Life Annuities Health
December 2012
Joseph Sugarman’s Words that Trigger Sales PAGE 10 Taking Death Out of Life Insurance PAGE 30 Big Voluntary Opportunity in Small Business Market PAGE 44
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DECEMBER 2012 » VOLUME 5, NUMBER 12
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ANNUITY
34 M ortality Perception Drives Annuity Rider Decisions By Linda Koco Those who buy annuities with living benefits tend to live longer than other variable annuity buyers, making the relationship between a long life and living benefits a tantalizing one for advisors to explore.
36 W hat Guaranteed Income Really Means
By Bill Kanter An added income rider on an annuity contract can be a godsend to your client’s financial future, but producers must do an honest job of explaining what these riders do – and what they do not do.
18
HEALTH
INFRONT
8 Private Equity Firms Find Bargains in Insurance Deals By Linda Koco The current economic and regulatory environment represents an opportunity for non-traditional buyers to look for acquisitions in the insurance market.
18 Putting the Luck Back into ’13
By Steve Morelli The number 13 has always been associated with bad luck, but is that borne out of an expectation of misfortune? A review of the factors facing the industry, and a look at what’s to come, the challenges, and the opportunities.
10 26 LIFE
26 4 Ways to Open Clients’ Eyes to the Power of Cash Value By Kurt Fasen Most clients have no idea that life insurance gives them the power to face life’s most daunting financial challenges, from financing their children’s education, to helping care for Mom and Dad, to starting a business.
FEATURES
10 Spinning Words into Gold
An interview with Joseph Sugarman One of America’s top advertising and marketing entrepreneurs, Joseph Sugarman, the man behind those BluBlocker sunglasses, and many other successful businesses, talks with InsuranceNewsNet’s publisher, Paul Feldman.
2
30 Taking Death Out of Life Insurance
InsuranceNewsNet Magazine » December 2012
By Michael Smith Legacy income planning and living benefits help clients deal with uncertainty, such as illness and injury, and plan for sustained financial security for their loved ones.
44 44 B ig Voluntary Opportunities In Small Business Market By Susan Rupe Health insurance advisors looking to expand their practice into the voluntary benefits market may find great opportunities exist where they had not expected them before.
FINANCIAL
46 Advisors Give Thumbs Down on IRA Allocation of Funds By Steve Tuckey The latest research shows that some advisors are warning against what they call an outdated, and potentially dangerous, investment allocation model.
BUSINESS
48 YouTube: A lead-generating Star Attraction By Muhammad Yasen It’s not just a place to watch cute animal videos. The third most visited place on the Internet is a great place to educate your viewers, attract future customers and position yourself as an expert.
NOT A WORRY IN SIGHT…
Fewer Bumps Along the Road to Retirement Puts Enjoyment Back In Their Ride.
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12 INN 12.12 FOR AGENT USE ONLY. NOT FOR USE IN SOLICITATION OR ADVERTISING TO THE PUBLIC. December 2012 » InsuranceNewsNet Magazine 3
New Enhanced Performance
ALSO IN THIS ISSUE DECEMBER 2012 » VOLUME 5, NUMBER 12
More sales. Less hassle.
INSIGHTS
50 NAILBA: The Future of the Industry
By Dexter Umekubo Regardless of the political or economic climate, the services that advisors provide and the problems they solve for people will always be of value and needed.
52
52 MDRT: With or Without HSA, HDHPs Are Here to Stay By Brad Elman Lower cost, high-deductible health plans engage the health care consumer to think about cost, treatment alternatives and first-dollar coverage.
53 L IMRA: Advisors Still No. 1 Source For Information and Assistance By Mary Art Consumers may be using the Internet for research on insurance products, but ultimately, they place the most value on obtaining information from advisors, according to LIMRA research.
53
54 The Arrogance of Sales Gurus Makes Pariahs of Us All
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By Larry Barton Larry Barton of The American College discusses the unfortunate phrases and attitudes employed by some insurance salespeople and how doing so reflects on the entire industry.
54
EVERY ISSUE 6 Editor’s Letter 16 NewsWires
24 LifeWires 34 AnnuityWires
42 HealthWires 55 Advertiser Index
INSURANCENEWSNET.COM, INC. 355 North 21st Street, Suite 211, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli ASSISTANT EDITOR Susan Rupe COPYWRITER Kathryn Rolston CHIEF OPERATIONS OFFICER Jim Barton CREATIVE DIRECTOR Jake Haas PRODUCTION EDITOR Natasha Clague SENIOR GRAPHIC DESIGNER Carlos Centeno GRAPHIC DESIGNER David Bullock
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BY STEVEN A. MORELLI, EDITOR-IN-CHIEF
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I have a tune stuck in my head. It’s Muddy Waters’ Got My Mojo Working morphing into Jim Morrison singing “Mr. Mojo Risin’ ” from LA Woman. Yes, it is as irritating as you would think. It developed as I was writing about symbols of luck accompanying this month’s feature. One of them is the mojo, which is a small bag of magical material, according to an African American hoodoo tradition. The item is described as imbuing the owner with self-confidence. But that might be backward. Isn’t the owner investing confidence in the power of the mojo? Here’s the difference: Have you ever gone into a situation where you felt like you couldn’t lose? And odds are good that you didn’t lose (or at least felt good about what you were doing). Well, you had your mojo working. Thinking back on the most successful people I’ve known, they had some kind of mojo going on. They had confidence in something beyond them. You could just see by looking at them that they were unshakeable, either in life or in the task they had at hand. Take Gen. Stanley McChrystal for example. Looking at him, you wouldn’t think he has ever had an off moment, he has never been knocked down. Of course, everybody has bad days, but he doesn’t carry them as burdens. He looked like a winner up on stage at LIMRA’s annual meeting in October, yet he talked about failure. He discussed how things were going badly in Afghanistan when he was the chief of the Joint Special Operations Command. “We weren’t winning yet,” McChrystal said, which was the military way of saying they were losing. His solutions helped turn around not only the Afghan conflict but also to rethink how war is waged. He and his advisors learned that it is all about the network. The enemy was using the power of networks against greater forces, so the might of the U.S.
military had to break it down to relationships. It was one-on-one understanding and respect of allies in the coalition but also of the people throughout the effort. He reminded himself of his creed from his days as a U.S. Army Ranger: I will never leave a fallen comrade to fall into the hands of the enemy. “No matter what, I will come back for you,” McChrystal said. He remembered that it is always relationship first. You have to care about the people who work for you more than yourself. Gooey talk from a general, right? Obviously, McChrystal is a secure guy with confidence in his network. His mojo is his people. What goes into your mojo bag? Steven A. Morelli Editor-in-Chief
6 InsuranceNewsNet Magazine » December 2012
LIFE INSURANCE
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LOW EXPENSE STRUCTURE Advantage UL’s straightforward design allows for a lower cost structure, compared to other IULs in the marketplace.** To learn more, contact your Brokerage General Agency or visit prudential.com/AdvantageUL
*Past performance does not guarantee future results. **When comparing 20 and 30 years of cumulative policy charges for policies starting at ages 35-55 with other IUL competitors. PruLife Index Advantage UL is issued by Pruco Life Insurance Company in all states except in New York where, if available, it is issued by Pruco Life Insurance Company of New Jersey. Both are Prudential Financial companies located in Newark, NJ and are solely responsible for their own financial condition and contractual obligations. All guarantees are based on the claims-paying ability of the issuer. The potential to build cash value in the Indexed Account is based on the performance of the S&P 500® Index, which excludes dividends (using an index growth cap and floor) on an annual point-to-point basis based on a 100% participation rate (subject to change). Money that is placed in the Indexed Account is not a direct investment in the S&P 500® Index. If amounts in the Indexed Account are withdrawn prior to the end of the one-year term, no interest will be credited. The cap is generally stated as a percentage, which is the maximum rate of interest that will be credited at the end of the one-year Index Segment Duration, regardless of performance of the index over the cap. The cap is declared for each Index Segment in advance of each Index Segment Duration. The cap is subject to change at our discretion, both up and down, but is guaranteed to never be less than 3.00%. Changes to the cap could result in different policy performance and/or different values than shown here. Changes to the cap are not tied to the performance of the underlying index and may be based on interest rates, market volatility, and other factors. Caps and floors may be different in selected states. “Standard & Poor’s®”, “S&P®”, “S&P 500®”, and “Standard & Poor’s 500™” are trademarks of Standard & Poor’s and have been licensed for use by The Prudential Insurance Company of America for itself and its affiliates. This indexed product is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representations regarding the advisability of purchasing an indexed policy. S&P 500® index values are exclusive of dividends. © 2012 Prudential Financial, Inc. and its related entities. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR CONSUMER USE. 0228528-00001-00 December 2012 » InsuranceNewsNet Magazine
7
INFRONT
TIMELY ISSUES THAT MATTER TO YOU
Private Equity Firms Find Bargains in Insurance Deals Tough economy for insurance leads to distressed sellers. By Linda Koco
W
hy would private equity firms want to buy their way into the insurance arena? That question has been puzzling a lot of insurance professionals in the field and in the home office, ever since they noticed that more private equity firms are cutting deals with insurers. Some, including Guggenheim Capital, Harbinger Group and Apollo Global Management have already bought annuity-focused carriers in the past year or two or entered into reinsurance arrangements. Other private equity firms are said to be nibbling at the edges of life insurance operations. Insurance professionals find this surprising because the return on equity (ROE) for insurance companies has not been exactly stellar in the past few years. The historic ROE range for life and annuity insurers is roughly 10 to 15 percent, according to valuation experts, but in recent times, the percentage for some has been in the single digits. In fact, Aswath Damodaran, a professor of finance at the Stern School of Business at New York University (NYU), has a chart that puts the average ROE for life insurers at 7.4 percent, as of January 2012. The average is for 29 carriers, based on updated data from Valu Line. Some carriers may be doing better, of course. For instance, a recent survey from Accenture found that 68 equity analysts from 16 countries are expecting to see an average pre-tax ROE of 14.9 percent for 2012 from insurers to which they have assigned “buy” ratings. That’s up from 13.7 percent in 2011. This is on a global basis. Then again, the 20 largest global insurers had an average pre-tax ROE of just 11.8 percent in 2011, the New York consulting compa8
ny says. So stretching to a ROE of near 15 percent in 2012 may be, well, a bit of a stretch. Many private equity firms prefer to buy when the expected ROE, for established companies, is closer to 20 percent. Since insurance operations, even in good economies, are typically below that, this makes the “why” question intriguing, to say the least. The question is especially relevant, since life and annuity carriers have been battered in the past few years by low interest rates, market volatility and other financial storms, to the point some carriers are exiting lines of business, limiting sales, and/or curbing policy features, development, growth plans and more.
Bargains and Business Models
Gus Cheliotis, a vice president and investment counsel from Harbinger
InsuranceNewsNet Magazine » December 2012
Group, provided some answers during the recent LIMRA annual meeting in Chicago, based on his own company’s perspective. Harbinger is a New Yorkbased private equity firm that bought Fidelity and Guaranty (F&G) Life from Old Mutual in April 2011. The firm also has a “reinsurance platform” in Bermuda, he said. On the bargain side of things, Cheliotis pointed out that Harbinger purchased F&G at 35 percent of book value. Some other private equity firms have bought insurance operations within the past year at 90 percent of book value or close to book value, he said. “Prices are all over the map,” he said. But bargains are still available — and it’s a bargain that Harbinger wants.
The Business Model
That’s not all this private equity company
wants, though. It also wants to buy insurance companies that are compatible with its own business model. Cheliotis said his firm takes a longterm view toward keeping its acquisitions rather than the traditional five-to-six year period that many other private equity firms use. (By comparison, private equity experts say that the ownership period before flipping can be much shorter for certain types of acquisitions, such as for young companies or firms posing high risk. Some acquisitions may be sold again within three years, for instance. The time frame varies by industry, company performance, market conditions and many other factors.) Harbinger does not intend to flip F&G within a short time, Cheliotis said. That’s a point he said the company made with regulators when in explaining the company’s intentions. Regulators do ask about flipping, he said. Other elements of the firm’s business model include: The company focuses on the balance sheet, and grows book value and net asset value via bottom-up credit investing, rather than growing assets under management and generating fees, he said. It also focuses on capital structure, and it relies on a strong management team not only to execute but also to follow through after the acquisition has been made. It prefers to leave operations to the business itself, Cheliotis added.
As a result, the firm favors the longterm nature of businesses that offer asset-based products, he said. “For instance, fixed annuities, indexed annuities and single premium immediate annuities are products that we like. They let us bring our skill set and core competencies in asset management expertise to bear.”
Why Now?
Many insurance people do get the lure of a bargain and even the desire for business model compatibility once they hear about it. But why buy during difficult times when some carriers are even exiting segments of the business? Cheliotis did acknowledge the challenges facing the business such as increasing regulation, historic low interest rates, increasing shareholder activity, and industry reactions that vary from active defense to market exit to watch-for-opportunities. But he also said that the current climate actually represents an opportunity for non-traditional buyers such as his firm. Today’s conditions will likely persist for the near term, so this is a good time to look for acquisitions, he indicated. The opportunities Harbinger likes, he said, are “distressed sellers, a short time frame, and firms that often make announcements about how desperate they are.” He limited that preference to firms with asset-intensive liabilities, where the assets have long durations and are rela-
PRIVATE EQUITY PLAYERS MAKING INSURANCE MOVES Private Equity Buyers
What they created, bought or reinsured
Guggenheim Partners, LLC
• Guggenheim Life and Annuity • Security Benefit Life • Standard Life of Indiana (reinsured life and annuity book) • Equitrust • Industrial Alliance Insurance and Financial Services of Quebec
Apollo Global Management, LLC
• • •
Harbinger Capital Partners, Inc.
A Bermuda-based fixed annuity reinsurance firm An Apollo affiliate is majority shareholder of Athene Annuity & Life, which has acquired: Royal Bank of Canada’s Liberty Life annuity book Presidential Life
• Fidelity & Guaranty Life (formerly Old Mutual)
tively predictable and where the firm can exploit its business model and management expertise. “Insurance marketing organizations (IMOs) for F&G were very nervous about us being financial players,” Cheliotis conceded. But he said the firm’s officers “met with them often and early, and we addressed their concerns.” The result, he said, was that “we were able to preserve our distribution.” That will be important “when it comes time to step on the gas,” he added.
The Future
An executive from Aquiline Capital Partners of New York City could not make the LIMRA session due to October’s super storm Sandy, which devastated parts of that area. But it is possible that if this executive could have also spoken, or if other private equity officials were also there, they would have offered additional, and perhaps different, reasons for sniffing out insurance opportunities. Some private equity players may even have reasons to avoid investing in insurance businesses. One of the biggest reasons may turn out to be the tough economy—the very same factor that Harbinger views as helping to open up buying opportunities. Consider: Nearly three quarters (71 percent) of private equity analysts polled in the Accenture survey (cited earlier) believe investment volatility is the biggest threat to North American carriers, followed by new regulations and reform (52 percent). In addition, nearly all of the more than 1,600 private capital lenders, investors and business owners identified “domestic economic uncertainty” as the biggest issue that private equity businesses currently face, according to a survey from Pepperdine University’s Graziadio School of Business Management. It’s safe to say that Industry watchers will peel back every deal that does occur, looking for impact on markets, distribution and sales. The industry doesn’t mind competition. Established insurance firms just want to know what to expect from the new players on the block. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@ innfeedback.com.
December 2012 » InsuranceNewsNet Magazine
9
Joseph Sugarman's masterful direct-response copywriting has resulted in millions in sales.
N
othing in this world has moved and inspired more people than the power of the written word. For Joe Sugarman, the power of his pen has moved millions of customers to reach for their wallets and hand him their money. Joe Sugarman has had many direct-response success stories, including BluBlocker Sunglasses, which have sold more than 20 million pairs. It is just one of several huge successes Joe has had, earning worldwide respect as a marketing wizard. He attributes all his success to copywriting and all his business success started with an ad he wrote. And lucky for the rest of us, he loves to share his wisdom. Many have started their own success by reading Joe’s seminal book, Triggers: 30 Sales Tools you can use to
Control the Mind of your Prospect to Motivate, Influence and Persuade. In this interview with InsuranceNewsNet Publisher Paul Feldman, Joe tells how anybody can spin gold from words. FELDMAN: What would you tell someone who is busy running a business and making sales, who thinks copywriting should be someone else’s job? SUGARMAN: I can talk about my own experience. The business owner is the person who is really responsible. That person has to develop a concept that can sell. So, how do you do that? First of all, you have to be an expert in that particular product or service. Then you really have to write a lot because the more you
10 InsuranceNewsNet Magazine » December 2012
write, the better you get. The third thing is, you want to experience life, all kinds of challenges. The more you do, the more your brain is programmed to come up with really great ideas. FELDMAN: Should you outsource copywriting to a professional?
