Look Ahead

While it is impossible to know the future for certain, there are emerging trends in our industry. Within the next five years, we likely will see the health insurance industry become very consumer-driven. We will see consumer-driven health plans and high-deductible health plans coming for both private employers and individuals. With the implementation of ACA, many employers will move toward plans such as these in order to keep their premiums lower. A move like this also will impact the health care industry by slowing the use of health care resources. Today, no tools exist for shopping for health care because the cost often does not matter to the buyer. Whether a surgery costs $2,000 or $8,000, the price is ultimately the same for the consumer. In the future, with high-deductible plans, we may see five different surgeons offering quotes through a “shopping” tool, and we even may see surgeons competing for business. The future of the insurance industry will continue to bend and reshape as ACA and other industry regulations are put in place. The most important thing to remember about all of these changes we will see is that adaptation is the key to success. Advisors and carriers alike have to adjust to the changing times. While it may be trying, those who learn to change with the times will continue to see success. Andrew Bard is the vice president of sales for HCC Medical Insurance Services, a provider of international and travel health insurance plans. He serves as president of the Indianapolis Association of Health Underwriters and received the Global Benefits Leadership award in 2011. Andrew may be contacted at

January 2014 » InsuranceNewsNet Magazine



Changing retirement plan landscape creates new challenges for advisors.

RIAs Ruling the Roost The number of registered investment advisors (RIAs) grew at an annualized rate of 8 percent between 2004 and 2012, the only channel among six separate advisor channels to record growth in the period, a new analysis reveals. The reasons for the growth include brokers leaving their broker-dealer to establish their own shops, the rise of new, nontraditional competitors like law and accounting firms, a predilection among investors for a high-touch service model, and a predilection for advice that is free of perceived conflicts of interest, according to the analysis by Cerulli Associates. RIAs have been the sole growth story in a shrinking industry, Cerulli said. As RIAs surged by an annualized rate of 8 percent from 2004 to 2012, regional broker-dealers shrank by 1.2 percent, insurance broker-dealers by 1.4 percent, independent broker-dealers by 1.4 percent, bank broker-dealers by 1.9 percent and wirehouses by 2.5 percent. All advisors shrank by an annualized rate of 1.2 percent in the period. The growth in RIAs has vaulted independent RIAs from what a decade ago was a “cottage industry” of small businesses to one populated by multiadvisor firms now governed by different business models offering varying degrees of independence and corresponding financial reward.


Wall Street welcomed news that the Federal Reserve will slightly taper its quantitative-easing bond-buying, juicing the Dow 150 points soon after Chairman Ben Bernanke made the announcement.

The Fed is now buying $75 billion rather than $85 billion in bonds per month. But Bernanke also eased anxiety

by assuring the public that the central bank intends to hold short-term interest rates to near zero even if unemployment drops below 6.5 percent, the previous benchmark. Bernanke has long said this day would come, and the financial press has reverberated with warnings of investors digging up gold from the yard and fleeing for the hills. So each Federal Open Market Committee meeting came and went without the policy change, even as the economy improved. Janet L. Yellen, expected to take over as Fed chair this month, has been DID YOU




a proponent of the program and is expected not to be aggressive on easing.


More employers are getting on the financial advice bandwagon. A Boston Research Group survey of more than 1,000 companies of all sizes found that 70 percent now

offer employees access to a one-on-one relationship with a financial professional.

That’s up from 56 percent in 2012, according to Bank of America Merrill Lynch, which published the survey. The shift is breathtaking when compared to five or six years ago. In those days, most employers were reluctant to offer personalized advice of any kind, preferring instead to offer only financial education. They held back on advice due to concern about being held liable later on for damages allegedly caused by the advice-giver. Now the same survey found that 85 percent of employees say they are not saving enough for retirement and 59 percent need help managing their retirement


THE RIA MARKET IS HIGHLY CONCENTRATED – 15 percent of firms this year. The average increase in the first day (or “pop”) is 13 percent. control 85 percent of assets. Source: Cerulli Associates Source: Renaissance Capital

InsuranceNewsNet Magazine » January 2014

QUOTABLE The Federal Reserve chairman has placidly explained that ‘no one really understands gold,’ that he prints money just ‘not literally,’ and, very politely, that Congress is nuts. — Alan Yuhas, The Guardian

savings. Yet only 21 percent say they seek education and guidance about their plans. That’s an opportunity for somebody, somewhere.


Money managers raked in the dough in the third quarter. The Money Management Institute (MMI), a trade association for the managed investment solutions and wealth management industry, said total managed solution

assets rose by 6 percent in the quarter to $3.2 trillion. That surpasses, by

nearly 6.7 percent, the $3 trillion mark the industry crossed for the first time in the second quarter. What is interesting is that, according to MMI, approximately 35 percent of the $167 billion quarter-to-quarter increase was attributable to net inflows. The balance came from market appreciation. So the business is attracting new money, not just relying on growth in investment values to achieve the reported gains. Measured by market segment, the Unified Managed Account (UMA) Advisory category led with an 8 percent increase in assets, double its second quarter growth rate. Two categories tied for second, with the Rep as Portfolio Manager and Mutual Fund Advisory segments both growing by 6 percent, up from 3 percent and 2 percent, respectively. Coming in a close third was the Rep as Advisor segment (a non-discretionary fee-based advisory option), with a 5.6 percent increase compared to a 1 percent increase in the second quarter. The Separately Managed Account Advisory segment pulled up the rear with a 3 percent asset gain.