SPINNING WORDS INTO GOLD SUGARMAN: I think it’s a mistake to outsource copywriting. Let’s put it this way. If you have never written copy before and you need it written, I guess you can go to somebody who has had a lot of experience and a pretty good track record. But chances are you’re going to have to pay them dearly. Very often, these people ask for a percentage of the sales or a percentage of the profit. But when you write that copy yourself, that’s a power that you cannot delegate. That’s because you are an expert in that product and you have passion for it. It’s difficult to get somebody to write like they know your business like you do. You are better off writing it yourself and maybe it’s not perfect, but at least you get better every time you do it. FELDMAN: Is there a mindset or process that you go through before you write advertising or marketing copy? SUGARMAN: I was at an event in New York and Adriana Huffington of The Huffington Post gave a little talk. She said all of her best ideas came when she was taking a walk or taking a shower or whatever. And that’s what I call the incubation process. She didn’t have a name for it; she just talked about the fact that that’s when she had her best ideas. And what it really means to me and what I really promoted is this: you try to solve a problem and you come up with an answer or you don’t come up with an answer, but you are really trying hard to solve this particular problem. And what you need to do is to forget about it. Walk away, do something pleasurable. And while you are doing that walk, believe it or not, your brain is working 24/7 to come up with a solution for that problem that you have, that you have given your brain the task of solving. And then all of a sudden, that idea will just come to you. And that is called the incubation process. Many times, I have written ads and have come up with zero and then taken a walk or did something pleasurable, and then the idea came to me. So the incubation process is what I call it. But, yeah, your brain is an incredible tool and the better you program it, by the way as I mentioned before, you become an expert. You learn by writing and testing.
FEATURE
I look at my first ads and I am embarrassed because they were so trite and so – I don’t know so simplistic. But the more I wrote, the better my ads got. FELDMAN: Is the headline the most important part of an ad? SUGARMAN: The most important part of an ad is the first sentence. The purpose of a headline is to get you to read the sub headline. The purpose of the sub headline is to get you to read the name of the company or the price point or something. But all of it is designed to get you to read that first sentence. And by reading that first sentence, that first sentence has got to be short, brief and build curiosity enough so that they will want to read the second sentence. The second sentence has to be strong enough so you read the third, the fourth and the fifth. And pretty soon, you are sucked in and you are reading that entire ad. And that’s the purpose of the first sentence. The purpose of all those other elements is to get you to read that first sentence. And they say that once you start reading after the first couple paragraphs, two or three paragraphs, you are going to read the whole ad. I had a funny example of that. A woman called me and said, “Look, I just want you to know that I read your thermostat ad in its entirety. And I just want you to know that I had no interest in buying a thermostat. I just want to let you know that you’ve wasted a good 10 minutes of my time reading this ad that I had no interest in.” And then she hung up. We also ran an ad once and the headline was hot. The word H-O-T real big and it talked about a new consumer program that let you buy stolen merchandise if you are willing to take a risk. Now, if you were just the average reader of a magazine and you see that ad, you are going to stop, I don’t care who you are. That created such curiosity and a lot of business. FELDMAN: How important is it to raise objections in copy? SUGARMAN: Very. In fact, a very powerful way to sell is, you raise the objection and resolve it. For example,
This is just one of the groundbreaking direct-response ads that Joe created to sell his BluBlocker sunglasses. people might not want to buy insurance because they make enough money and have enough money in the bank to cover their family. So you bring that up. You say, “Well, if you think you have enough insurance to cover your family, you’ve got a surprise coming,” and then you go into the reasons why they don’t have enough money. In other words, you raise the objection. If you embrace the objections, it builds trust. It educates them. They are appreciative. A third of the way into the ad, the reader is asking, what’s the pitch? Are these guys knocking this product or what? And then later on, readers come up with the revelation that this thing is the most incredible product they have ever seen. Very often, I will take a product and I will first mention all of its negatives. And then say, but after I really examined it, I realized that this product was better than any other product of a similar nature and therefore, it really won me over. People appreciate that because it’s honest and it’s sincere. People tell me that my advertising disarms them.
December 2012 » InsuranceNewsNet Magazine 11
FEATURE
SPINNING WORDS INTO GOLD
FELDMAN: What do you think people get wrong when it comes to copywriting?
FELDMAN: How do you set the environment with copy?
SUGARMAN: They write too much. The most important part of writing copy is in the editing process where you sit down and you edit out all the unnecessary words and all the unnecessary comments. I find that most copywriters plain write too much. I used to give copywriting seminars and the biggest problem I had was that they wrote too much and so the editing process becomes really important. I noticed that on the Internet where somebody has it their head that the more copy that you put out there, the better and more effective the ad will be. And that’s not necessarily true. What you will really want is something that’s short, brief, grabs attention and keeps the attention and then triggers the sale. And that’s the basis of a book I wrote, Triggers, on the 30 psychological triggers. The sale follows three steps. One is, you set the environment and secondly, you build trust. And then third, you trigger a sale.
SUGARMAN: A good way to set an environment is with a story. Somebody asked me to do an hour interview on storytelling. I said, “Gee whiz, I’ve told a few stories in my ads but how am I going to do an hour?” So I researched and discovered that I had several ads where I introduced the product through a story. People love stories. That’s how you can grab them, create the environment and then lead into the process, product or service that you want to sell. FELDMAN: How do you build trust with copy? SUGARMAN: As an insurance salesperson, you build trust with that potential client by being honest, having integrity, being credible and by justifying the purchase of insurance. But not being pushy, just letting people know that that is your business. You might come up with a promotion that says five reasons why you should
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InsuranceNewsNet Magazine » December 2012
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"Every problem has within it an opportunity so great it dwarfs the problem."
SPINNING WORDS INTO GOLD have insurance before it’s too late. But very often the response is not right away, it takes a while. It takes building up confidence and trust. The one example that I always like to point out about life insurance is my own. When I was selling pocket calculators from my home, a gentleman stopped by and bought a couple as gifts for friends. He introduced himself and said he sold insurance and that I should have some. I said no because I’m just starting my business and it’s going well. So, I didn’t think much about life insurance. He came by again to buy another couple of calculators and we became friends. But he had always reminded me that his job was selling insurance and that if I ever needed any to let him know. Then one day, I saw an ambulance pulling up to my neighbor’s house. This young guy had a heart attack and he died. Well, the next day I picked up the phone and I called my friend. And I said, “Howard, you know that insurance you wanted to sell me?” “Yeah.” “Would you come on by?” In other words, there was a sense of urgency. It affected me personally and therefore I responded. That was a life lesson. I realized that you want to become friends with your potential client and when the time is right, that person, if he trusts you and likes you, will come to you for the product or service that you are selling. FELDMAN: What is a psychological trigger and how do you use it in copy? SUGARMAN: A trigger is an underlying psychological reason that someone makes a buying decision. It’s what motivates them to take action. I uncovered 30 of these triggers in my book as a result of my ability to sell products and services through my words. It’s estimated that 95 percent of the reasons prospects buy involves a subconscious decision. By understanding and effectively using these triggers in your copy (and face-toface sales), you have the ability to double responses and take your sales beyond anything you’ve experienced. FELDMAN: Much of the insurance market deals with high-net-worth clients. Are some triggers more effective for those individuals?
FEATURE
The 30 TRIGGERS You Can Use to Control the Mind of Your Prospect: 1. Authority - Prospects want to be assured and confident of your authority. Demonstrate it.
17. Justify and Logic - Prospects buy on emotion and justify the purchase with logic.
2. Consistency - Once prospects commit to a purchase, they are likely to follow consistently with that course of action.
18. Linking - Present your product or service by linking it to something your prospect can relate to and understand
3. Credibility - Establish credibility and expertise in what you sell or do.
19. Mental Engagement - Requiring your prospects to think, and engage their minds, creates a very stimulating mental effect.
4. Curiosity - Don’t reveal too much in your sales pitch. Plant the seeds of curiosity and prospects will respond. 5. Desire to Belong - Know the groups your prospects belong to and match those needs and desires to your product. 6. Desire to Collect - If you’ve sold a prospect a product, consider offering a similar one or new variation.
20. Objection Raising - Raise the possible objection to your product or service first and eliminate it as a reason to reject the sale. 21. Objection Resolution - Satisfactorily resolving an objection builds prospect’s confidence and respect while reflecting your integrity.
7. Emotion - Get the prospect emotionally involved with the process. It’s the single most important motivating factor.
22. Patterning - Match your behavior to that of your prospects at every level to open them up to create likeability and make the prospect receptive to the sale.
8. Exclusivity - Create demand by presenting what you sell as exclusive, and limited in time and number.
23. Product Nature - Understand and present the unique qualities of your product or service.
9. Familiarity - Make your prospect comfortable and familiar with you and your product or service.
24. Proof of Value - Justify the price of your product or service to add value and give the prospect one more reason to buy.
10. Greed - By providing more value than what your prospect expects, you enhance the power of “want.” 11. Guilt - Performing extra effort to meet your prospects needs and expectations will tap into this valuable sales trigger. 12. Harmonize - Your product or service must harmonize with your prospects needs. 13. Honesty - Use total integrity with everything you do, everything you sell. 14. Hope - Engage the power of hope through expertise, credibility, and demonstrable success.
25. Prospect Nature - Your prospect has basic emotional needs that your product or service will solve. Find these and you’ll have the clues to communicating with the prospect and making the sale. 26. Satisfaction Conviction - Close the sale with a passionate resolution that goes beyond what the prospect expects or can get elsewhere. 27. Sense of urgency - Instill in your prospects’ mind the sense that they may lose out on something valuable if they don’t act quickly 28. Simplicity - Simplify your offer. Make it easy for the prospect to buy.
15. Integrity - Do what you say you will do and demonstrate the same of your product or service.
29. Specificity - Be specific in your statements and your facts to build credibility and believability.
16. Involvement and Ownership Engage your prospects’ imagination to reflect what their lives will be like using your product or service.
30. Storytelling - Telling a story creates an emotional relationship and keeps your prospect listening.
Source: Triggers: 30 Sales Tools You Can Use to Control the Mind of Your Prospect to Motivate, Influence and Persuade, by Joseph Sugarman
December 2012 » InsuranceNewsNet Magazine
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FEATURE
SPINNING WORDS INTO GOLD
23 Copy Elements that SELL 1. Typeface - Each typeface has its own personality and emotion. Choose one that matches the personality of what you are selling and is easy to read. 2. First Sentence - This copy should be short, easy to read and compelling. 3. Second Sentence - This copy contains an intriguing reason for the reader to continue reading 4. Paragraph Headings - Designed to break up copy, headings make your message look inviting while conveying information. 5. Product Explanation - Use simple terms to explain what the product does. 6. New Features - Highlight the unique or novel features that distinguish the product from others. 7. Technical Explanation - Add credibility with a technical description of the product. Make sure you understand what you are selling. 8. Anticipate Objections - Cover any anticipated objections within your copy, such as service. 9. Resolve Objections - Once recognized, resolve the objection honestly. Provide alternative solutions or dispel. 10. Gender - Don’t use gender references unless you are sure of your target audience. 11. Clarity - Clear, simple, short and to the point. 12. Clichés - Don’t use them.
13. Rhythm - Copy should be a mixture of sentence lengths to give a sense of variety. Use no more than three attributes of a product. 14. Service - Establish ease of service for expensive products or one that is not easily returned. 15. Physical Facts - Include weight, dimensions, limits, speeds, etc. of your product 16. Trial Period - With mail order, a trial period of a least one month reduces the chance of returns. 17. Price Comparison - A comparison to the price of a competing product establishes value in the mind of the purchaser. 18. Testimonials - Add credibility with an endorsement from an appropriate celebrity or well-known figure. 19. Price - If the price is the selling point, highlight it. If not, underplay it. 20. Offer Summary - Summarize what you’re selling near the end of the ad. 21. Avoid Saying Too Much - This is the biggest copywriting mistake. Be succinct with words to enhance and stimulate the selling process. 22. Ease of Ordering - Use a tollfree number, a coupon, a reply card – anything that makes it easy for a prospect to buy. 23. Ask for the Order - Always ask! This vital element is often overlooked by copywriters. It should go at the end of your message.
Source: The Adweek Copywriting Handbook, by Joseph Sugarman
14
InsuranceNewsNet Magazine » December 2012
SUGARMAN: Even if you are wealthy, you still have to justify your purchase. You don’t like to be taken advantage of. You want to see that the purchase is justified. The strongest trigger that I have found is the satisfaction conviction. That is when you offer a guarantee that will blow their minds. It could be a year to decide whether you’re going to keep the product. I will refund all your money or something that shows that you are so convinced that this person will be interested in your product that you are willing to do something that would impress them tremendously. I’ve used it and I have doubled response. In an ad, instead of saying if you’re not happy with this newsletter, you could return it and get your unused portion of your money back, I offered that you could stop any time and get all your money back. That satisfaction conviction doubled the responses. FELDMAN: Two thirds of the U.S. population either is under- or uninsured. What should we be saying as an industry to those people through advertisement or other communication? SUGARMAN: You become a brand. You become something that people recognize. Again, people will not buy insurance until they feel a real necessity to buy and in order to do that, they have to feel threatened. That happens when they feel something that is very close to home, such as somebody down the street who had a heart attack and died. There’s got to be a pattern of trust that you build with the potential clients. You could do that by just sending personal letters to your potential clients. And every advertisement, every promotion should be a personal message from you to the prospect. A lot of people don’t realize that. They will go out and write something like, “We here at such and such an agency feel that you should…” That’s not good. You want to say something along the lines of, “I would like to present something to you that I personally feel is very important.” In the first one, you are talking like a typical advertisement, but the other approach is per-
SPINNING WORDS INTO GOLD sonal. I would refer to “me” and “I” and “you,” so that people really felt a personal message.
"The best copywriters in the world are those who are curious about life."
FELDMAN: What was your biggest lesson that you would give to any salesperson if they asked you for one piece of advice on salesmanship? SUGARMAN: There’s one little piece of advice – keep it simple. I was approached by the Swiss Army watch people. And they wanted me to sell nine new watches that they just came out with. One was a watch for men. Another was a watch for women. The third was a watch for children. And there was a red model, black model and a khaki model – nine watches total. So I looked at the watches and I said, “Well, I would like to sell the black one.” And they said if you offered all nine, you would be appealing to a very broad market. And I said I would be appealing to a broad market but I wouldn’t be able to sell them. They didn’t get it, so I explained that you don’t want to offer too much at once. You want to make it a very simple offer. So I said we will run the same ad for all nine watches and for just the men’s black watch and let’s see what happens. Sure enough, the single men’s black watch sold 30 percent more than the whole nine watches that we offered in the comparison ad. By the way, we ran these in an A/B split, so half the people getting it saw the watch ad that the company wanted and half saw the watch ad that I wanted. And I proved that simplicity is so important. What you do is you sell the one single men’s watch, which we did and then you come out in your catalog with all the different models. But you don’t do that until you sell that first watch and make it very, very simple. You want to make it so that people can say yes or no and not much more. FELDMAN: What are some triggers that people can use on themselves to be more successful? SUGARMAN: My cousin, who is a psychiatrist, was hired by the San Diego Chargers football team to find out what
FEATURE
it took to be a superstar. In other words, they commissioned him to investigate the league as well as the team and come up with some conclusions. And what he came up with was the fact that there were two types of football players who were superstars. One was a deeply religious person, like Tim Tebow for example. The second was somebody with a huge ego. And when you think about it, both of these individuals had a very strong belief system. One was a belief in a higher power and the other was a belief in himself. If you believe that you are going to be a success, there’s nothing that’s going to stop you. You will be a success. If you don’t believe that you are going to be a success,
I can guarantee you that you won’t. And throughout my whole life, I felt that I was going to be a huge success but these things would get in my way of success. I had this thing programmed in my mind that I was going to be very, very successful. And eventually, that came true. But believe me, I had a lot of failure in the interim. Regardless of what you are selling, it’s amazing what belief will do. But you must genuinely believe it and you’ve got to genuinely follow it.
Read more about Joe Sugarman and his bestselling books at www.joesugarman.com.
December 2012 » InsuranceNewsNet Magazine
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[NEWSWIRES]
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OVERALL ANNUITY DOWN
3Q Annuity Sales Rainy With Spot of Sunshine
10%
WHO IS GOING TO TAKE OVER?
0.24% INDEXED UP
Third quarter was pretty chilly for annuity sales. On an overall basis, sales fell 10 perSource: LIMRA Third Quarter Report cent, to $54.3 billion, from third quarter last year, according to LIMRA. On a product type basis, variable annuity sales fell 8 percent to $36.6 billion, and total fixed annuities fell 13 percent. But then there was this sunbeam: One of the fixed annuity products – the indexed annuity – saw sales during the economically challenging quarter reach $8.7 billion, the researcher says. That is equal to second quarter 2012. In fact, AnnuitySpecs.com puts indexed sales even higher – at $8.72 million, up 0.04 percent from second quarter, up 0.24 percent from the same quarter last year, and just shy of the industry’s record in third quarter 2010. Another spot of growth came from deferred immediate annuities. LIMRA says these emerging products sold $270 million in third quarter, up from $210 million in the second quarter and $160 million in first quarter. The annuity results weren’t pretty on a nine month basis, either. According to LIMRA, overall annuity sales for the period were $166 billion, down 8 percent from the first nine months last year.
LTC COSTS KEEP GOING UP, UP, UP
The national average rates of long-term care in the United States kept rising in 2012. That’s the word from the most recent data from MetLife Mature Market Institute. The average daily cost of a
semi-private room in a nursing home rose 3.7 percent in 2012 – to $222 or $81,030 a year from $214 daily or $78,110 a year in 2011. Assisted living base rates went up also, by 2.1 percent – to $42,600 a year – and the average rate for a homemaker increased by 5.3 percent to $20 per hour from $19. Only rates for home
health aides and adult day services didn’t budge. They stayed at $21 per hour and $70 per day, respectively, the researchers say. Compared to five years ago, all five categories showed increases, even costs for home health aides and adult day services. Takeaway: All this could help make the case for buying longterm-care coverage. 16
401(K) BALANCES ARE BALLOONING
401(k) balances averaged $75,900 at the end of third quarter 2012, reports Fidelity Investments. That’s the highest the average has been since the Boston company began tracking 401(k) balances more than 12 years ago. In addition, the third quarter figure is up 4.2 percent from second quarter and up 18 percent from a year ago, when it was $64,300. There’s more: Over the last five years, average annual employee contributions grew 7.3 percent to $5,900 at the end of third quarter, and average annual employer contributions rose 19 percent to $3,420 at the end of the same quarter.
Anyone who thinks this is hot money chasing pipedreams might want to cool down a bit. Allocations for the new contributions appear to have a conservative tilt to them. For instance, 36 percent of new contributions in third quarter went into more balanced investments, such as target date funds, says Fidelity, noting that this is up from 20 percent five years ago. Meanwhile, new contributions into equities actually decreased – to 46 percent from 62 percent.
InsuranceNewsNet Magazine » December 2012
In most distribution channels, the majority of experienced advisors are over the age of 50 and have more than 25 years of experience, reports LIMRA. That is especially the case for independent insurance agents and registered investment advisors (RIAs). But oddly enough, LIMRA has also found that more than half of the advisors who are within 10 years of retiring or selling their practices have no succession plan.
One might think that such advisors would get on the stick and set up a succession arrangement pronto, but that’s probably not going to happen anytime soon. After all, the very same survey indicates that advisors in all independent distribution channels experience “significantly higher” satisfaction than other advisors. So, it’s doubtful that agents who are satisfied with the way things are will soon feel motivated to plan an exit. That raises a good question, though: What are these advisors telling their clients about who will guide them in the future?
QUOTABLE
During the past year, nearly 30 percent of boomers stopped contributing to a retirement plan, 16 percent prematurely withdrew funds from a retirement plan, and a quarter reported having difficulties paying the rent or mortgage. These are the challenges that keep Americans up at night, but now is the time to deliver certainty and peace of mind. — Insured Retirement Institute President and CEO Cathy Weatherford
CRITICAL ILLNESS – FOR AGENTS SQUEEZED BY ACA
Agents who may be concerned about their future in health insurance sales in the wake of health-care reform could always try expanding to other products. One idea for doing this comes from Standard Life and Accident Insurance Company, a Texas critical illness insurer. It is nudging agents to consider adding
[NEWSWIRES] critical illness plans to their portfolio of products, and transitioning to the voluntary benefits market in the process. Why should they consider this still fairly new field? It can increase profitability for the agents, the carrier says. In view of the reduced commissions many health insurance agents are experiencing or worried about experienc- abRead more ou ing, the idea might be worth a pagtethis on 44. once-over.
60/40 STOCK/BOND PORTFOLIO GOING BYE/BYE
Just 23 percent of advisors at a recent Financial Planning Association meeting say they still use the traditional portfolio allocation of 60 percent stocks and 40 percent bonds. Meanwhile, 83 percent are currently using tactical and alternatives investments, and 84 percent are likely to recommend them to clients in 2013. What is to explain this surprising shift? Eighty-seven percent of advisors now believe a portfolio constructed using both tactical and strategic allocations offers more value than one that doesn’t invest in both.
One question: Do insurance products fit anywhere into this picture? The question bears study, since insurance guarantees also provide value via certainty, in any market condition. Just asking, mind you.
MASSACHUSETTS JOINS THE NAIC LTC ROSTER
Massachusetts Gov. Deval Patrick did sign a long-term care insurance law that is patterned after the National Association of Insurance CommisGov. Deval Patrick sioners (NAIC) model. That’s news because the signature came after upwards of eight years of debate and discussion. More than 40 states have already adopted a version of the NAIC model, so Massachusetts has been a bit of a foot-dragger. The measure had a lot of insurance industry support, to put it mildly. The new law sets standards for availability, sales practices, policy comparison, portability across state lines and more. It also prohibits: policy cancellation based
Let’s Hit the Mall — For Some Insurance UnitedHealthcare opened up temporary “pop-up” stores and more than 1,400 kiosks in shopping malls around the country to sign up seniors for its Medicare plans, according to the Star-Tribune. They are just the latest in a rapidly growing trend. The UnitedHealth pop-up stores are in 13 states. Meanwhile, HealthPartners plans to sell to mall-walkers out of a temporary booth in a hall at Ridgedale Center in Minnesota. This will run from late October through most of December, the news report says. And Blue Cross of Minnesota is testing a retail initiative inside of Walgreens stores in nine Minnesota cities. Another wrinkle on this is coming from the planning community. According to a report from Financial Planning, a number of universities that teach financial planning have been opening “clinics” for people in the surrounding communities. College students are the ones who provide the planning services. Apparently, such clinics have caught on elsewhere. The article notes that about 12 of the 336 academic planning programs now registered with the CFP Board began in clinics like these. on age or mental/physical deterioration, new pre-existing condition limitation periods when a carrier converts existing coverage to new, and coverage for skilled nursing care only or providing significantly more coverage for skilled care than coverage for lower levels of care. The NAIC model on which the Massachusetts law was based was first adopted in 2000. Efforts are under way to update some of that model’s rate stabilization provisions. That means long term care laws and regulations are likely to stay in the news for quite some time.
HAVING ‘THE TALK’ ABOUT HEALTH COSTS IN RETIREMENT
Most advisors are well aware that health-care costs can do serious damage to clients’ retirement plans. However, a Harris Interactive survey commissioned by Nationwide Financial found that only 4 percent of advisors actually insist on having “the talk” about this with the client. DID YOU
KNOW
?
4%
More than half of the 501 advisors told researchers that they do remind uninter- of advisors ested clients of the talk to clients about importance of the dis- health costs in cussion before mov- retirement ing on to other topics, and 37 percent say they do try to urge them to have the discussion before switching topics. But persisting and insisting is not what they do. That’s even though 57 percent say their clients are interested in talking about health care cost in retirement, versus the 43 percent who say their clients show little interest. Perhaps some of the problem lies with the agents’ own lack of interest. After all, the researchers found that more than half of advisors admit finding it challenging to discuss information about their clients’ health. Only 30 percent say they are confident about estimating client health care costs in retirement. Maybe some advisor education on the topic would help?
OVER HALF OF CONSUMERS (56 PERCENT) think saving for retirement is more difficult than training for a marathon (44 percent). Source: ING U.S. December 2012 » InsuranceNewsNet Magazine
17
STEP BACK FROM THE CLIFF. LET'S TALK ABOUT HOW 2013 COULD BE A LUCKY YEAR AFTER ALL.
I
BY STEVEN A. MORELLI
t might be difficult to turn away as you look down, mesmerized by all that trouble roiling below, but let’s back up and chat about this. Yes, 2013 has the promise of being as unlucky a ’13 as a 13 can be. Of course, we didn’t have high hopes for 2012 and that turned out to be true. Then you have people who say that 2012 was just setting us up for a new year of bumper cars played against tractor trailers. Oh, there you go looking down that cliff again. Maybe we should first re18
view what’s churning our future and stomachs: Interest rates: The insurance industry runs on interest rates. The rock bottom rates for the past several years have drained fuel from companies, a significant factor affecting products. Rates are expected to remain low for at least the next few years. Capital requirements: Many factors have insurance companies worried
InsuranceNewsNet Magazine » December 2012
about their reserves, and returns for that matter. This has already had an effect on products, a trend that is expected to accelerate. Regulation: Here is an area that the election probably did affect more than others listed here. If Republicans had taken the White House and the Senate along with the House of Representatives, which they already had, odds are good that the Dodd-Frank financial reform law would have been escorted out of the
PUTTING THE LUCK BACK INTO ’13 building. But regulators will be defining this law with renewed fervor, which has potential impact on how many advisors will do business. Tax treatment: As the nation careens toward the fiscal cliff, Republicans and Democrats are still far apart on spending cuts and revenue, but they agree on one thing: Revenue has to increase. That puts the target on tax treatment that the insurance industry has come to depend on. Estate tax cliff: Contributing Editor Linda Koco covered this very well in the November edition of InsuranceNewsNet Magazine, and this remains one of the top issues for our industry. Typically, estate taxes are not discussed when the subject turns to the fiscal cliff, but the impact would be significant for our industry because it would affect anyone with even a moderate net worth. This also is a key area of opportunity for insurance producers. The fiscal cliff: This is the combination of automatic, drastic spending cuts and tax cut expirations taking place at the end of this month. It will mean a lot less money for people to invest or pump back into the economy. If somehow by miracle or accident a deal is struck, more permanent tax reform will still be coming. Demographics: The insurance sales force is aging, as are the clients. So, not only are fewer families covered but fewer agents are selling because younger producers tend to become financial planners. Of course, the opportunity side of demographics is the constantly growing need for insurance products to protect retirement financing. All in all, it makes a person almost hope the Mayan calendar is right about the end of time coming on Dec. 21. This year has the potential of affecting insurance producers in the two ways that matter most: how they do business and what they have to sell.
Interest Rates and Capital Requirements
Companies are recrafting products and sometimes abandoning them altogether
because of interest rates and tougher capital requirements. The prolonged low rates and promises of higher returns embedded in many longstanding policies and contracts have companies talking quietly about preventing what until recently has been an Asian phenomenon – the negative spread. Guarantees are the most vulnerable element, even though they have been driving sales growth in the wake of the 2008 crash. When variable annuities sagged in
FEATURE
sales, withdrawal guarantees helped fortify the products. As universal life policies evaporated from drained cash value, no-lapse guarantees saved the day. Then, underlying every policy from the stalwart term life to every insurance and annuity innovation since, is the promise of decades-long sustainability. All of that is endangered. At LIMRA’s annual meeting in October, CEO Robert Kerzner laid it out in stark terms.
GOOD LUCK CHARMS Four-Leaf Clover Supposedly, one in 10,000 clovers has four leaves. That makes them a rare find, but for luck, you have to discover one accidently. But we know about lucky accidents. You have to be in the right place (or field) and doing the right thing for luck to find you. Horseshoes Theories abound on why horseshoes are lucky, but like the four-leaf clover, they are luckier if found by accident. Also, iron was apparently thought to be a magical metal, so iron horseshoes are considered luckier than the more modern steel ones. There is the tale of St. Dustan, a blacksmith who recognized the devil because of his cloven hooves, which apparently needed shoeing. From there the legend gets a little murky, and, frankly, a little weird, but the upshot is something St. Dustan did ensures that if you put a horseshoe over your door, the Devil cannot enter. So, just do it and keep the ends up to capture the good luck. Rabbit’s Foot Why would a severed appendage be good luck? It could be because rabbits were considered signs of fertility or that they were considered evil because they live underground. In any case, they have been considered good luck for some time, since 600 B.C. by some estimates. It can’t be any foot either. Some point to African American hoodoo tradition in which the item must be the left hind foot cut from a rabbit shot or captured in a cemetery. On a full moon. On a Friday. Of course, you’d have to be pretty lucky in the first place for all that to happen. Mojo According to African American hoodoo tradition, the mojo was a small bag of blessed material to ward off bad spirits and bring luck to the wearer. The bag could contain items such as roots, herbs, animal parts, minerals, coins, crystals, good luck tokens and carved amulets. Probably, the talisman helped people create their own luck by infusing the owner with self-confidence. So, anyone can find his or her own mojo to carry – but the key is to get it working.
December 2012 » InsuranceNewsNet Magazine 19
FEATURE
PUTTING THE LUCK BACK INTO ’13
GOODWILL IMPAIRMENTS ON THE RISE The fallout from the economic downturn is now biting into the goodwill measure on life insurers’ balance sheets. A number of third quarter reports at stock carriers have recognized impairments of goodwill — the value of intangible assets such as recognized brand, positive customer and employee relations, etc. — in assessing their financial results. When times are good, the goodwill factor is also good. But now, not. Fitch Ratings has noticed the trend, too. The Chicago ratings company puts the blame on “the challenging macro environment.” This has led not only to goodwill impairments, but also to negative deferred acquisition cost (DAC) unlocking, and other GAAP loss recognition associated with changes in long-term reserve assumptions, the ratings firm says. That’s accounting talk, but there is a reason to know about it: As Fitch puts it, these and factors are placing renewed pressure on U.S. life insurers that are struggling to rebound from the financial crisis. So, advisors and distributors, get ready. The next several months will likely not be a time when you’ll see multi-featured innovations in many life or annuity products. Instead, look for more tweaks of existing products, more paring back of bloated product lines, and perhaps some debuts of conservative designs that won’t put a serious squeeze on reserves.
– LINDA KOCO
“Our data has shown for years that people look to our industry for guarantees; this is how we have differentiated ourselves and carved out our niche in the savings space,” Kerzner said before turning to some sobering predictions. “There won’t be 30-year guarantees on term. A UL with guarantees may become something that is displayed at the Smithsonian.” He described the many pressure points on the industry, but he also pointed out that consumers bear the biggest impact. “At a time when more Americans are underinsured, or not insured at all, the products they want may be disappearing,” Kerzner said, warning of an impending storm for the industry at the Chicago meeting, just as Hurricane Sandy approached the East Coast. Low interest rates are the chief culprit in the pressure on products. Just when you think they can’t go any lower, rates find a new low. From an all-time high of 15.54 percent in 1981, interest rates have 20
tumbled down a 31-year slope to the historic low of 1.62 percent in September, according to Kerzner. This makes it difficult for careful investors, such as insurance companies, to make money. Even though the historically low rate has made insurance guarantees a relative bargain for consumers, companies cannot sustain those promises. That means they have to cut not only the return but also the duration of policies. The Hartford Financial Services Group said in 2010 if rates remained low, the company could expect to lose more than $130 million annually. After a few rough years, in 2012 the company sold its annuity business to Forethought, its
InsuranceNewsNet Magazine » December 2012
individual life division to Prudential and retirement plan unit to MassMutual. It’s an extreme example of what many companies are doing. This next year promises to bring more of the same, with fewer and stingier guarantees being offered and more companies exiting products altogether, with long-term-care insurance and variable annuities taking the biggest hits so far.