Financial Discussions Are the ‘Elephant in the Room’ for Families L  onger lifespans and complicated relationships contribute to your clients’ reluctance to talk about finances with family members. By Cyril Tuohy


s the entire family gathered to feast on Mom’s roast turkey and pumpkin pie, it’s a safe bet that nobody sitting around the table asked whether she had life insurance. 52

After the kids opened their gifts, it’s pretty certain that nobody gathered around the tree asked who will pay for the presents of Christmas future if the family breadwinner becomes disabled in the new year. When the extended family members returned to the old hometown for the annual holiday reunion, they had a lot of catching up to do. But they probably didn’t settle the issue of who will take care of Grandma if she is no longer able to live independently.

InsuranceNewsNet Magazine » January 2014

Does this sound like your family? It likely describes your clients’ families. Most of us regard religion and politics as the two conversational topics most likely to cause indigestion around the family dinner table. But you can add a third topic – finances – to the list of family conversation taboos. A major new study by Merrill Lynch found the majority of Americans age 50 or older unprepared for big family events, a situation made worse by


family members’ reluctance to discuss financial topics. Big events that could potentially upset a family’s financial balance include an adult child moving back in with parents, the loss of a spouse through death or divorce, early retirement, giving care to an elderly parent, and becoming a burden to children. “Too often, people plan for their retirement without factoring in how they might be called upon to help out their adult children, aging parents and siblings,” said Ken Dychtwald, founder and chief executive officer of Age Wave, a consulting firm that released the study in conjunction with Merrill Lynch. We have entered an era of “extended longevity and increased family interdependencies,” he said. This requires retirement planning not only for

married couples, but for in-laws and stepchildren. More than 5,400 people participated in the survey titled “Family & Retirement: The Elephant in the Room.” The results, released earlier this month, reveal the effects of changing family dynamics and how the changes affect financial circumstances. One in five parents age 50 or older has at least one “boomerang” adult child who has moved back in with them, and more than two-thirds of parents have provided financial support to adult children – mostly to help pay the rent or the mortgage – during the last five years, the study found. The average amount of financial assistance provided to family members during the last five years was nearly $15,000 – and significantly more among the nation’s wealthiest families, according to the study. Of those who have provided financial support to family members, 88 percent of the assisters in the 50-plus age bracket did not factor any such support for family into their own financial planning. Less than a quarter of respondents said they would be well prepared if their spouse died, and less than a quarter of adults age 50 or older said they would be prepared if their spouse were to retire early due to illness, the study also found. More than nine out of 10 respondents said they would not be prepared if an aging parent or relative needed extended longterm care, according to the study. While 37 percent of people age 50 or older believe they may need long-term care, the real number is closer to 70 percent, the survey said, citing U.S. government statistics. The study also found what its authors called “a dangerous absence of proactive discussion and establishment of safe boundaries around family members” as they work out their financial issues. As many as 70 percent of adult children have not talked to parents about retirement and aging, and more than half of parents have not discussed important financial issues such as a will, inheritance or even where they plan to live. Parents and children may not want to discuss these subjects with each other, but siblings don’t want to talk about these subjects with each other either. The survey showed that only one in four siblings


age 50 or older have discussed how their parents will be provided for financially, or cared for physically, as they get older. “Although many of these topics can be difficult to discuss, there is a clear benefit to having family conversations and planning ahead,” David Tyrie, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch, said of the study results. Other highlights from the study include: » The family member who is most financially responsible, has the most money or is the easiest to approach is most likely to become the “family bank,” the person to whom the extended family is most likely to turn for financial help. Nearly three in five people age 50 and older said they believe a member of their family plays the role of the “family bank.” » Half of pre-retirees age 50 and older said they would make major financial sacrifices to help family members, at the risk of their own retirement. Among these pre-retirees, 60 percent would retire later, 40 percent would return to work after retiring and 36 percent said they would accept a less comfortable retirement lifestyle to help their family financially. » Those pre-retirees who help family financially don’t expect future help or payback. People age 50 and older are 20 times more likely to say they are helping family because “it is the right thing to do” than because “family members will help them in the future.” They also are five times more likely to shut off the financial faucet because the recipient is not using the money wisely than because of worries about being repaid. » Blended families lead to more complication in financial planning. Nearly one-third of people age 50 and older who have stepchildren said they and their spouse have different financial priorities for their own children than they have for their stepchildren. 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

January 2014 » InsuranceNewsNet Magazine



How to Reach Super-Busy, Stressed-Out Prospects by Phone Sometimes prospects are too busy to take your call, and other times they are out of the office. So when is the best time to call them? By Wendy Weiss


ne of the questions I am frequently asked is, “When is the best time to make prospecting calls?” I’m always hesitant to answer this question, simply because I never want to give advisors a reason not to make calls. I’m always afraid that if I mention some times that are better than others, some advisors could interpret that to mean they should not make calls at those other times.