Regulation
A lot can be lumped under this category but each of these issues could be an article in itself. Because we were just on the subject of guarantees, it makes sense to look at an alphanumeric you will be hearing a lot more about in the next few months AG 38. That stands for the National Association of Insurance Commissioners’ Actuarial Guidance 38, which requires more reserves supporting no-lapse guarantees, starting Jan. 1. Many companies have boosted UL with secondary guarantees by double-digit percentages. At least one company, ING, has suspended sales. That hurts many producers and marketing organizations because those UL products have been a standard for years. They made a compelling message to consumers, particularly since the crash, because cash value helped save many families and businesses. The election also re-energized efforts to fill in details of regulations such as Dodd-Frank Financial Reform. Of particular concern is the fiduciary standard and the tug-of-war between commission- and fee-based practitioners. Susan Voss, the Iowa insurance commissioner who also oversees securities, said she is concerned about the fate of insurance regulation in Washington, D.C. “There is a lot of conversation at the federal level about all the financial systems, and when you have such
"A UL with guarantees may become something that is displayed at the Smithsonian.” - Robert Kerzner, LIMRA CEO
Do MEDICAL
IMPAIRMENTS
SELL ANYWHERE
a bank-centric approach, as they do in the beltway, it’s really hard for them to understand that other systems may not be the same,” said Voss, who is stepping down as commissioner at the end of the year. “But I think there’s always going to be this push to have more centralized oversight of these major enterprises.” Voss has a unique perspective as a commissioner in state-based insurance who was also the 2011 chairperson of the National Association of Insurance Commissioners (NAIC). “What worries me is that we’ve had a long ongoing discussion about multiple regulations and too many regulators and not enough uniformity,” Voss said. “It’s the sense that the federal government has an answer, and yet as a regulator I deal with the Federal Reserve, the FDIC, the FCC, Treasury, the Department of Agriculture on crop insurance, FEMA on flood insurance, and then you add Congress and the White House. So, we’re going from a belief that we’re leaving a multiple system to a uniform system, and it really isn’t.” Voss spoke about the United States being pressured to conform to global standards, which can be good but also bad for the independent insurance channel. Kerzner said in his annual address that many other countries, especially in the European Union, don’t look upon commission-based business too fondly. “Regulators worldwide have a belief that commissions are bad. We are seeing an alarming trend by regulators to take increasingly aggressive actions,” Kerzner said as he listed European Union countries that either banned or are planning to ban commissions. On the licensing front, Richard Weber, president of the Society of Financial Service Professionals, said although producers can still function with only an insurance license, many might consider getting at least a Series 6 securities license to be able to advise clients about their full financial picture. He pointed out an irony that states are adopting an NAIC model for annuity sales that requires asking about investments even though federal law would prohibit insurance-only producers from asking about them. Getting a securities license seems to be “the path of least resistance,” Weber
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NOTE: All conditions, scenarios, and medical impairments may not be considered insurable by the insurance companies. Only the insurance company can accept or deny an application formal underwriting process. Informal inquiries December 2012after » aInsuranceNewsNet Magazine 21 and trial applications do not guarantee coverage or rate classes. FOR AGENT USE ONLY • NOT FOR CONSUMER DISTRIBUTION
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PUTTING THE LUCK BACK INTO ’13
said, adding that adopting a high ethical standard is the best path to staying out of trouble. “Everything you do has to be as a result of sufficient information following all the suitability standards that you can defend as being in the client’s interest above your own,” said Weber, who, as president of The Ethical Edge, often serves as an expert witness. “That’s the key, holding your client’s interest above your own.” That is one way to inoculate against the twists that might come from various legislators and regulators. But, still, Kerzner put it bluntly in his annual address: “In the end, government regulation may be the wild card in whether or not we fall into the abyss.”
Tax Treatment
Even if Obama and legislators manage a deal to avert the fiscal cliff by the end of the year, tax reform is on the agenda for 2013 – literally. The House of Representatives in August passed HR 6169, which requires the Ways and Means Committee to offer a tax reform bill by April 30, 2013. Since the election, House Republicans have said that raising revenue should be part of the budget discussion, but Speaker John Boehner added that revenue does not mean tax rate increases. That leaves closing loopholes and eliminating
"When you have such a bank-centric approach, as they do in the beltway, it’s really hard for them to understand that other systems may not be the same." - Susan Voss, Iowa Insurance Commissioner “tax expenditures,” which puts the tax treatment of insurance on the table. The basis for many discussions is the Bowles-Simpson report, the document produced by a bipartisan committee that investigated tax and revenue issues at President Barack Obama’s behest. The committee came up with a list of tax expenditures, or items that are not taxed and considered a government expense. The inside build-up of investment income in permanent insurance and possibly annuities is on the list. Others are concerned about the tax-free death benefit and the treatment of insurance in a taxable estate. Even if all of those escape the tax net, another maneuver might have consequences for insurance. If Congress imposes a dollar value cap on deductions, would that put insurance in a competition for tax-protected status on an individual basis? That was a question posed by the National Association of Insurance
President Barack Obama shakes hands with Speaker of the House John Boehner as he enters the House Chamber at the U.S. Capitol in Washington, D.C., for the State of the Union address, Jan. 25, 2011. (Official White House Photo by Pete Souza) 22
InsuranceNewsNet Magazine » December 2012
and Financial Advisors (NAIFA) in a notice about a fly-in that the association is planning for April 8-9 in Washington, D.C. Other associations are planning to join in what could be called the tax mob.
Tax Cliffs
Here’s a secret: the fiscal cliff is more of a slope. Things don’t start plummeting on Jan. 1 if no deal is reached. The effects would phase in over the year, slowly in the first two quarters and hard in the third and fourth. But there have been many reports of high-net-worth people moving money around, removing it from places likely to get slammed by taxes. For example, the top capital gains tax rate would rise from 15 percent up to 20 percent, but perhaps more importantly, dividend income would no longer be taxed at the capital gains rate. It would revert to the regular income tax rate, which would top out at 39.6 percent. That is in addition to the Affordable Care Act’s Medicare tax of 3.8 percent on net investment income starting in 2013. So, advisors can expect that their clients who hold an abundance of dividend stocks will likely have quite a bit of cash on hand, if they don’t already. The estate tax cliff is perhaps more cliff-like. If no deal is reached, estates valued at $1 million will be taxed at 55 percent starting Jan. 1. This is a dramatic change from the $5.12 million exemption and 35 percent tax rate of this year. If the estate tax law elapses, it will hit 12.5 percent of America’s families, up from 2 percent, according to LIMRA. Many farming families would likely have to liquidate. Even families with a house in regions with high property values would be scrambling to pay an enormous tax bill on property they would have to sell quickly in a still-challenging real estate market.
PUTTING THE LUCK BACK INTO ’13
MetLife is setting up displays in WalMart stores to sell life insurance. Many advisors are seeing this as not only an opportunity, but a duty to inform and protect client families.
Demographics
Obviously, the independent distribution channel is suffering an aging-out of producers. But the graying of America is good for insurance in many other ways. The bulk of baby boomers continue to crowd into the industry’s sweet spot. “With 10,000 boomers turning 65 each day, and the total number of retirees growing to 65 million by 2025, there is a real need for accumulation and deaccumulation products,” Kerzner said. He pointed to moderately rising sales for single premium immediate annuities (SPIAs) as evidence of interest in trading control of retirement funds in exchange for security of lifetime income. But he also looked to the generations behind the boomers as important prospects. “Generations X and Y are reaching the point where they will be great prospects for life insurance,” Kerzner said. “And 56 percent of Gen Xers believe they need more life insurance.”
New Opportunities
All of these issues have opportunities embedded within them. Many of the most successful producers say this is the time when insurance can offer the best value to Americans. In anxious times, insurance is the anchor. Kerzner and others say that companies cannot sustain the guarantees that have been propelling sales. But the promise of a secure retirement is be-
coming more attractive. SPIA sales were up 7 percent last year, a blazing performance compared to other products. Whole life has come back in style in financial planning like a Red Wing work boot on a trendy downtown street. The boots were always being made, it just took people to recognize the fidelity that they represent. People will return to the promise that insurance provides in an era where nothing is sure. A Pew Research poll released in October showed how unsure people are. Four in 10 Americans do not believe they will have enough money to retire, according to its survey. That is up significantly in just a few years. In 2009, that number was one in four. It is even worse for younger people – more than half ages 36 to 40 don’t think they can finance retirement. For good reason, too. Pew says that net worth dropped by half for the 35-44 age group since 2001. The future is in the network. That doesn’t mean just in people’s social or technology connections, but all of it. Opportunity comes to those who are most active in branching out, relying on others and being accessible. But, of course, the opposite of opportunity is challenge. Ian Lundahl, a senior analyst at Corporate Insight, said companies are finding their way on social media, particularly in setting up and maintaining relationships with clients while everybody watches. And everybody is watching, which Progressive learned this year when a case went viral. The brother of an accident victim posted his complaint that Progressive
FEATURE
had defended the driver in court against their own client. Progressive had an explanation but was slow to respond and when it did, it sounded like the enormous, bureaucratically bound insurance company that it is. This further inflamed opinion against the carrier until it had to settle with the family and apologize. The hard-earned lesson points out the challenge for companies and producers in 2013 and beyond. Businesses have to embrace social media to stay relevant. But they can’t go in with a business-as-usual attitude. “We have some clients focusing on social media and e-marketing strategies and even conducting service simulation damage control internally,” Lundahl said. “And they are opening the right lines of communication open between corporate and the individual agencies.” Partnerships and cross-selling are becoming even more key. Liberty Mutual, for example, has been reaching out to life insurance companies to refer business to one another, a partnership that might have at one time seemed a little like cats and dogs getting along. But they are making it work. MetLife is going where the people are – WalMart – to sell life insurance. Health insurance companies are setting up kiosks in malls to attract clients. In a post- Affordable Care Act world, health carriers have to rethink business. So are health insurance producers, with many looking to employee benefits and other ways to become advisors. All the warnings are correct – the world we live in is coming to an end. But a new one awaits. Whether it is a better one is up to us. “The good news is, many of the bad things generally don’t happen and there is opportunity to be found in every market,” Kerzner said. “While we may be on the edge of the precipice, what we do now can alter the outcome.” Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 30 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.
December 2012 » InsuranceNewsNet Magazine
23
[LIFEWIRES]
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LIMRA Survey: What Drives Advisor Success The economics of financial advisory distribution face numerous challenges, but pockets of opportunity remain, according to a major survey of 2,000 experienced financial advisors, conducted by LIMRA and McKinsey & Co. The LIMRA/McKinsey study provides critical insights across a number of dimensions that impact the success of advisory sales forces. According to the survey: Sales capacity is one of the most significant issues impacting distribution. Across most channels, the majority of experienced advisors is over 50 and has more than 25 years of experience. Growth opportunities are the most important factor in advisors’ selection of a firm and are twice as important as compensation. The most productive advisors utilize four best practices, including teaming, client specialization, retirement planning and knowledge of life events. The percentage of advisors teaming with others has grown since 2008, primarily as a result of their desire for growth and increased productivity. Advisors are selling a larger share of investments and advisory solutions, relative to insurance. Investment products account for a growing share of revenues for career and independent insurance agents (30 percent in 2012 versus 23 percent in 2004.) Financial services organizations have increased the services they offer to affiliated advisors by 40 percent over the past 10 years, but many of these services are not valued or are poorly delivered. Advisors are reducing the number of insurance carriers with whom they do business and place approximately 50 percent of their insurance with their top carrier. They frequently switch insurance carriers. Advisors are keen to introduce new technologies to their practices. The use of video technology will quadruple over the next four years, while the use of social media will more than double.
MASSMUTUAL FINED $1.6M BY SEC
Massachusetts Mutual Life Insurance was charged with securities law violations for failing to properly disclose the potential negative impact of a “cap” placed on a complex investment product for investors to use for retirement. According to the SEC’s order, MassMutual advertised its GMIB riders as providing “Income Now” if investors elected to DID YOU
KNOW
?
24
make withdrawals during the accumulation phase or “Income Later” if they elected to receive annuity payments. According the SEC’s release, the investigation found that MassMutual included a cap feature in certain optional riders offered to investors, and the cap potentially affected $2.5 billion worth of MassMutual variable annuities. Neither the prospectuses nor the sales literature explained that if the cap was reached, the guaranteed minimum income benefit (GMIB) value would
OF THOSE ADVISORS WHO ARE WITHIN 10 YEARS OF RETIRING or selling their practices, more than half have no succession plan. Advisor satisfaction is significantly higher for all independent channels, with affiliated advisors more likely to leave their firms within the next three years. Source: LIMRA/McKinsey & Co. Study: Key Factors That Drive Financial Advisor Productivity Across Multiple Distribution Channels
InsuranceNewsNet Magazine » December 2012
QUOTABLE The year-to-date operating profit is strong, but challenges posed by low interest rates are significant and demand innovative and sustainable product offerings to achieve future success. — Walter White, Allianz Life President & CEO
no longer earn interest. MassMutual’s disclosures instead implied that interest would continue to accrue after the GMIB value reached the cap, and dollar-for-dollar withdrawals would remain available to investors. A number of MassMutual’s own sales agents were confused by the language in the disclosures, and investors were not sufficiently informed of the potential negative effect of taking withdrawals if they reached the cap approximately a decade from now. MassMutual, which removed the cap after the SEC’s investigation to ensure that no investors will be harmed, has agreed to settle the charges and pay a $1.6 million penalty.
LOW INTEREST RATES AFFECT ALLIANZ LIFE Q3 SALES
Allianz Life Insurance posted operating profit of $559 million through the third quarter of 2012 compared to an operating profit of $379 million through the same period in 2011, according to Allianz. Persistent low interest rates continue to challenge sales volumes. Allianz Life reported premiums of $7.4 billion through the third quarter of 2012, compared to $8.3 billion through the third quarter 2011. Fixed annuity premium of $4.2 billion was down 16 percent yearto-date compared to $5.1 billion in 2011 and variable annuity premium of $2.7 billion was down 6 percent from $2.9 billion in 2011. Life insurance sales hit $48 million through the third quarter, up 109 percent from $23 million for the same period in 2011.
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December 2012 » InsuranceNewsNet Magazine
25
LIFE
4 Ways to Open Clients’ Eyes to the Power of Cash Value I NG’s survey shows a large opportunity to connect life insurance to clients’ dreams, rather than their death. By Kurt Fasen
F
inancial professionals who want to deepen their relationships with clients may be overlooking an opportunity that’s hidden in plain sight: cash-value life insurance. That is because most clients probably have no idea that life insurance may help solve some of their most daunting financial challenges, from tending to aging parents, to sending a kid to college, to taking control of when and how they retire. A recent study by ING U.S., Insurance 26
Revealed, found that the most common reason to purchase life insurance – cited by half of the survey respondents – is to replace income or pay off debts. In other words, they are focused solely on the death benefit feature of a life policy. A far lower percentage – as low as 1 percent – saw life insurance as a means to achieve other financial goals. This blind spot is an opportunity for financial professionals to step up
and show how life insurance can meet a range of financial needs – while still providing the more obvious death benefit. And, take note: This ING U.S. survey data reflects the views of adults over 25 with an annual household income of $50,000 or more, which means they are probably in a category where life insurance can complement their financial portfolio. Cash value in life insurance policies
What do Disneyland & McDonald’s have in common?
InsuranceNewsNet Magazine » December 2012
4 WAYS TO OPEN CLIENTS’ EYES TO THE POWER OF CASH VALUE can be used in many ways, but it’s important to focus on a few key strategies that can address top-of-mind concerns – or secret dreams – of your clients. Here are four distinct opportunities to discuss with them.
OPPORTUNITY NO. 1: Providing Flexibility in Retirement
For many people, a retirement date signifies something that is chosen for them, rather than a flexible decision that they control. The cash value of a life insurance policy can be used for an early retirement to provide a bridge to the point where payouts from qualified plans and Social Security begin. It may also be used to provide a supplement during retirement to boost monthly income. Most importantly, life insurance can provide protection for the family in the event of premature death, with the death benefit proceeds helping to fund a spouse’s retirement. The cash value in a life insurance policy is under the control of the owner. There are no pressures or timelines dictating how long money must be kept in or when it can be taken out. With a substantial amount of cash value built up over decades in a life policy alongside well-funded retirement savings, an owner can have more flexibility in terms of when to retire and ready cash to do it, on a tax-favored basis.
OPPORTUNITY NO. 2: Launching a Business
Many people long to start their own businesses, either because they have a great idea or because they want the excitement of controlling their own destiny. A major roadblock is the capital to get started. Many take out bank loans, only to struggle with the immediate financial strain of meeting their repayment obligations. Others try to “bootstrap” by starting small and re-investing what they earn, only to become frustrated by slow progress. A life insurance policy’s cash value can help with a startup business. The owner has complete control over the money, and can use it to pay for startup expenses and life expenses like medical and other insurance, while the business gains its footing. Visionaries like Walt Disney and Ray Kroc used life insurance policy loans to launch Disneyland and McDonald’s fast food.
LIFE
PEOPLE NEED EDUCATION ON THE POWER OF LIFE INSURANCE The ING U.S. Insurance Revealed study discovered far too few individuals realize that the cash value potential in life insurance can create the financial means to cover a wide range of life’s opportunities and challenges. While many are clear on the traditional role of death benefits, only a tiny fraction understands how built-up cash value can help with retirement security, college education, caring for aging parents, and other goals.