Add to this question the fact that it is simply much harder today to reach prospects by phone. Prospects hide behind voice mail and email and sometimes can be next to impossible to reach directly. Calling at the right time, then, becomes even more important. It’s true that good times to reach highlevel corporate decision-makers and/or business owners can be before or after business hours. Many times, high-level decision-makers or business owners are in the office early or they stay late. If you track your calls (which you should be doing), you also may notice trends that tell you when you are able to reach prospects directly. The truth is that you really never know when you might be able to reach a given prospect, so it’s always worth trying. To prove my point, here is an email I received from a client recently. As you’ll see, his conclusions and results go against what passes for the common wisdom about when one can reach a prospect: “Friday afternoons after 2 p.m. have been the best times for me to reach people in their offices. I managed to get through to half a dozen people this afternoon. … Every one of them either agreed to meet with me or referred me down a level to someone else in their organization. The person who referred me down 54

a level is the person who runs the entire home loan division for Bank of America – a very big fish. People may be tempted to take Friday afternoon off – I know I always am – but it’s a spectacularly good time to call people.” Ray Parrish InSight Consulting Partners So there you go. People say Monday mornings are bad. Friday afternoons are bad. Too early is bad. Too late is bad. All are excuses for advisors not to make prospecting calls. An even bigger issue, however, is getting prospects to respond when you

InsuranceNewsNet Magazine » January 2014

do make calls. With fewer prospects answering their phones, it is imperative to be able to engage quickly with the ones who do answer and have a strategy to get difficult-to-reach prospects to call you back. That means you need a good introductory script and you need good voice mail scripts. Unfortunately, in many people’s minds, the idea of scripting is tied up with the concept of being “canned.” Many advisors seem to believe that if you are using a script, you cannot possibly be yourself or be real. On the other end of the spectrum, I often receive emails from advisors who

HOW TO REACH TODAY’S SUPER BUSY PROSPECTS ask me whether I can recommend a “good generic script.” I always laugh when I get these emails. You see, what you say to a prospect must be relevant. Generic simply won’t cut it. You cannot say the same thing to everyone. You cannot, for example, say the same thing to a business owner that you would say to a new mom. So what does it mean to use a script and still be relevant to the prospect? It simply means that you know your market and that you are prepared. Prospects today are busier than ever. They are stressed out. They are doing more with less. Their attention spans are shorter. They have far less patience than they used to. If you want to get


voice mail message, your prospect will just hit “delete.” For your clear and concise introduction, lead with how you help your clients. A template that you can use is, “We are known for helping clients (fill in how you help).” A variation of that template: “We have a track record of helping clients (fill in how you help).” There may be many ways in which you help your clients. Pick one or two that you believe are the strongest and most relevant and lead with them. You do not have to tell your prospect everything in a prospecting call. The idea behind a prospecting call is to get your prospect’s attention and then get an agreement to

The best time to call your prospects is when no one else is calling them. their attention on prospecting calls, you must have something relevant to say. This requires preparation. And, by the way, if you hope to have your prospects return your calls when you leave messages or if you hope to have your prospects respond to your emails, you must have something relevant to say. This also requires preparation. There are two types of preparation: The first type is really understanding your market and the relevance of your offering to that market. The relevance question is, how do your products impact the people who buy them? Said another way, how do your products help your clients? The second type of preparation is taking that relevant information and putting together a clear and concise introduction. The prospect must understand who you are and how you might be able to help. This is your script. In today’s prospecting world, you simply do not have a lot of time. If your prospect doesn’t understand you or doesn’t see the relevance of your information, your call will be over before it has even started. If you are leaving a


For 86 years, your success has been our mission. So to help make sure you accomplish your resolution in 2014, we put together a “Success Kit” just for you. Our New Year’s Gift to you includes: » A FREE article on Urban Myths about Baby Boomers » A FREE newsletter featuring “The Top 10 Reasons People are Transferring Billions into Annuities”

move to the next step in your process. You also can give an example of a client whom you helped. This is powerful. You can use examples when you’re on the phone as well as when you’re face to face with your prospects. When you give an example, prospects “get it.” They understand that means you might be able to help them in a similar way. Scripting is not a “canned presentation,” something that you say over and over again no matter what the prospect says. Scripting is about being relevant – quickly. Scripting is about being the best “you” that you can possibly be in order to get your prospect’s attention and willingness to engage. Bottom line: Be prepared. Make calls. Watch your income soar. Wendy Weiss, known as “The Queen of Cold Calling,” is a leading authority on prospecting and new business development. She is author of the ebook, The Cold Calling Survival Guide. Wendy can be reached at wendy.weiss@

January 2014 » InsuranceNewsNet Magazine

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How the Big Rock Rolls Through Changing Times Prudential’s acquisition of The Hartford’s life insurance business is the company’s latest move to compete in an ever-changing market.


ou know Prudential – “The Rock.” Like the Gibraltar cliff depicted in its logo, Prudential is still there, big and strong.

Also, just like that rock at the gate to the Mediterranean Sea, Prudential has been reshaped by years of facing the elements. It’s gone from a stock company to a mutual and back again. It went from being a mainstay of captive agents to becoming a major player in the independent space. Now it is looking to a future that blends not just both of those distribution worlds but also weaves in opportunities from the Internet and big data. One of Prudential’s latest challenges as the insurance industry emerges from a long recession into the new economy is to get the right products quickly to an increasingly diverse market concerned about planning for retirement.

Typically, developments in products and distribution take years, even decades, in their full arc. Prudential has an opportunity to leap ahead in innovation in its recent acquisition of The Hartford’s individual life insurance business. The deal adds The Hartford’s $1.5 billion in annual individual life premium to Prudential’s $5 billion of yearly individual life premium, according to the American Council of Life Insurers. When the individual and group sales and assets are combined, Prudential is the nation’s second-largest life insurer. Prudential started its business in 1875, back when the life insurance market was known as “industrial” because it was workplace-based. At that time, other companies assumed there was no money to be made from selling individual policies to factory workers, because they believed the workers wouldn’t have the discipline to save. The company’s guiding light, John F. Dryden, a charismatic businessman from a working-class family, persevered through his many failures by sheer will

Prudential Timeline

1896 Prudential debuts the Rock as its corporate symbol.

1873 John Fairfield Dryden joins Widows and Orphans Friendly Society. 1875 Widows and Orphans changes its name to Prudential Friendly Society and starts selling industrial (group) life insurance. By year’s end, Prudential has 284 policies. 1877 Dryden visits Prudential Insurance Co. in England to see the unrelated namesake up close. He comes back with changes, including the elimination


When Prudential built its gothic tower in Newark in 1892, it was New Jersey’s tallest building and a symbol of the company’s strength and ambition. That ambition very quickly outgrew even this structure.

Prudential President John Dryden, left, is with vice presidents and brothers Edgar and Dr. Leslie D. Ward on Dryden’s yacht in 1903. Dr. Ward was also one of Prudential’s first investors.

of “sickness” policies. The company changes its name to Prudential Insurance Co. of America. 1881 Dryden is selected as president after a bitter split on the board.

InsuranceNewsNet Magazine » January 2014

1911 Dryden dies. The next year, Forrest Dryden succeeds his father as president. 1915 Prudential becomes a mutual company.

1935 Prudential replaces Powers/ Gore punch card system with a new system developed by a young IBM. 1938 Edward Duffield dies. Franklin D’Oiler becomes president.

1922 Forrest Dryden resigns presidency. Edward Duffield succeeds him.

1946 Franklin D’Oiler steps aside as president and becomes board chairman. Carrol Shanks is elected president.

1927 The three most common causes of disability among Prudential policy holders are tuberculosis, insanity and cancer.

1950 Prudential becomes the first life insurance company to advertise on TV, sponsoring Prudential Family Playhouse.


The Prudential logomark underwent several graphical style changes over the years but has always featured the Gibraltar cliff to signify the company’s fiscal strength.

and self-taught knowledge. He had landed in Newark, N.J., (no one knows why) and started working at the Widows and Orphans Friendly Society. In 1875, under his influence, the company focused on the industrial business and changed its name to the Prudential Friendly Society. The name came from the British Prudential, which Dryden had admired and studied. Dryden generated start-up capital for the new undertaking and business boomed. In 17 years, the company would move a few times, ending up in a Victorian, state-ofthe-art gothic tower that would be the company’s home until the middle of the booming 20th century. That has been the essence of Prudential – a large, expanding insurance juggernaut that started out with a dedication to serving the lower and middle classes and has evolved to serve the financial needs of all consumers as products and services have evolved to offer more sophisticated solutions. This year, Prudential’s life insurance business is focused on the integration of The Hartford’s life insurance division. It has been an intriguing challenge to bring two different cultures together. But it is 1955 Prudential installs its first large-scale computer. 1960 Carrol Shanks resigns as Prudential’s president. 1961 Louis R. Menagh is elected president.

1966 Prudential surpasses Metropolitan Life as the largest insurance company in the United States.

things take time, and we’re trying to be very thoughtful about them.” How much time? About two years altogether, with the clock starting last January. “It’s a fairly lengthy process, in part because of some of the complexities of working through the administrative platforms and the migration of those platforms,” Sluyter said. The process has three phases: stabilizing, integrating and optimizing the organization. It has been a learning experience to discover where each company excels and be sure to preserve those qualities. The Hartford brand will still be available for a limited time in some markets, but Prudential is starting to offer its own branded version of The Hartford’s products. An example of that is the Benefit

John Dryden became president in 1891. His son, Forrest, succeeded him in 1912. Forrest resigned in 1922. They are shown here in 1906.