What do you believe is the most important reason to have life insurance?
26%
23% Pay off debt
4%
Replace income
3%
1% Help care for aging parents
Pay for children’s future education costs
OPPORTUNITY NO. 3: Paying College Tuition
Protect retirement savings and other investments
1% Build funds that I can access through insurance products
Life insurance can play two roles in helping pay for a child’s college education. One scenario, which most people would rather avoid discussing, applies when the policy owner dies. In such an unfortunate event, the death benefit – presuming it’s high enough – can be a resource to cover a child’s college
education. A second and less drastic scenario can apply when a policy owner puts enough money in the policy over time to build up cash value to pay for one or more years of a college bills. A little-known fact about the cash value in life policies is that it does not get counted in federal financial aid calculations. This can be a very important advantage that potentially
December 2012 » InsuranceNewsNet Magazine
27
LIFE
4 WAYS TO OPEN CLIENTS’ EYES TO THE POWER OF CASH VALUE
TOP BARRIERS TO LIFE INSURANCE
to spend time when their parents need them most.
The ING U.S. Insurance Revealed study discovered the top reasons why people do not have life insurance. Close to one-quarter of respondents aged 25-34 said they were too young to worry about life insurance. Yet, starting early builds the cash value of the policy and locks in the cost of insurance at a time when age and medical condition typically deserve the best possible prices.
The Time to Engage is Now!
What do you believe is the primary reason people do not have life insurance? Total
Ages 25-34
51% 42% Other financial priorities, such as debt or mortgage Total
Total
Ages 25-34
14% 23% Too young to worry about getting life insurance
Ages 25-34
12% 10%
Total
Ages 25-34
6% 5%
Unsure what type or how much to get
No dependents
ING U.S. Insurance Revealed findings are from an online survey conducted by Praxis Research Partners in July 2012. Respondents were 1,006 adults over the age of 25 with an annual household income of $50,000 or greater. Data were weighted to make the results representative of the U.S. population.
lowers the actual out-of-pocket costs of college tuition.
OPPORTUNITY NO. 4: Supporting Aging Parents
It’s an all-too-common scenario: an aging parent is suddenly in failing health and calling for a lifeline. In some cases, parents may rely on adult children for financial help if medical costs become unmanageable. In other cases, the chil28
dren may need to take significant time off from work to assist their parent. Here, too, the cash value in a life insurance policy can play an important role. A withdrawal of cash value can ease the financial pressure of big medical bills – without resorting to tapping into savings or retirement accounts. Also, by using the cash value to supplement employment income, a son or daughter can ease their work schedule
InsuranceNewsNet Magazine » December 2012
The key to unlocking these benefits is for the policy owner to start planning and putting money into their policy early on. For financial professionals, this means engaging your clients, particularly the younger ones who might not be thinking about life insurance at all. It can take a decade or more to generate significant cash value, so it’s important for the owner to start building the cash value of the policy early on. Starting early has another important advantage: it locks in the cost of insurance at a time when age and medical condition typically deserve the best possible prices. The ING U.S. survey found that 23 percent of respondents age 25 to 34 said they were too young to worry about life insurance. Clients who use life insurance in this way must be careful to stay on top of how their policy is evolving. Interest rates will vary from year to year, as will the performance of various sub-accounts if it is a variable life policy. So, a projection of future cash value made in one year might be dramatically different when calculated just a few years later. To ease this process, some carriers offer a concierge-style service that illustrates how the policy is performing based on interest rates and the actions the policyholder has made, such as premiums paid in or account values taken out through loans and withdrawals. Financial professionals can help open their clients’ eyes to the opportunities that life insurance offers beyond its essential death benefit protection. Unbeknown to many, life insurance can actually play a key role in retirement and college planning, supporting aging parents or even launching a business. Kurt Fasen is senior vice president and head of ING U.S. insurance sales support for the individual life insurance, employee benefits and annuity businesses. He may be contacted at Kurt.Fasen@ innfeedback.com.
CRITICAL ADVISOR wARNING Is this the end of “big earnings” in this arena? Absolutely NOT, but it will NEVER be the same. Low interest rates, market volatility, and increased capital requirements are most likely already affecting your bottom line now. Increasing pressures are expected go into full effect by mid-2013, sending commission shockwaves throughout the industry.
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EARN commissions that remind you of “the good old days” Discover how to profit from this booming market opportunity. Call us today. With tax hikes and low interest rates, 2013 will be a banner year for SPL sales. Don’t miss out. Now for a limited time, get a copy of an exclusive report that we commissioned. “The Irrational Life Insurance Buyer” by annuity expert Dr. Jack Marrion is a remarkable, first of its kind study that examines buyer rationale and psychological triggers that inspire purchasing decisions. This is truly a MUST HAVE for any advisor that wants to grow their life business by six figures in 2013.
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... a different experience
LIFE
Taking Death Out of Life Insurance Two features offer a multitude of strategies to deal with clients’ challenges. By Michael Smith
L
ooking ahead to the New Year, advisors are scanning the horizon for the next development in life insurance products to drive sales. There they see some things that address not only sales but clients’ growing challenges. Legacy income planning and living benefits help families deal with uncertainty, one of the most critical challenges today. Legacy income planning helps with sustained financial security for beneficiaries. Living benefits help beneficiaries deal with illness and injury.
Legacy Income Planning
A growing number of carriers have developed an income strategy on life insurance policies with regard to the beneficiary. Instead of beneficiaries receiving a large lump sum, they receive a smaller sum and an income stream from the remaining death benefit over a period of predetermined years. Here is an example of when this strat30
egy may be a good idea – and when it is wrong. Assume a 45-year-old male with a $1 million death benefit chooses an income rider option for his beneficiary. At death, the beneficiary receives a $100,000 lump sum payout and then income of $100,000 for the next 10 years. Total death benefit payout is actually $1.1 million. The carrier also provides a premium discount making the coverage less premium than if a traditional lump sum is paid to the beneficiary. So where does this make sense? When seniors are the insureds. Here are a couple of examples: With spouse as beneficiary: Let’s say one spouse has been making most of the financial decisions over the years and the surviving spouse has little experience in managing money or income. The income rider can provide an income stream on auto pilot so the insured does not have to worry and the widow/widower won’t be overwhelmed. With adult children as beneficiary: An insured knows that between her three adult children, one is going to blow
InsuranceNewsNet Magazine » December 2012
any inheritance within weeks of receiving the funds. Using the income rider, she can choose that the “black sheep” of the family will receive the proceeds as a monthly income instead of a lump sum. The other two can receive their shares in a lump sum or as an income stream. The insured can customize the payout. With grandchildren as beneficiary: The current environment in Washington has created these certainties: taxes will go up and/or entitlements will be cut. Today’s youth will find it more difficult to live beyond paycheck to paycheck. Imagine the legacy grandparents can provide knowing that their grandchildren are receiving an extra $200, $500 or $1,000 per month from Grandma and Grandpa. If you are a money manager, you may not like the idea of the insurance company holding on to the lump sum death benefit. Perhaps you feel taking the lump sum and reinvesting for disbursement over time in annuities, stocks, or bonds would provide more income. Valid point. However, can you be certain the relationship with the beneficiary will
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continue? Do the beneficiaries live in state? If grandchildren are the beneficiaries, will you still be active in the industry? What impact would that have on the insured’s wishes? Perhaps it makes sense when presenting your next permanent life case to share the income rider option and see if your client has interest.
Living Benefits
The world of living benefits, also known as accelerated benefit riders, is changing. Carriers are adding critical illness riders, allowing the insured access to the death benefit, while he or she is living. Clients can access six figures of death benefit after a heart attack, cancer diagnosis, suffering a stroke, or a central nervous system disease, such as multiple sclerosis or Parkinson’s disease. This is not a terminal illness rider where the client is expected to pass away within a year or two, but a survivable serious illness causes financial challenges. Picture a client stricken with breast cancer and needing chemotherapy, another a severe heart attack and now requiring therapy to make a full recovery, and another, diagnosed with Parkinson’s disease that, over time, will diminish her ability to work. How helpful would it be if they could tap into the death benefit of their life policy, while alive, to ease their financial burdens? We are now seeing carriers list up to 16 different critical illnesses that allow for access to the death benefit. And here is even bigger news. Living benefit riders are now available on term insurance. While living benefit riders typically are available on permanent life, there are high-quality carriers that have rolled out top 10 pricing of term cover32
age with living benefits built in. How much of the death benefit can be accessed? There is no easy answer to this. It depends upon the severity of the triggering event and a formula the carrier calculates taking into consideration past and future premiums, life expectancy, and type of coverage held. For example, five years into a 20-year level term, Tom suffers a heart attack. The carrier will obtain Tom’s medical records to determine the severity. If it is considered a moderate heart attack, the company might offer 35 to 40 percent of the death benefit. That could be $100,000 of a $250,000 policy. If it is considered a severe heart attack, 50 to 60 percent might be available. There are a couple of different plan designs, if the client accepts the payment. Some carriers will terminate the policy if the client accepts the payment, others allow death benefit to continue but, at a reduced amount. This could include a remaining death benefit that is lower than the original and minus the living benefit payment. In either design, the client has the final say. If the client doesn’t accept the living benefit payment, the policy continues as normal. If the client chooses to accept payment, the client could terminate remaining coverage or keep a reduced amount. We are seeing the general public finds living benefits highly desirable. Most people can relate to having a heart attack, developing cancer or other critical illness. They have a family member or friend who has had a critical illness. In my office alone, we have been touched by family members who have suffered a stroke, received treatment for breast cancer and diagnosed with Parkinson’s. Having access to life
InsuranceNewsNet Magazine » December 2012
insurance death benefits while still living is highly appealing. Who should consider buying a policy with living benefits? A better question is: Who shouldn’t? Besides a critical illness rider, carriers are also offering long term care, sometimes filed as a chronic illness rider, as a living benefit. Access to the death benefit becomes available with the client is unable to perform two of the activities of daily living (ADLs) or have cognitive impairment. While some designs allow for a lump sum payment, the most common design is a 2 percent distribution of the death benefit on a monthly basis. For example, an insured suffers a stroke and, while she can still live at home, she cannot perform two ADL’s without assistance. If her $300,000 life insurance policy allows for a 2 percent accelerated benefit, she could receive $6,000 per month for up to 50 months. Good riders allow for care to be provided at home, in an assisted living facility or in a nursing home. Some carriers pay benefits as a reimbursement of services paid. Others pay on an indemnity basis, meaning that no receipts are required; the benefit amount is fixed and known. A note of caution: While the chronic illness rider might be available on a term policy, it is not suggested that a client consider the term contract as a solid long-term-care insurance plan. A term contract could easily be outlived and a client could become eligible for a LTC claim after the term contract ends. If the client wants a chronic illness rider, I suggest purchasing a permanent policy. These two ideas should provide new material to attract new business in the coming year, with prospects and current clients. In fact, these strategies might be the answer to many concerns that clients are facing, particularly because their economic and family circumstances might have changed. Michael Smith, is president of CPS Horizon Financial, a BGA in Milwaukee and speaks on the topic of linked benefits and living benefits. Contact Michael at Michael. Smith@innfeedback.com.
866.707.6786 | www.insurancenewsnet.com | info@insurancenewsnet.com December 2012 Âť InsuranceNewsNet Magazine 33
[ANNUITYWIRES] ANNUITIES ON DEMAND
Annuity Scammers Get Prison Three Nebraskans got nabbed for an annuity scam. Two of them – Stella Levea and James Masat – were principals of First Americans Insurance Service (not related to First American Corp., a Santa Ana, Calif.-based title and specialty insurance provide). The third – Kenneth Mottin – worked for Levea and Masat. It turns out that their “work” also included a scam perpetrated after the financial crisis of 2008. Prosecutors say the threesome solicited investments from private lenders and said the money was backed by secure annuities, according to an AP report. But instead, the three reportedly set up a Ponzi scheme and used the money to support their business and personal expenses, AP says. Once in court, Levea and Masat did apologize and express regret, the report adds, but they still got jail time – eight years and a month for Levea and James Masat and five years for Mottin. They also got three years of supervised release after leaving prison. It makes you wonder: When they were counting all their ill-gotten gains, did they consider the price they’d pay a few years later?
VARIABLE ANNUITY PRODUCTS
Variable annuity carriers have been anything but inactive in recent months, according to a new report from Morningstar. In the third quarter, carriers filed for 106 variable annuity product changes, the Chicago researcher says. That’s well above the 40 recorded in the same period last year, though significantly below the 168 filings made in second quarter, the report says. Twenty-three carriers accounted for the activity, with Lincoln National, Jackson National and Prudential making the most changes. But not all changes involve benefit reductions. New variable annuity contracts made up the largest group of filed changes in the third quarter, Morningstar says. That was followed by new variable annuity benefits and closure of variable annuity benefits. Contrary to reports that the entire industry is pulling back from living benefits, the researchers found that several new products launched with “attractive” living benefit levels. It sounds as if some carriers want to compete, despite the challenging economy. DID YOU
KNOW
?
34
Brought to you by:
CASH FOR CONTRACTS
Hartford Financial Services Group Inc. has joined the handful of carriers that are offering certain clients cash for their variable annuity contracts. The affected contracts include living benefit guarantees and that, in a declining stock market and low interest rate environment, can be difficult for carriers to support. According to an AP news report, the Hartford, Conn. carrier had stated, in a Securities and Exchange Commission filing, that it is making the offer “because high market volatility, declines in the equity markets and the low interest rate environment make continuing to provide the Lifetime Income Builder II rider costly to us.” In recent months, the carrier has signed deals to sell its individual life insurance division, a retirement plans unit and a securities brokerage and is now focusing on property and casualty insurance, group benefits and mutual funds. It exited the variable annuity business in March.
THE MAJORITY OF AMERICAN SAVERS (70 PERCENT) say they won’t shift
any money to stocks or increase current stock portfolio, even if the stock market improves. Source: Barclays Bank
InsuranceNewsNet Magazine » December 2012
Annuities are the most unsolicited products requested by clients, according to advisors surveyed by Cerulli Associates. Instead, customers are increasingly seeking out the products. In fact, the number of times that financial advisors have received requests for annuities from clients has gone up by more than 15 percent, year over year, says Donnie Ethier, senior analyst at the Boston firm. Why the spurt in consumer demand? “Both the positive and the negative attention annuities have received in the media over the past four years has led to an overall growing awareness,” suggests Ethier. However, one-third of households are still unaware of annuities, according to Cerulli. That suggests there’s potential for even greater demand.
YES, AVIVA USA IS FOR SALE
Aviva plc has confirmed that it is in talks with “external parties” about selling its U.S business, Aviva USA, which operates out of Des Moines, Iowa. The development is timely. A few days earlier, A.M. Best downgraded the company’s’ issuer credit ratings to A from A+ but affirmed the insurer’s financial strength rating of A and also removed all ratings from “under review with negative implications.” Best assigned a stable outlook to the operation, too. Aviva USA is a market leader in indexed annuities, and an indirect, wholly-owned subsidiary of Aviva plc (Aviva), a United Kingdom company that has put many of its non-core operations up for sale this year.
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LIMRA: Annuity Sales Down 10% Q3 The low-interest-rate environment has taken a toll on sales according to LIMRA’s third quarter 2012 U.S. Individual Annuities Sales survey. bitly.com/AnnuitiesDown
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December 2012 » InsuranceNewsNet Magazine
ANNUITY
Mortality Perception Drives Annuity Rider Decisions S tudy shows that living benefit buyers really emphasize the “living” part. By Linda Koco
A
dvisors may be surprised to learn that some clients are thinking about their own mortality even as they consider whether to buy annuities with living benefits. Ruark Consulting says it has found that the mortality of people who buy variable annuities with guaranteed living benefits runs about 12 percent lower than that for people who buy variable annuities without those guarantees. So the living benefit crowd actually tends to live longer than the other variable annuity buyers. This is not to say that the trend reflects a self-fulfilling prophecy or that it reflects a tendency of advisors to avoid selling living benefit products to less healthy people. Still, the relationship between a long life and buying living benefit products is certainly a tantalizing one for advisors to explore. The finding is based on a survey of 17 major insurers representing more than 36
30 million policy years of exposure and 340,000 deaths between January 2007 and December 2011, according to Ruark. The researchers found a similar 12 percent differential in mortality levels when it conducted its first variable annuity mortality study in 2007. That means the trend has continued on from before the great recession through the end of last year.
Heads Up for Advisors
The heads up for advisors is that people who tend to buy variable annuities with living benefit guarantees are likely to have an expectation that they will live a long life, says Peter Gourley, a vice president at Ruark. It correlates with client concern about outliving retirement savings, he says. That can be a talking point during the planning discussion. A. J. Block, an independent advisor with Carter Financial Management, Orchard Park, N.Y., says he has noticed that client decisions about electing a living benefit are often affected by the client’s own sense of how long he or she expects to live. In fact, he says, it is the first decision
InsuranceNewsNet Magazine » December 2012
they make. “That is, if they think they will live a long time, they will consider that in deciding whether to buy annuities and life insurance, and whether to choose products with guarantees.” Of course, “most people, when they are younger adults and unless they have a medical condition, think they will live forever,” Block says with a smile. “It’s when they get older, say in their 60s, when they start factoring mortality into their decisions. But even then, most think they will live 20 years or more.”
The Second Decision
Another factor affecting client purchase of annuities with guaranteed living benefits is what Block calls “the second decision.” This is the decision to compare the annuity with what the client can earn elsewhere, on a guaranteed basis, in today’s low interest rate environment. Interest rates are so low today that certain clients think it’s time to get into an annuity that will guarantee benefits in the future, the registered rep explains. Back in the 1980s and 1990s, interest rates were so high, people wouldn’t
MORTALITY PERCEPTION DRIVES ANNUITY RIDER DECISIONS even look at annuities, he recalls. They would say, “Why would I ever want that, when I can earn more elsewhere?” He remembers how people turned away from annuities earning 5 percent to 7 percent internally, because they thought the higher rates they found elsewhere would go on for a long time. They didn’t imagine anything else. That sense of going on for a long time is a factor today as well, he says, but in reverse. Today, the best interest rate a person can get elsewhere is 1 percent or maybe 2 percent, he explains. So now people tend to think that these very low interest rates will just continue on and on. This may sound irrational to financial people, but that’s what certain clients think and expect, Block says. This expectation is contributing to making annuities with living benefit guarantees look very attractive.
When Mortality Doesn’t Count
Mortality issues are not a factor for one group of clients, however. These are people who have a chronic medical
condition or a family history of relatives with chronic conditions or early death. Those clients believe they will not live a long time, so the first decision about living benefits – will I be around to benefit from this feature? – is not a factor, says Block. For them, other aspects of the annuity are more important, viewed in comparison to the interest rate environment. Mortality issues could also become a non-factor if interest rates should rise very high or if the stock market soars. Those changes could spur some clients to want to go for the higher rates or take on more risk in the stock market. In such cases, longevity could lose its influence in client decision-making, predicts Block. Some clients may reject more conservative options and think very little about their own mortality, even if they are older. The advisor’s job in such a time would be the same as it is now, he adds. That is, the advisor will need to focus on helping clients take a logical look at their situations and what could happen later on,
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he says. “A good advisor will show all the different effects, so the client can make a good decision.”
Pricing Probably Won’t Be Affected
Ruark’s Peter Gourley points out that the lower mortality finding does not mean that advisors should brace for a sudden spurt in price increases in annuities with guaranteed living benefits. “The major variable annuity carriers have probably already made changes to pricing based on mortality assumptions,” he explains. The key for advisors is to remember that mortality issues are likely in mind during living benefit discussions with annuity prospects. Even if unspoken, it’s right there in the middle of clients’ concern about outliving their money. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@ innfeedback.com.
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December 2012 » InsuranceNewsNet Magazine
37
ANNUITY
What Guaranteed Income Really Means A nnuity riders can guarantee income for life, but just how much income must be made absolutely clear. By Bill Kanter
A
nnuities are great for tax-free accumulation without stock market risk. However, given low interest rates, the interest rate caps on IAs are not very exciting. Fortunately, an added income rider to an annuity contract (also called a guaranteed withdrawal benefit rider or GWBR or a lifetime income benefit rider or LIBR) can be a godsend when it comes to guaranteeing great income that will last if the client lives to 87, 97 or 127. The problem is that producers must do an honest job of explaining what these riders do – and what they do not do. To illustrate, consider the following discussion that I, Bill Kanter, (BK) often have with a Prospective Client (PC) while discussing retirement planning and longevity: PC: “I have an annuity and I am making 6.5 percent annually compounded on my money, guaranteed!” BK: “No, you are not making a guaranteed annual rate of 6.5 percent on your money. In this market that is impossible. The insurance company is only making 2-3 percent on the money you give them, how can they pay you 6.5 percent every year?” PC: “Yes I am! My agent told me that as long as I defer taking out the money I am guaranteed to make 6.5 percent every year.” BK: “No, the financial advisor who told you that was either misleading you or more likely does not fully understand how the product works. What you purchased was a rider to an annuity contract. The rider, which you pay for at the rate of about $650-$950 per $100,000 of annuity premium, guarantees that you 38
will make 6.5 percent per year credited not to your money in the annuity (i.e., money that you can take out lump sum or that will go to your beneficiaries). Rather, the rider says that the insurance company will credit that 6.5 percent to a separate income-only account from which you can only use to take out annual income for life (no matter how long you live). Not only that, but the insurance company tells you what percentage of that account you can take out. The amount credited to your money in the
annuity (what they call the contract value) is more like 3-4 percent if the market goes up and nothing if the market goes down, so you cannot lose your principal due to market losses.” PC: “So why exactly isn’t that considered 6.5 percent on my money?” BK: “Let me give you an example. If you put $100,000 into an indexed annuity and you really did earn 6.5 percent each year compounded, then after 10 years you would have $215,892 to take out of your annuity (assuming a 10-year
Tom’s $250,000 401(k) 8% Bonus Annuity with 6.5% Income Rider* Premium $250,000 (Day 1 Value $270,000) Age
S&P 500 1999-2010
Annuity Value Cap 3% Floor 0%
Real Account Value*
6.5% Income Only Account Value
Payout % & LIFETIME Payout Amount
65
19.50%
3.00%
$278,100
$287,550
4.5% = $12,939
66
-10.10%
0.00%
$278,100
$306,241
4.5% = $13,780
67
-13.00%
0.00%
$278,100
$326,146
4.5% = $14,676
68
-23.40%
0.00%
$278,100
$347,346
4.5% = $15,630
69
26.40%
3.00%
$286,443
$369,923
4.5% = $16,646
70
9.00%
3.00%
$295,036
$393,968
5% = $19,698
71
3.00%
3.00%
$303,887
$419,576
5% = $20,978
72
13.60%
3.00%
$313,003
$446,849
5% = $22,342
73
3.53%
3.00%
$322,394
$475,894
5% = $23,794
74
-38.50%
0.00%
$322,394
$506,827
5% = $25,341
75
23.50%
3.00%
$332,065
$539,771
5.5% = $29,687
*Cost of Rider about 95 basis points = $950 per $100,000
Note: $250,000 @2% CD after 6 years=$281,540. Withdraw $19,698 per year = 0 in 14 years Also, CD interest is taxed every year, the annuity is tax free during deferral.
InsuranceNewsNet Magazine » December 2012
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December 2012 » InsuranceNewsNet Magazine
39
$$ $ $ ANNUITY
$
$
$
$ $
$
$
$$
WHAT GUARANTEED INCOME REALLY MEANS
$
A potential client (Tom) who was 65 and retired told me that he had $250,000 in his 401(k) and he wanted to start drawing from it in five years at age 70. He wanted to take out $20,000 annually at that point to supplement his other pension and social security income. The problem of course is that even if he invested his money in a 5-year CD at 2 percent per year and then began withdrawals at age 70, he would run out of money after about 14 years of taking out $20,000 ($280,000) (see the note at the bottom of the chart). Tom expects to live beyond age 84 so he was worried. Using the chart on page 40 I illustrated how the income rider will give him the income he needs and will pay him no matter how long he lives. When Tom transfers in the $250,000 from his 401(k) to the IRA annuity he immediately gets an 8 percent bonus so the “day one” value of his account is $270,000 in both his Real (or contract) account value (the green column) and in his Income Only account value (the purple column). Note that Tom had already retired so there were no restrictions on transferring the money from his 401(k) to his IRA. Had he still been working he would have needed to check to see if his employer allowed for an “in service rollover” to the IRA annuity. What the insurance company calls the “contract” value I make a point of calling the Real value because this is the amount that he can really take out if he needs a penalty-free withdrawal (or a penalty withdrawal) or if he passes away and the account goes to his beneficiary. The Income Only account value that gets credited the 6.5 percent each year is only used to determine his lifetime income payout. He has no access to this money. As you can see, the Real account value grows with the S&P index based on the floor of zero and the cap of, in this case, 3 percent (based on the history of the S&P 500 returns over the 11 years from 19992010). As the asterisk indicates, it is from this account that the income rider fee is taken from each year. When Tom turns 70 and is ready to start taking lifetime income, he intends to call the insurance company and he will be told that his Income Only account (or income rider account) has been credit-
$$ $
$
$ “It is peace of mind or ‘longevity insurance’ that makes the income rider so important to the client.”
surrender charge) In actuality, however, that is not what you will have with the annuity you purchased with a cap (the maximum you can earn each year) of 3 percent and a floor of 0 percent (which you will get in some years when the market goes down). Rather the $215,892 will be in your income only account and when you start taking out lifetime income, the insurance company will fix an annual lifetime payment amount based on a percentage of that $215,892. It may still be a great idea because you cannot run out of money even if you live a very long time. In fact, it is the only vehicle in the financial services world that can guarantee you income for as long as you live.” To further illustrate this to clients and prospects, I use the different color chart that illustrates an IA with an 8 percent premium bonus and a 6.5 percent “rollup” (the industry’s term for the income rider annual guaranteed credited rate). The following is based on a real case.
40 InsuranceNewsNet Magazine » December 2012
ed with exactly 6.5 pecent compounded every year and has a balance of exactly $393,968. At his age the company will fix his lifetime payments at 5 percent of that Income Only account or $19,698 (this rate changes based on the carrier and the age of the client). Note that there are some carriers that have this value start out lower but go up with the market in an attempt to keep up with inflation. The key point to make to the client is that this $19,698 will be taken out of the contract, or Real account, value so in 14 or so years there will also be nothing left in that account. However, the insurance company will still continue to make the payments of $19,698 to him for as long as he lives (he could take a joint payout for the life of his wife as well but the payments would be smaller). It is peace of mind or “longevity insurance” that makes the income rider so important to the client. It is also important to point out that if Tom dies while there is still money in the Real account value, his beneficiaries would get that money with no penalty. By the time I am done explaining the income rider in this way my clients and I are speaking about the “green column” and the “purple column.” This way I know that there are no misconceptions. To summarize: IAs with income riders are the only vehicle in the financial services world that can provide a competitive income stream and guarantee that income stream for as long as the person lives. Thus, they can offer great peace of mind for a client concerned about running out of money during retirement. However, it is important that the ethical advisor make sure that the client understands that the “rollup” rate is not credited to the client’s contract value and that the contract value will be reduced by the income withdrawals (and by the income rider fee). Bill Kanter J.D., MBA, has more than 20 years of experience in the field of estate planning, elder law and financial planning. He is a member of the National Academy of Elder Law Attorneys (NAELA). He can be reached at Bill.Kanter@ innfeedback.com
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The National Association of Independent Life Brokerage Agencies (NAILBA) is a nonprofit trade association with over 350 member agencies in the U.S. and Canada. Since 1981, NAILBA has represented independent wholesale life brokerage agencies; our purpose is to serve as the national association of life, health and annuity insurance distributors.
December 2012 » InsuranceNewsNet Magazine
41
[HEALTHWIRES]
The Holidays Brings More LTCi Inquiries from family members bitly.com/LTCinquiries
Insurance Offered to Fewer Workers in Small Firms As Compared To Larger
WORKERS ELIGIBLE FOR COMPANY’S HEALTH PLAN
58%
Businesses with fewer than 50 employees
49%
90%
Businesses with 100 or more employees
90%
2003
2003
Only 49 percent of workers in businesses with fewer than 50 employees were offered and eligible for health insurance through their employer in 2010, down from 58 percent in 2003, according to a recent Commonwealth Fund report. In comparison, 90 percent of workers in businesses with 100 or more employees were offered and eligible for health insurance in 2010 and 2003. These results show that as health insurance coverage eroded in the years before the passage of health reform, workers in small firms struggled with the cost of health care. In fact, 45 percent of small-business employees reported difficulty with medical bills in 2010, and 46 percent reported that going without needed care because of cost. Thirty-three percent of employees in firms with 50 or more employees reported problems meeting medical bills, and 35 percent did not get recommended medical care due to cost factors. Just one-third of workers making less than $15 an hour in small firms were both offered and eligible for their employer’s health plan, while 70 percent of those making over $15 an hour in a small firm were offered health benefits. The Commonwealth Fund’s report, Jobs Without Benefits: The Health Insurance Crisis Faced by Small Businesses and Their Workers, by senior research associate Ruth Robertson and colleagues, is based on findings from The Commonwealth Fund’s 2010 Biennial Health Insurance Survey and analyzes the health insurance and health care experiences of workers according to workplace size and income.
AON HEWITT: 2013 HEALTH PREMIUM WILL TOP $2,000
In the same way that many employers have shifted employees’ retirement packages from defined benefit plans to defined contribution options, some will be to applying that approach to health care benefits in 2013. According to benefits consultant Aon Hewitt, a recent survey of 113 Ohio-based companies found that employers will deduct an average of $2,000 from their workers’ paychecks next year to help pay health care premiums. Many will start penalizing workers who do not participate in wellness activities by charging premiums 10 to 15 percent higher In addition, the survey found that 15 percent of employers are likely to allot their DID YOU
KNOW
?
employees a set amount of money to buy health insurance from a private-sector health exchange. Other local employers reported seeing benefits from incentives, such as a cash award program for physically active employees, each of whom can earn up to $500 in a calendar year. Sixty-two percent of participants in a biometric program lowered their blood pressure, while 24 percent improved their body-mass index scores.
CHRISTIANS-ONLY INSURANCE MEMBERS GET REPRIEVE A Kentucky circuit judge will allow the Christians-only health insurance plan, Medi-Share, to
DEC. 15 IS THE NEW DEADLINE FOR STATES that want to run their own exchanges to make that intention known. States that don’t go that route will have until Feb. 15 to decide whether to work in partnership with the federal government or cede their exchange entirely to Washington. Source: Dept. of Health and Human Services news release
42 InsuranceNewsNet Magazine » December 2012
QUOTABLE States have and will continue to be partners in implementing the health care law and we are committed to providing states with the flexibility, resources and time they need to deliver the benefits of the health care law to the American people. — Kathleen Sebelius, Dept. of Health and Human Services, in a letter to Republican governors, 11/9/12
be allowed to continue coverage for its 800 Kentucky members until January 1. The judge ordered the organization disbanded because it doesn’t comply with state insurance regulations. The Florida-based Medi-Share is similar to secular insurance, but restricts participation to churchgoers who sign a pledge to abstain from alcohol, tobacco, drugs and sex outside of marriage. The organizers of Medi-Share claim that its members are aware that the program does not take the place of traditional insurance but is rather a charitable endeavor to help cover medical bills of fellow Christians with the potential of members having their own expenses covered should the need arise. The Medi-Share website outlines the treatments, medical conditions, procedures, and services that are ineligible for sharing, which are classified as expenses related to non-biblical lifestyles and choices.
DEADLINE EXTENDED FOR STATE INSURANCE EXCHANGES
The Department of Health and Human Services (HHS) has given states more time to finish their health insurance exchange planning, extending a deadline that expired on November 16, 2012. Under the health reform law, states are required to determine whether they will establish a state-based health exchange, or have the federal government operate in the state. The Administration announced an extension for the Exchange Blueprint, but allowed the November 16 deadline for the Declaration Letter to stay in place. States have until December to submit their health exchange blueprint to HHS.
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Petersen International Underwriters Disability • Life • Medical • Contingency www.piu.org • 800.345.8816 • piu@piu.org December 2012 » InsuranceNewsNet Magazine
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Adding workplace benefits to your practice is a great way to increase your revenue and secure more business.