1969 Orville Beal retires and is replaced by Donald S. MacNaughton. 1970 MacNaughton becomes CEO and chairman. Kenneth C. Foster is elected president and COO. Prudential becomes the first major insurance company to market variable annuities to individuals. Prudential enters the automobile and homeowner insurance business through a partnership with Kemper Insurance Group.

1975 With more than $200 billion in policies, Prudential becomes the company with the largest amount of insurance in force. It is now first in all three industry benchmarks — including total assets and annual premium income — becoming the largest insurance company in the world.

1983 Over half of Prudential’s 22,000 agents have some form of securities licensing.

1978 Donald MacNaughton retires and is replaced by Robert Beck.

2013 Kent Sluyter is named CEO of individual life insurance and agency distribution.

1987 Prudential-Bache Securities loses $164 million in the October stock market crash. 2001 Prudential demutualizes and starts selling stock. 2007 Arthur F. Ryan retires and is replaced by John R. Strangfeld.

January 2014 » InsuranceNewsNet Magazine


SOURCE: The Power of a Story

1962 Menagh retires and Orville Beal becomes the next president.

the differences that have made The Hartford and Prudential a good fit, said Kent Sluyter, who was named chief executive officer of individual life insurance and agency distribution when the deal was finalized in January. “We saw some real strategic opportunities to leverage the talent that The Hartford has and really strengthen our distribution and our product capabilities at the same time,” Sluyter said. “These




Agent Adam Foreman mans a desk in a New York district office in 1888. Prudential’s foray into the New York market was the start of the company’s bigger vision and expansion.

Access rider that was introduced in the summer. It’s a chronic illness rider that is patented. “It was clearly something that we felt made life insurance more relevant for customers and bolsters the value proposition for life insurance policy owners,” Sluyter said. The product is an example of the innovation that producers say their clients are demanding. The prospect of chronic illness and long-term care are top concerns for people as they get older, but consumers get sticker shock over the price of coverage. Producers have been experiencing more success selling life insurance and annuities that have the extra feature of an illness or long-term care payout. The combination makes more sense not only for the client, but for the company. The payout is not based on the care, but on the value of the policy. Clients can do what they need with the money and the carrier is less likely to be pulled into deep water with long-term care costs. “It’s a matter of getting the assumptions and the actuarial science right,” Sluyter said. “There is a cost associated to adding that rider to the policy. But it’s rather daunting how many of us are going to need that kind of coverage.” Folding in The Hartford business has been an exercise in examining Prudential’s distribution history and where it can go with the new business. “On the distribution front, Prudential brought strength in captive agency distribution systems as well as third-party brokerage general agencies,” Sluyter said. “So we had very strong capabilities with our own agents as well as strategic relationships with key brokerage general agents in the business.” The Hartford’s strength was institutional and wirehouse distribution, requiring feet-on-the-street, point-of-sale, whole58

sale capabilities. At the same time, it had direct relationships with high-end independent producers. These are big case folks focusing on permanent coverage. “It’s very high-touch service with a lot of hand-holding that really helps get those larger, difficult cases through the process,” Sluyter said. “It’s a high-engagement type of service compared to a more transactional approach.”

William R. Drake applied on Nov. 10, 1875, for Prudential’s first policy.

The Hartford brought creativity and a segment of high-premium cases to the deal and Prudential had the mechanism for efficient transactions. That ties back to the company’s bread and butter, since it started selling burial insurance in the 19th century to working-class people who had been written off by the rest of the insurance industry. After World War II, Prudential had expanded with the rest of post-war America, as adventurous and experimental as a prudent company could be. It pulled in other companies from disciplines in financial services. Prudential also developed more cash-value life products and grew its captive agent force to more than 20,000 to support the high-margin, higher-service business. But as the products changed to be more protection-oriented and margins shrank, so did the

InsuranceNewsNet Magazine » January 2014

sales force, which dropped to a low of 2,400 in 2008. Since then, the company slowly has been adding producers, building up to about 2,700 today. Like many companies, Prudential is bringing on a more diversified advisor. “When they come into the business today as a Prudential financial professional, they’ve got a full spectrum of products and solutions, from insurance coverage to annuities to investments,” Sluyter said. “We recognized that having someone solely focus on life insurance isn’t meeting the broader needs consumers have today, so there really needs to be a diversification of the product suite that advisors can offer in order to be successful.” That would seem to take some of the focus away from life insurance, but Sluyter said some of the technology the company is developing can help with sales in the underserved middle market. “Given the roots of Prudential, we feel very much a need to focus time and attention to figure that out,” Sluyter said. “The natural tendency of a financial professional, whether they’re captive or third party, is to go upscale. I think the solution is a combination of things: finding simpler products and a simpler process for selling and buying life insurance. We need to make it less cumbersome and faster, especially when it comes to smaller-size policies.” Like most companies, Prudential is looking at ways to leverage technology and social media, so, for example, faceto-face may not necessarily mean in the same room. “This is not something that’s new, certainly, but the insurance industry, arguably, may be a little bit behind other industries with respect to the levels of sophistication,” he said. “We need to create integrated capabilities that leverage technology to make distribution and advice much more efficient.” No matter the products or process, it always comes back to the essential: service. “Throughout the economic crisis, I believe consumers got a new appreciation of their vulnerability and the need for advice,” Sluyter said. “Going it alone is not always the right answer, and Americans need help with investments as well as protecting what they have. And that’s what we do.”