HEALTH
Big Voluntary Opportunity in Small Business Market N ow any health insurance advisor can branch out into the employee benefits field. By Susan Rupe
I
f you are a health insurance advisor considering the voluntary workplace benefits market but thought that your clients might be too small to qualify, it might be time to take another look. “Every single workplace is a potential customer,” said Jennifer DeProspo, regional director of development with Wexford, Pa.based BOST Workplace Benefits. “How do you make the leap? You start small.” As more companies seek a piece of the workplace market, they are making it eas-
ier for smaller sized workplaces to qualify for benefits, DeProspo said. “Workplaces with as few as two or three employees can qualify, depending on the company providing the products. This is a great market to begin going after because many times these small workplaces think they can’t qualify for coverage.” Faced with decreasing commission revenue from health insurance premiums, many health insurance advisors are finding that adding voluntary workplace benefits to their product offerings can help offset the loss of health insurance commissions. “Adding workplace benefits to your practice is a great way to increase your revenue and secure more business,”
44 InsuranceNewsNet Magazine » December 2012
DeProspo says. “If you’re not doing it, someone else will.” The workplace benefits market offers new opportunities not just for more revenue but also for better client service. “The more lines of business you have in a company, the greater your retention rate,” DeProspo said as one reason why workplace benefits offer a reliable source of income. “The more lines you have to offer, the more your clients will look at you as a one-stop shop.” Diversification into workplace benefits is not only for health insurance advisors, DeProspo said, with more traditional life and disability insurance carriers also diversifying into this market.
BIG VOLUNTARY OPPORTUNITY IN SMALL BUSINESS MARKET “With health care reform, what employees are seeing are increased deductibles and co-pays, making (workplace benefits) more attractive,” she added. “The voluntary workplace market is being flooded with new products on a regular basis. We also are seeing health insurance carriers offering voluntary dental and vision benefits. Health insurance advisors who are sticking with traditional health products are missing out on a great opportunity to offer these products to employees who have a need for them.” Voluntary workplace benefits include: Accident coverage, which can pay benefits to employees who are injured on or off the job.
Voluntary Sales by Employer Size According to Eastbridge Consulting Group’s U.S. State ESI and EPI Data for 2011 report, the employer segment with over 2,500 employees accounted for the largest mix of voluntary sales. This segment accounted for almost one-third of all voluntary sales.
Employer Size Segment
Estimated 2011 Sales (in millions)
<10 employees
$179
10-25 employees
$392
26-99 employees
$781
100-499 employees
$1,120
Critical illness coverage, which pays a lump sum to employees who are stricken with a major event such as cancer or a heart attack.
500-999 employees
$587
1,000-2,500 employees
$662
Medical “bridge” or “gap” plans, which provide coverage to help employees pay higher deductibles on their health insurance.
>2,500 employees
$1,752
TOTAL for 2011
$5,478
Hospital plans, which pay cash to employees who are hospitalized for a specified period of time. Cancer coverage, paying benefits to employees undergoing cancer treatment. Dental and vision plans. 24-hour telephone access to physicians, nurses or other medical personnel when illness strikes and clients need advice on whether to go to the emergency room, for example. Pet insurance, helping employees pay veterinary expenses. Legal services such as will preparation. Short-term and long-term disability insurance. Health and wellness programs. With more products becoming available to more workplaces, DeProspo said
HEALTH
Source: U.S. State ESI and EPI Data for 2011
they are two types of groups that advisors should seek out in offering workplace benefits – those who don’t have benefits and those who do. “The biggest thing the advisor has to do is ask,” she said. “If (the group) doesn’t have (benefits), ask why not. If they do have them, ask the business owner or HR manager if they have shopped it out lately.” It is relatively easy for a health insurance advisor to expand into workplace benefits, DeProspo said, because most benefits companies have resources that can help. “It’s easy to position yourself as a consultant,” she said. “The resources are out there.” The time and effort needed to conduct the employee enrollment may be a challenge faced in working with this market. For example, a workplace with three shifts of employees may need to have enrollment meetings conducted throughout the day to serve the day-shift workers and after midnight to meet the needs of the late shift workers. DeProspo suggested
that health insurance advisors establish a relationship with an enrollment company. “The enrollment company can find someone local who can help you enroll the employees while you concentrate on your book of business,” she said. The health insurance advisor also can expand that partnership relationship by partnering with a financial advisor who also can cross-sell 401(k)s and discuss retirement savings options with employees, DeProspo said. “Don’t be afraid of partnerships and don’t try to be a jack-of-all-trades,” she said. “Partner with someone and be looked at as a one-stop shop.” Susan Rupe is the assistant editor at InsuranceNewsNet. She has experience as a newspaper reporter and editor, an insurance association communications director and magazine editor. Susan can be reached at srupe@ insurancenewsnet.com.
December 2012 » InsuranceNewsNet Magazine
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FINANCIAL
Advisors Are Thumbs Down on Traditional Asset Allocations New factors, such as low inflation, undermine the traditional stock, bond and mutual fund splits. By Steve Tuckey
T
he latest survey on IRA owners shows that investors are following the typical rule of thumb for their allocations, but some advisors are giving the thumbs down on what they call an outdated, and potentially dangerous, investment model. Individual retirement accounts have for decades served as tools to help ease the fears for those who use their tax-deferral advantages, and more importantly, keep just the right allocation of equities, bonds and mixed target funds for optimal preservation and growth of capital. The Employee Benefits Research Institute (EBRI) recently published a study that concluded IRA investors act pretty much as you would expect, according to their age and income status. “Overall, they seem to follow the predictable pattern with less equity exposure as you get older, and when you get larger balances they have more diversification across the categories,” said Craig Copeland, EBRI senior research analyst. Those under age 45 were much more likely to use balanced funds than were older IRA owners, and those under age 35 with balances less than $25,000 had particularly higher allocations to balanced funds. “This shift follows the standard investing rule of thumb that individuals should reduce their allocation to assets with high variability in returns (equities) as they age,” Copeland noted. Sean Dowling, principal of The Dowling Group, said that traditional wisdom does not always stand the test of time. “The results seem consistent with 46
what we typically see from new clients, but I strongly disagree that the allocations are appropriate,” he said. “Simply put, the brokerage business has convinced the general public of a myth that bond allocations should increase as you age. Not only do I disagree, but I believe that this fallacy is dangerous. I think that both young and old investors put their ‘retirement’ lifestyle at risk by following these rules of thumb perpetuated by the brokerage industry to sell their mutual funds, annuities, etc.” Investment advisor and author Dean Bahniuk said that many have lost faith in traditional asset allocation models, citing the unimpressive five and 10 year performance of equity funds. “The millennial generation watched the baby boomers lose a lifetime of sav-
InsuranceNewsNet Magazine » December 2012
ings in the dot com correction, credit crisis and housing crisis. There is not a lot of faith in equities right now,” he said. “But then again, history has demonstrated that this is when stocks explode” And bonds do not necessarily supply the answer. “Rates are at historic lows. Sooner or later rates will rise and bondholders will get crushed. And the ironic thing is the investor went to bonds for safety.” Copeland said that allocations can be linked primarily by type of IRA. The Roth version offers tax-free distribution with nondeductible contributions. In addition, there is no maximum age 70 requirement for withdrawal as there are in traditional IRAs funded by deductible contributions.
ADVISORS ARE THUMBS DOWN ON TRADITIONAL ASSET ALLOCATIONS
“The millennial generation watched the baby boomers lose a lifetime of savings in the dot com correction, credit crisis and housing crisis. There is not a lot of faith in equities right now. But then again, history has demonstrated that this is when stocks explode.” -Investment Advisor and Author Dean Bahniuk “The Roth is more of a supplemental vehicle funded entirely by contributions, as opposed to rollovers. With traditional IRAs, there comes a point where you have to start taking out, so you have to start thinking about preserving principal,” Copeland said. Roth accounts can remain intact through an investor’s later years, and after death pass on to heirs without any distribution requirement, as opposed to traditional IRAs. “Part of that is the tax deferral aspect of the traditional IRA in that the government wants its money back, whereas with Roth the tax has already been paid so they don’t care,” Copeland said. Thus, Roth IRAs had their highest share in equities at 59 percent and were 90 percent more likely to invest in equities than holders of traditional IRAs,
the report stated. Today in the U.S., about 50 million IRA accounts serve as the main retirement vehicle. For the most part, workers will opt for the 401k plan if that is available at work, because it usually includes matching contributions, and will more likely be prohibited from contributing to a traditional deductible IRA. “And of course, unless you are in the public sector, you will likely not have a traditional, defined-benefit pension plan available to you, although some large companies still have them,” Copeland noted. Still, only about 10 percent of those eligible contribute to an IRA. “People should always take advantage of deductible investments in their retirement, although not if they are just
Individual Retirement Account (IRA) Asset Allocation, by IRA Type, 2010 70% 59.1%
Traditional-Contributions
51.1%
50%
Traditional-Rollovers Sep/Simple
41.3%
45.5%
60%
Roth
0%
Balanced Funds
Equity
Other
Source: EBRI IRA Database. Balanced funds include balanced funds, life cycle/style funds, and target date funds. Money includes money market mutual funds and certificate of deposits (CDs).
10.6%
15.8% 8.5%
12.8% 7.7%
7.2%
Money
12.6%
19.8%
Bond
13.5%
9.8%
12.2%
9.9%
10%
10.5%
20%
15.5%
20.5%
30%
16.1%
40%
FINANCIAL
getting by, since there is a considerable penalty for early withdrawal,” he said. About the only anomaly the EBRI study found centered on the fact that the youngest IRA holders between the ages of 25 and 34 with balances under $10,000 had the lowest allocation of equities in their portfolios. Copeland attributed this to the fact that these accounts may have been inherited from parents or grandparents and thus subject to imminent forced distribution requirements. Or as newbies, these investors were unsure how to handle themselves in the seemingly risky world of equity investing. Investment advisor Michael Zhuang finds this trend disturbing and thinks they should be in equities from the very start. “Their human capital, manifested through their income from employment, is like a bond already,” he said. “And they won’t use the money for another 50 years, and so there is no chance whatsoever that stocks won’t over perform bonds in 50 years as long as they hold a well-diversified index portfolio,” he said. Harper Willis, owner of the 401rollover.com website, believes target date funds will assist the less than savvy investor to avoid the pitfalls of being his own asset allocation strategist. “You give up some control, including the ability to customize your own retirement plan. But that might actually be a good thing. Many of us are poorly equipped to manage portfolios ourselves in part because, as many studies show, we tend to buy and sell at the wrong times,” he said. Willis said you should respect your inner demons when planning your own asset allocation strategy. “You must ask yourself how vulnerable is your portfolio to sharp market decline and will you be able to ride out such fluctuations. If you think you might panic in a severe market downturn, then take a more conservative approach.” Steve Tuckey writes about insurance and other financial services issues for several national publications. Steve can be reached at Steve. Tuckey@innfeedback.com.
December 2012 » InsuranceNewsNet Magazine
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BUSINESS
YouTube: How to Become A Lead-Generating Star Attraction YouTube is the third most visited place on the Internet – shouldn’t you be there? By Muhammad Yasin
A
strong social media strategy is imperative for an insurance business to survive in this digital age. Creating and implementing a social media strategy takes time and continued effort, but always pays off if correctly executed. Yet many insurance businesses – even those with established social media strat48
egies – overlook YouTube as a means of attracting potential customers. Some insurance businesses may be intimidated by the thought of creating video, and others may believe that YouTube serves as a congregation of music videos and amateur videographers. Yet YouTube is the third most-visited website on the Internet, ranking only behind Google and Facebook. There are a variety of means to leverage Internet video to attract new customers to your brand who are searching for insurance.
InsuranceNewsNet Magazine » December 2012
The First Steps
If YouTube has never been a part of your social media plan before, start at the very beginning, which means buying a good HD video camera. You can shoot with an HD video camera on a smart phone, but having a dedicated video camera for shoots will make the creation of multiple videos much more efficient than continuously shooting and uploading from a phone. I have tried the shoot-by-phone method in the past and, although the costs may
YOUTUBE: HOW TO BECOME A LEAD-GENERATING STAR ATTRACTION be significantly cheaper, the hassles of production can be a real pain point. There are a variety of inexpensive HD video cameras available at any electronics store. You should also consider investing in good video editing software: it is simple to use and will make the process easier. Focus first on your content plan. Plan your first video. Remember, this video is not for you. The video you are about to create is for your audience. In every step, you need to consider your audience. Knowing as much about your audience (in this case, insurance customers) as possible will help you create effective video content. Your video will not be effective if no one wants to watch it. Research other videos as you create your content plan. See the kinds of videos other insurance companies make and see which videos draw the most views. Determine the kind of video you want to make. Successful videos tend to be entertaining, informational or educational. Your viewers need a reason to watch the video. Provide them with something in your video that they cannot get anywhere else. That might be a thorough demonstration of how your insurance product works. It might be helpful advice for the services your product provides every day. Consider talking to your sales team about the questions they are most frequently asked. Answering those questions will make your videos a useful tool to your sales team, as well as an educational tool for your customers.
Educating Your Viewers
Your video content needs to educate your viewers about insurance on some level. You can do this in a number of ways, but some are more straightforward – and simpler – than others. If you choose to make your video informative, it may include a spokesperson, but avoid being blatantly promotional. You are not creating a commercial, you are creating a video that contains insurance information relevant to your potential customer. Informational videos that garner the most views are those created by experts in specific industries. Viewers look to these experts for information,
BUSINESS
YouTube is the third most-visited website on the Internet, ranking only behind Google and Facebook. news and advice on their industries. As you create videos, consider what these experts do and replicate that for your business. Create content that is timely and relevant to current events. As you market yourself as an authority, customers will notice and be drawn to you. No one wants to buy from people who do not know their product. They want to buy from the person who knows insurance inside and out and is clearly an expert in the field. Most importantly, though, is to be authentic. Do not try to project a false image. Your viewers will see through it, and you will lose credibility. Another way to educate your audience is the instructional or helpful video. While giving a hands-on demonstration of your product is certainly an option, you will likely draw more viewers by focusing on an aspect of your industry. Anything that is directly relevant to your industry is fair game, as long as it appeals to your potential customer and acts as a learning experience.
Attracting Future Customers
Content can sell itself. If viewers love the content you are producing, they are likely to share it through their own social media channels, where it may again be shared through a different medium to another set of followers. The more you build on your reputation as an expert in your field, the more likely you are to see a large number of views on your video. Views are an important part of YouTube. Remember that you are looking for customers likely to buy insurance from your video marketing. In order to turn a view into a lead, you need to
create a call to action. That may mean listing your web address at the end of a video and in the video description. You can pay to “promote” your video on YouTube, which gives you an opportunity to directly link from the video to a third party website (such as your insurance website) through a “Call-toAction overlay.” If your audience enjoys your videos, they are very likely to follow the call to action at the end, search for more specifics in the video description and visit your personalized YouTube channel. If you have specific insurance products for sale via your website, embed a movie specific or related link to that product on the product page. Viewers may simply visit your website in hopes of finding more videos about insurance products. If you can show them a related product, you may have just created a lead. Creating helpful, educational and informative videos to share with an audience can help add a creative boost to your sales department. Focus on creative and original content and be authentic in every video you create. There is no need to try to overdo anything with special effects. Use multiple shots, become well-acquainted with your video editing software, and you will be creating great videos to educate and attract new customers to your business. Muhammad Yasin is a public speaker, e-book author and director of marketing for HCC Medical Insurance Services. Contact Muhammad at Muhammad.Yasin@ innfeedback.com
December 2012 » InsuranceNewsNet Magazine
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NAILBA INSIGHTS
The National Association of Independent Life Brokerage Agencies (NAILBA) is a nonprofit trade association with over 350 member agencies in the U.S. and Canada.