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Actionable Steps to Retain Clients  ou can develop a powerful Y strategy to boost client loyalty. By Michael Morrow


he beginning of the new year is an ideal time for financial advisors to look back over the previous year and evaluate their business. Typically, advisors examine what worked and what didn’t, and perhaps where things veered off course. There is much truth in the saying “You can’t get to where you want to be if you don’t know where you have been.” One important aspect of getting a business on the right track is to look at client retention. You must monitor and understand the effectiveness of your engagement with your clients. This will determine the impact on your bottom line and the future of your business. By considering these following steps, you can be on your way to developing a powerful strategy to boost loyalty among your clients.

[1] Try This Simple Exercise

To get you thinking about the power of client retention, first imagine that you can never take on another client for the rest of your career. How would you change your behavior with your current clients? What would you do to protect the revenue you get from these clients? Write down the answers to these questions. Evaluate whether your answers match what you are currently doing. If you find a disconnection between your responses and your current strategies, identify ways to stay in the forefront of your clients’ minds – such as the ways outlined below.

[2] Increase Engagement

Here are a few strategies you can implement to provide value and enhance loyalty. Begin by creating an emotional connection through your social media platforms, such as Facebook or Twitter, to stimulate conversation. This is a 60

These ways to stay top of mind usually require the least amount of time and effort but can have the greatest impact. wonderful opportunity to stay in touch with your clients. You can comment on their postings, stay current with what is happening in their lives and post insightful content yourself. After client meetings, express appreciation with a handwritten note or send a “nothing’s urgent” voice mail/email with a web link on a topic of interest to them. Another way to acknowledge your clients is to keep track of their life events such as birthdays, anniversaries, graduations and weddings. These ways to stay top of mind usually require the least amount of time and effort but can have the greatest impact.

[3] Review Your Client List

It’s critical to look at client retention in order to protect your revenue stream. We need to apply the very same compounding principles we teach our clients. If you improve client retention by only 2 percent each year, it can have a positive impact on your business over the course of your career. An increase of 2 percent each year will add up to a 20 percent difference over the course of 10 years. Alternatively, consider what your business would look like in 10 years if you lost 2 percent of your client base each year. Make sure you are protecting this “investment” and effectively fostering loyalty. We all know that it is much easier to keep current clients than to find new ones. Many times, clients leave for reasons that are out of our control, such as moving away or dying. Those situations aside,

InsuranceNewsNet Magazine » January 2014

when clients leave, you can’t pretend it didn’t happen. You need to come up with an honest answer to the question “Why did they leave?” Could their leaving have been avoided if you had nurtured the relationship or had been in better contact with them? Take time to review your client list from three years ago and compare it to your current client list. Find out how many clients have left and explore why. It is inevitable that we will lose a certain number of clients each year, but it is important to take the necessary steps to ensure we’re always providing top-notch service to our clients. By applying these steps to increase your client retention and your revenue stream, you will make 2014 a successful year. Every day is an opportunity to stay top of mind with your clients, so commit to making changes that will have a positive impact on your bottom line. Your business approach should ultimately drive commitment and engagement among your existing clients and prospects. Being a trusted advisor takes time and dedication. Client dedication should be an integral part of your practice. Michael Morrow, CFP, is a Certified Financial Planner and MDRT member from Thunder Bay, Ont. He is an international speaker and author of Leading Marketing Strategies and The Picture Sells the Story. Michael may be reached at michael.morrow@


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.

Your 2014 Blueprint for Success  racking 30-day goals will T keep you focused and prevent you from reaching for unachievable goals. By Raymond “R.J.” Vendetti


efore the end of last year, most of us set or received our production goals. These goals may have been a straight percentage or a flat dollar amount increase over the prior year, based on either commission, premium or a combination of each. Many of us also set our individual goals, based on factors such as income, incentive travel, and industry awards and recognition. No matter what your objectives are, I have some ideas that can help you develop plans and actions to help you make improvements in order to achieve those goals for 2014.

The Problem with Yearly Goals

The major problem with setting annual goals is that you have 12 months in which to achieve them. This means that if you’re not on track at the end of January, there is no need to worry – you still have 11 months left in the year. Even after February and March have gone, you still have a false sense that there’s plenty of time left in the year. But as the months go by, falling behind on our goals can be daunting, and it soon becomes downright challenging to right the ship by year’s end. For example, did you set a New Year’s resolution to lose 18 pounds during the year? Hey, that’s only 1.5 pounds a month. So if you do not lose anything in January, there is no need to worry. There are still 11 months left, and after all, it’s still only 1.7 pounds per month you have to lose. April rolls around, and it is still only two pounds per month you have to lose. But around June – that is, if we are even thinking of resolutions by then – we start to realize that our goals are not achievable. So it is with our sales results. If we are behind in January, we simply add the deficit to February and divide the total by 11. However, as the months pass, that

divisor is reduced, and by June, the likelihood of achieving our annual goals may be in serious jeopardy. Another flaw with sales objectives is that they are measured in actual sales results. The selling process relies on many steps necessary for the eventual sale to be completed and the coverage put in force. These include prospect identification, the approach, the initial interview, the solution-presentation interview and close, and of course, the underwriting process. When you succeed at each step of this process, you have a sales result that moves you toward your annual goal. However, because monthly production reports measure only sales results, they can be misleading. Cases submitted at the end of one month may not issue until the following month, or the applicant might be declined during the underwriting process. So we need to monitor our way through the steps in the sales process that will result in sales results. Sales keep us in business, but activity keeps us in sales! Several years ago, I attended a seminar by Joel Weldon, who spoke about tracking 30-day goals. He suggested listing three categories – personal, business and family – on a 3-by-5-inch index card and keeping that card with you at all times. You then write on that card specific things you want to achieve during that 30-day period. It’s very difficult to set actual 30day sales results because of what I listed above. However, you can be specific about your goals for activities for those

30 days. Examples of activity goals are: Conduct 26 opening interviews or 18 closing interviews, join a networking group, or begin studying for your industry designations. The only real focus over 30 days is activity. Further, this prevents you from listing unachievable or insurmountable goals. For example, if you want to achieve your Chartered Life Underwriter (CLU) designation, obtaining that designation in the next 30 days is an impossible goal. However, the activity can be as simple as writing down that you want to investigate the CLU program, an achievable goal that will be the first step toward attaining your CLU designation. Every 30 days, check on how you did and on your sales results. If you’re behind, make adjustments for the next 30 days either by being more active or by adding other activities designed to generate sales. After six months, you now have six index cards with the corresponding activity results for each month. When you compare them with your sales results, you now have evidence of what’s working and what you need to change. If you listed “join a networking group” every month and still haven’t joined any group by the end of six months, decide to do so or else remove it from future cards. Do this for an entire year and you’ll begin to see concrete evidence of what activities are the most and least valuable in creating sales results. Share your goals with those who can help you attain them: your spouse, your children, your sales manager or your business partner. Once you’re in the habit of listing and evaluating your activities over 30-day periods, your progress toward achieving your annual sales goals and making the changes necessary to achieve those goals will become clearly evident and ultimately achievable. Raymond “R.J.” Vendetti, CLU, ChFC, is a NAIFA member and is with Vendetti Insurance Services in Escondido, Calif. Raymond may be reached at raymond.vendetti@

January 2014 » InsuranceNewsNet Magazine


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A New Year Brings a New Chance to Talk About Financial Security  he beginning of a new year T is a good time to throw out the misperceptions surrounding life insurance costs and begin with a clean slate. By Todd A. Silverhart


he arrival of 2014 brings with it the fresh anticipation of everything we hope to achieve while working with a brand-new calendar. For those in the business of providing financial security, it’s the perfect time to meet with clients to set them on a positive course for this year and beyond. What better way to start the year than by reviewing your clients’ finances and the role of life insurance in their overall plans? LIMRA research has documented the historic low ownership rates of life insurance, with three in 10 U.S. households (35 million) having no life insurance protection at all and half reporting they don’t have enough. This finding was undoubtedly newsworthy, having strong implications for the industry, but in many ways it was not the most alarming statistic to come out of that research. When consumers were asked about their financial situation if the primary wage earner were to die, only 37 percent indicated that they would be able to cover everyday living expenses well into the future. Ouch! This means that nearly two-thirds of consumers would face financial difficulties in the event that a primary wage earner were to die, either immediately (34 percent) or after several months (29 percent). Similar but even broader results recently were seen in Canada in the 2013 Canadian Life Ownership Study, with only one in three consumers believing they could cover living expenses well into the future – not only if the primary wage earner were to die, but also if they were to become disabled or critically ill. With such a high percentage of the population so vulnerable, one might


think that the connection between financial security and insurance coverage would be obvious. Clearly it’s not, but why not? We know from LIMRA research that it’s not because people don’t see the need for insurance protection, with 85 percent of consumers agreeing that “most people need life insurance” and roughly two out of three agreeing both that “most people need disability insurance” and that “most people need long-term care insurance.” When consumers are asked why they don’t own life insurance (or own more life insurance) there are two consistent, primary reasons offered. The first reason is that they have other financial priorities. In light of the economic challenges experienced over the past several years, the issue of competing financial priorities is certainly understandable. When we look at consumers’ financial concerns, “burdening dependents if I die prematurely” and “burdening others with funeral expenses” are way down on the list behind issues such as having money for a comfortable retirement, paying for long-term care services, pay-