The Future of the Industry D espite our nation’s political division, Americans will continue to need the products our industry provides. By Dexter Umekubo
W
ith the presidential election behind us, the country seems as divided as ever. With the re-election of President Obama, the Democrats controlling the Senate and the Republicans controlling the House, it would not take a rocket scientist to know that there will be some political gridlock once again. Looking at the numbers of the popular vote and how the Blue/Red map looked post-election, there is no argument that we are a divided country. Let’s hope that our leaders on both sides of the aisle figure out a way to put down their partisan approaches and work together for the good of the nation. We are the greatest country on earth. I have faith we will find a way to work together. The questions in front of us remain: how much bi-partisan work will be done for the American people? How are we going to tackle an annual $1.5 trillion deficit? How are we going to deal with a $16 trillion-plus (and growing) debt? How will we deal with our dependence on foreign oil? We have the fiscal cliff to deal with, the end of the Bush-Era tax cuts, and the future of Medicare, Social Security, Tax Reform and a host of other issues as well. What will the estate tax be in 2013? These are just a small list of the economic issues we have to deal with – I don’t have the time or the space needed to review all of the other domestic and foreign policies and issues we must face. Let’s all hope that as Americans we can work together on these and many more issues, challenges, and problems that we need to address together. If there was ever a time for us to forget blue vs. red, I submit, this is the time. Using the color analogy do you think it is possible for us to be a purple country? Obviously, all these issues and many others have an impact on our industry. How will the insurance carriers deal with 50
a future (short or long, who knows?) of an historically low interest rate environment? Product changes, compliance to Actuarial Guideline 38 (AG38), shrinking margins and ever increasing pressures to be profitable in a highly demanding environment will continue to be a challenge for our industry. So, what’s ahead? I often tell my friends and peers in the industry when I am asked these questions, my standard answer is, “my crystal ball is a bit out of focus and not working very well and the last time I saw Madame Ruth - you know that Gypsy with the gold capped tooth…” (if you don’t know that musical reference, then you’re a lot younger than me and I am giving my age away). In other words, I really can’t tell you what lies ahead. But, this is what I do know, and why I am very bullish on our industry and business: The things we do, the services we provide, the problems we solve for the people we serve will always be of value and needed. People still get sick, become disabled, go to long-term care facilities and yes, die. What we do is give the people we serve the tools to deal with all of these things. What we do for them can make their lives and the lives of the ones they love better! The opportunity to serve our clients and take care of their financial needs and their desire to take financial responsibility and take care of the ones they love will never go away! As long as we can sell the products that do so much for our clients, we will have a thriving and successful industry. Here is my personal plea to you. Get involved in our industry! Be an active member of AALU, FPA, NAIFA, SFSP, NAHU, WIFS or any one of the many other industry associations. Do your part with whatever industry association(s) you belong to and support your PAC. Tell your local congressman or senator why life insurance should continue its tax benefits. Remind them that the people who buy our products are making a decision to be financially responsible so that they and their families are not a burden on the system.
InsuranceNewsNet Magazine » December 2012
There is no other service industry that does more good for our society. We help people plan for the three most important financial problems they face. [ 1] Dying too soon and leaving those they love in a financial predicament. [ 2] Outliving their financial resources. [ 3] Becoming disabled or having a long-term care need that will most certainly wipe out a lifetime of savings very quickly. No one else does what we do. No one else CAN do what we do! So, please take pride in yourself and our industry. We have so many to serve and so much to offer. The future, despite all of the challenges ahead, is very bright. People still want to take care of the ones they love and want to do the right thing. It is our job to help them and facilitate their desires to meet those goals. Finally, this will be my last column as the 2012 NAILBA Chairman and it has been my honor to have been able to write these quarterly columns for InsuranceNewsNet. I will be forever thankful for having the opportunity to share with you some of my thoughts over the last year. Next year, you will get to hear from Ray Phillips, my friend and the incoming NAILBA Chairman for 2013. I know you’ll enjoy reading Ray’s thoughts, comments and perspectives about our great industry. To all of you that have taken the time to read my columns, thank you, and I wish you continued success and “GOOD SELLING!” Dexter (Dex) Umekubo, CLU, ChFC is the Senior Managing Partner of Producers XL and the 2012 NAILBA Chairman of the Board. NAILBA is the premiere insurance industry organization promoting financial security and consumer choice through the use of independent brokerage distribution. NAILBA serves as the national association of life, health and annuity insurance distributors. Contact Dexter at Dexter.Umekubo@ innfeedback.com.
Every year, new tax proposals threaten your products and your business. Only NAIFA protects both. Find out more at www.NAIFA.org/ItPays
December 2012 Âť InsuranceNewsNet Magazine
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MDRT INSIGHTS
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
With Or Without HSA, HDHPs Are Here to Stay An informed and involved health-care consumer is the best defense for controlling premium cost. By Brad Elman
O
ver the past six years, there has been a significant migration from traditional preferred provider organization (PPO) health plans to consumer-driven health plans. These are typically high-deductible health plans (HDHP) with health savings accounts (HSA) which initially included an employer-sponsored contribution. Six years ago, an employee could take the cost savings in premium created from choosing the HDHP (versus the employer’s traditional PPO plan) and use it to fully fund the HSA and still save the company money in comparison to the previous year’s traditional PPO plan. This was effective for employees because they had little or no out-of-pocket exposure. If they didn’t use an HSA contribution for health care, they could use it for other IRS 213d expenses. In addition, the employer saved money and provided a more comprehensive package to the employee. The insurance carriers benefited as well because the employee had financial “skin in the game” and was proactive about how they used care, ultimately lowering morbidity cost. However, in my experience, the HDHP plans attracted a lot of claims since the employees’ out-of-pocket expense were so low or even zero, which was the opposite of what insurers anticipated. The result was premium costs escalating to a much higher rate than traditional PPOs. Over time, as the premiums increased for high-deductible HSA-compatible plans, the employer’s contribution to HSA has gone down each year, roughly by the amount of the increase in the premium. Over a six-year period, 52
the employee has slowly weaned off the expectation that an HSA contribution will be made on his or her behalf. From a behavioral economics perspective this is interesting. Deductibles would not be as high today if it were not for the process that took place. The HSA softened the introduction of a quantum increase in the deductible amount. The gradual reduction of HSA contribution over time was more palatable than the significant increase in the deductible would have been over the same time period. Six years ago, a typical client had a $250 or $500 annual calendar year deductible. Now, because of the HDHP HSA phenomenon, deductibles for PPOs are routinely $1,500-$3,500. In my opinion, higher deductibles encourage consumer proactivity as it relates to their health care expenses, and are the only way we are going to get price stabilization in the health insurance marketplace. This year, almost without exception, clients are moving back to traditional PPO plans, which are not HSA compatible but the deductibles are at the same level as the HDHP plans, typically $2500 for an individual. Although HSA-compatible plans are waning in popularity, there have been many beneficial outcomes from client exposure to them. First and foremost is client education on the actual cost of health care. For many years, people assumed a doctor’s visit cost $10, a generic prescription costs $10 and a brand name drug costs $25. HSA-compatible plans incentivized employees to learn about the actual cost of health care. If the difference between a generic and a brand name drug is only $15, (as it typically would be with a prescription drug benefit on a traditional health plan), people aren’t seeing the true cost of their decision and they may choose a brand name drug because $15 is not significant to them. On the other hand,
InsuranceNewsNet Magazine » December 2012
if they saw the cost of the generic drug was $3, and the actual cost of the brand name drug was $300, they might choose to try the generic, ultimately saving everyone money. Take this a step further as it relates to diagnostics. A physician may suggest that an individual with an HDHP have a test such as an MRI. The individual may choose to pay for the MRI or to take a more conservative approach to treatment before having that diagnostic performed. If an individual does have to pay the actual cost for the MRI versus a small co-pay, they may decide it’s a better option to try physical therapy, or other less expensive measures before going through with the test. It’s not for us as advisors to say what’s right or wrong for an individual, but having the individual be part of the decision-making process is a very positive step. Even though we are now seeing a trend away from HSA-compatible HDHPs, they have influenced the decision process of the individual. Now, we have the best of both worlds. We have lower cost, high-deductible plans that engage the consumer to think about cost, treatment alternatives and first-dollar coverage because the shift to a non HSA-compatible HDHP plan allows for office visits and drugs with copay. These plans are typically best for consumers who need high-cost drugs who are otherwise healthy, and an employee who would benefit from tax deductibility of a larger out-of-pocket exposure. In this case, an HSA compatible plan might be a better option. Given the high cost of health care and health insurance, HDHPs are here to stay with or without an HSA. Brad Elman, CLU, is a principal at Nine Dots Benefits in Los Altos, Calif. He is a 20-year MDRT member with 10 Court of the Table qualifications. He can be reached at Brad. Elman@innfeedback.com.
Over 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.
LIMRA INSIGHTS
Advisors Still No. 1 Source for Information and Assistance C onsumers want to be able to ask questions, have their needs analyzed, and build a relationship with someone who will help with their future needs. By Mary M. Art
W
e are a connected society. Most people in the United States and Canada are online, accessing more information and services than ever. A recent LIMRA study examined how the Internet has influenced the way consumers gather information on individual insurance and annuities and how it has impacted the way individual products are bought and sold.
The Sources
LIMRA found that insurance professionals are the most used information sources: 78 percent of consumers in Canada and 69 percent of those in the United States turn to insurance professionals for information (Table 1). The Internet is the second most common source, used by 61 percent of consumers in both countries who sought information from any source within the prior 24 months. These top two sources are often used in different ways and with different goals in mind. Use of online sources has increased in both countries, growing from only 23 percent in 2003 to 61 percent in 2012 for online consumers in Canada. In the U.S., use of online sources increased from 38 percent in 2006 to 61 percent in 2012. Clearly, the Internet is growing as an information source. Recent information seekers (44 percent in the United States and 48 percent in Canada) very often used both insurance professionals and online sources. Patterns of information seeking vary among those using both of these sources. Some consumers go online both before and after meeting with insurance professionals; others go online only to locate an agent or company contact information. Still other consumers prefer to educate
themselves prior to meeting with insurance professionals so that they know what questions to ask. Despite the growing reliance on the Internet for information, consumers value information from insurance professionals the most. In the survey, consumers also rated information from insurance professionals highest in influence and satisfaction. Overall, the largest percentage of consumers rate insurance professionals as their single most valuable source
TABLE 1: INFORMATION SOURCES USED TOP 7 MENTIONED Agent/broker/advisor Internet Friends/relatives/co-workers Employer/human resources department Mail Parents/parents-in-law Books, magazines, newspapers
USA Canada 69% 78% 61 61 33 38 33 25 19 14 15 13 15 15
% = consumers who seek information from any source
of information (37 percent in the United States and 40 percent in Canada) in comparison with online sources, which came in second place as the “one most valuable source” (25 percent in the United States and 27 percent in Canada).
The Who and The What
As expected, Gen Y consumers in the United States and Canada are significantly more likely to look online for information than do older consumers. By comparison, men are significantly more likely to look online for information than are women. LIMRA’s study found that almost 60 percent of consumers who seek information online look for product information from specific companies. Roughly 1 in 2 look for prices, and more than 1 in 4 use online calculators and worksheets. Most consumers locate their agents, brokers or advisors through offline sources. Gen Y consumers use agent locators significantly more often than older seekers, making this is a good way to connect with this generation.
Financial Professionals Are Still Considered Valuable
Although the Internet is a popular and easy-to-access information source, many consumers prefer to meet with insurance professionals (often their personal agents) and ask questions and skip online information sources. These consumers want to be able to ask questions, have their needs analyzed, and build a relationship with someone who will help them with their future needs and be there for future service and potential claims. As technology matures and more people become accustomed to videoconferencing, some may be more willing to use this communication option for at least one sales meeting, enabling insurance professionals and prospects to save time. Technology is changing the way consumers identify needs and gather information, even if they do not want to search online.
The Future
What will the future bring? Gen Yers are most likely to rate online sources as their single most valuable information source, to seek online recommendations for companies, and to use agent locators relative to older consumers. When Gen Yers are in their 20s and have simpler needs, online sources may be sufficient. However, many of them look for recommendations onand offline. Insurance professionals need to have an online presence and they may be able to reach out to online consumers (and especially Gen Y consumers) through carriers’ agent locators, personal websites, social media and educational blogs. Insurance professionals should consider the Internet their business partner and use it to reach out to current and future customers in new ways. Mary M. Art, research director of LIMRA’s technology in marketing and distribution research, is responsible for new research in the technology area. She can be reached at Mary.Art@ innfeedback.com.
December 2012 » InsuranceNewsNet Magazine
53
THE LAST WORD
WITH LARRY BARTON
Beware the sales guru who says, “You need to get your clients to follow all of your advice.”
The Arrogance of Sales Gurus Makes Pariahs of Us All “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?” - Woody Allen, Screenwriter, Film Director
By Larry Barton
O
ur culture has branded the individual who sells insurance as a pariah. Why? Insurance protects millions of families from financial devastation. Life insurance in particular makes sure that families keep their 54
homes and that children go on to receive a college education if the primary breadwinner meets an untimely end. I’m proud to be affiliated with our industry. The individuals I know who sell insurance make an important difference in the lives of their clients by providing them with financial security. Need proof? Ask any agent who has ever delivered a death benefit check to a struggling widow or widower thanks to the deceased’s forethought in purchasing a life insurance policy.
InsuranceNewsNet Magazine » December 2012
So then why does the public loathe the idea of spending time with a life insurance professional? There are several possible explanations: Insurance professionals remind individuals of their mortality and that bad things can happen to them. Most people prefer to focus on the positive instead of protecting against the negative. Insurance can be complicated. There are definitions, exclusions, provisions
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Website
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Financial Independence Group
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Ohlson Group
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Prudential www.prudential.com/advantageul 800-292-0054 7 Security Benefit
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Wealth Financial Group
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December 2012 Âť InsuranceNewsNet Magazine
55
THE LAST WORD
THE ARROGANCE OF SALES GURUS MAKES PARIAHS OF US ALL
and riders. People want to simplify their lives and insurance can be complex. Instances of poor customer service reflect badly on the industry. Every time a customer is treated poorly or is ignored, the industry gets a black eye. And while all of these issues are problematic, the one issue I encounter that causes me to personally recoil in disgust is the way some individuals in our industry approach the sales process. It is this process that causes state and federal regulators to cast a suspicious eye toward insurance companies. Let me give you an example. Have you ever heard a supposed insurance sales guru say: “Don’t leave money on the table. Do everything you can to prevent your client’s assets from going elsewhere.” That advice is an affront to common sense. Most clients wisely embrace the concept of diversification. Having financial assets spread across different types of investments reduces risk. After what happened with Enron, most everyone with an ounce of financial acumen would agree that putting all your retirement assets in one company’s stock could be a potential recipe for disaster. The same can be said of companies. When consumers purchase a financial product, they want to make sure that the company they are doing business with now is still solvent and able to meet their obligations in the coming decades when they need them. None of us can say with 100 percent certainty what the future holds for any company. Who would have guessed a decade ago that AIG would need to take money from the federal government to stay afloat? I certainly didn’t. Spreading risk across financial institutions is just as sensible and diversifying your investment portfolio. “Don’t put all your eggs in one basket,” applies to both situations. Yet sales gurus will advocate approaches that violate common sense and prudent financial practices. Here is another example: Beware the sales guru who says, “You need to get your clients to follow all of your advice.” This is a completely backwards approach. Financial advisors should first and foremost be LISTENING to clients 56
Sales and marketing techniques applied in arrogance with no regard for the intelligence and common sense of the consumer make this honorable industry look as if it only cares about making a fast buck. and helping them to achieve THEIR goals. Asking clients to follow all your advice is the hallmark of the “one size fits all” financial advisor who wants to appear all knowing while prescribing the singular path to financial enlightenment. And while the one size fits all approach may be easy and convenient, creating customized plans, tailored to clients’ individual needs is the hallmark of a true professional. (Are you listening, Suze Orman?) So what’s the alternative? Relationships are the key to long-term success and building a business. To build relationships, financial practitioners need to embrace a needs-based perspective focused on helping clients achieve financial security. This is an approach that at its heart embraces the wisdom of Solomon Huebner, the founder of The American College, who in the late 1920s began asking all individuals who earned the Chartered Life Underwriter, (CLU) designation to make the following pledge: “In all my professional relationships, I pledge myself to the following rule of ethical conduct: I shall, in light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself.” Simply put, treat others the way you would want to be treated. With a needs-based sales approach, the focus is on the customer, rather than on the product being sold. You
InsuranceNewsNet Magazine » December 2012
build long-term trust with customers by providing them with financial services that help them achieve their objectives. And when you establish a bond of trust by selling clients what they need, as opposed to what you want to sell, you create a relationship that leads to repeat business and a more profitable practice. Sales and marketing techniques applied in arrogance with no regard for the intelligence and common sense of the consumer make this honorable industry look as if it only cares about making a fast buck. This is why designations are important. In addition to teaching fundamental product knowledge and sales skills, these programs require ethics training grounded in the idea that we should treat our customers the same way we ourselves would want to be treated. As we enter 2013, each of us has the opportunity to reflect and renew our efforts to improve ourselves. If you are leading an insurance sales team, make sure your marketing techniques focus on the customer’s needs. To do less reflects badly on our industry and diminishes the reputation earned by decades of financial practitioners who sought to make insurance an honorable profession. Do you agree? I invite you to write me at InsuranceNewsNet and share your perspectives. Let’s get a thoughtful dialogue started. Larry Barton, Ph.D., CAP, is president, CEO and holder of the O. Alfred Granum Chair in Management at The American College, based in Bryn Mawr, PA. Contact Larry Barton at Larry.Barton@innfeedback.com.
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