InsuranceNewsNet Magazine » January 2014

ing for medical expenses, and supporting themselves if they become disabled and are unable to work. All the financial issues on this list are legitimate issues that can present an overwhelming challenge to consumers. Which issues are the most pressing for your clients? The second primary reason given for not owning more life insurance is that it is perceived as being too expensive. To gain some insight into this finding, we have asked consumers how much they actually think life insurance costs. When estimating the yearly cost of a 20-year $250,000 level-term policy for a healthy 30-year-old, the actual cost of the best available rate is grossly overestimated – with a mean estimated annual cost of $360 versus the actual cost of $150. When consumers were presented with the actual cost and then asked how that knowledge would impact their likelihood of purchasing life insurance, one in three said they would be more likely to purchase life insurance with this information. It seems clear that one way to help consumers to make the right moves is to throw out the misperceptions surrounding life insurance costs and to begin with a clean slate. One of the most valuable roles of an advisor is to help clients figure out the best ways to allocate their limited dollars. There is much hype each year about making a “New Year’s resolution” – even though it is forgotten almost as quickly as it’s spoken. In 2014, use the opportunity of a new year to encourage your clients to work toward a resolute plan of building financial security with life insurance as a cornerstone. Todd A. Silverhart, Ph.D., corporate vice president and director of LIMRA’s Insurance Research, has responsibility for markets, products and group distribution. Todd may be contacted at todd.

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A Life Insurance Policy Represents a Promise to Be Kept  ith so few products and W services living up to their promise, a life insurance policy represents something that is increasingly rare. By Larry Barton


very effort to sell life insurance is backed by something increasingly rare in society – a promise that is backed by a reserve. That promise is then verified by an independent insurance commissioner and scores of accountants who scour the company’s books to ensure that there are sufficient funds to cover that promise. Continuing education and an ongoing capital review are yet other layers of protection for that promise. Now, let’s think about this – and the many other added features of the promise. Some features have built-in guarantees to protect the promise from being diluted by inflation. Some have added benefits to protect the insured person in the event of a disabling event that disturbs (or destroys) their quality of life. These attributes are also reviewed and verified to ensure that the promise will be kept. Your accountant? No such guarantees – maybe a membership in the American Institute of Certified Public Accountants, which is a reputable organization. Your surgeon? Good luck – if you think our compliance paperwork is a nightmare, the burden is on you, the agent and the carrier. Just about everything you sign in a clinical setting absolves the physician and the hospital from keeping any promise. An architect? Check the contract wording the next time you have a home built or redesigned. Yes, there are many promises that exist, from the Good Housekeeping promise of satisfaction guaranteed to the L.L. Bean promise of lifetime replacement on a pair of boots. Yet none of these promises – none – has the strength, scrutiny or importance of a life insurance policy. 64

I suggest that when you present to clients, you always mention analyst ratings. But we know as a society that some of these analysts did not fulfill their fiduciary responsibility during the 2008-2011 economic meltdown. A few of them are no longer in existence, fortunately. Others have a new charter, higher requirements and differing standards to measure and evaluate the actual “strength” of the company under scrutiny.

Personally, I suspect that we will see more gaps in some of their analyses. Thus, while you should always mention ratings – and they do indeed matter in a very significant manner – you also should remember the history of that company. Some of you are affiliated with companies that have eight decades or more of success, and you will be able to supplement these insights with the company’s performance of payouts to those who lost a loved one. With the kickoff of a new year, may I also suggest that you do everything possible to push back against the increases in low-level term policies? While it is true that many are able to afford only a term policy, and pundits such as Suze Orman love to tell customers why they are wonderful (and don’t forget to invest the difference!), I’ve never seen an empirical

InsuranceNewsNet Magazine » January 2014

study that suggests consumers do invest any difference. However, there is abundant evidence that while most term insurance covers burial expenses, it rarely pays for a child to attend four years of college. It almost never allows a loved one to live in a manner comparable to the lifestyle they had while the insured was working. It almost always is a promise that is kept, but it is inadequate for most clients. As I suggested in this column last year, there are a few companies that worry me. Their reserves are under heavy scrutiny. At least one major company failed to file required Form 10-K reports with the Securities and Exchange Commission for an extended period. Once any major company fails to keep a promise, all companies – regardless of brand, reputation and the quality of their agent force – will suffer. You have a stake in this. You have a responsibility to read industry reports, pay attention to these issues and ensure that when you say you are affiliated with a reliable, high-performing company that keeps its promises, you have the facts. I am so proud that the women and men of this industry – from underwriting to sales, from home office to agent – understand the wisdom behind what Solomon S. Huebner called the importance of “human life value” when he created The American College in 1927. Now, we need to revisit the basics in a fast-moving economy and ensure that we have the resources – financial as well as technological – to keep every promise. At your kickoff meetings, ask more questions, demand transparency and lift your knowledge of the basics. Cheers for a productive and successful 2014! Larry Barton, Ph.D., CAP, is president, chief executive officer and holder of the O. Alfred Granum Chair in Management at The American College, Bryn Mawr, Pa. Larry may be contacted at larry.


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Identity Crisis: What's in a name? Sometimes, a fine.