InsuranceNewsNet Magazine - July 2022

THIS MONTH : THE INDEXED PRODUCT ISSUE Life • Annuities • Health/Benefits Financial Services • Multiline JULY 2022

Indexed life insurance and annuity products are immensely popular.

But some critics charge they are too complicated and immersed in fraud.

PAGE 16 Building a network of success — An interview with Matt Sapaula PAGE 10

Life insurance: Build and protect multigenerational wealth PAGE 26

How to help your clients weather today’s turbulent market PAGE 30

A guarantee shouldn’t be a guess Powerful investment protection without the sleight of hand Page 4

CMGA, CMP-4500382.1-0322-0424

Help improve your clients’ retirement forecast.

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Clients don’t have to sacrifice competitive rates for the security and certainty they’re seeking.

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MaxProtect brings your clients an investment they can count on, combining a competitive, guaranteed return on their investment, tax-deferral and protection from market volatility.

Connect with a wholesaler at 877.345.GROW (4769) or scan the QR code to visit smartriskcontrol.com/maxprotect.

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All guarantees are backed by the claims-paying ability of CMFG Life Insurance Company. Withdrawals may be subject to surrender charge and may also be subject to a market value adjustment (MVA). Withdrawals of taxable amounts are subject to ordinary income tax and, if taken before age 59½, may be subject to a 10% federal tax penalty. If you are considering purchasing an annuity as an IRA or other tax-qualified plan, you should consider benefits other than tax deferral since those plans already provide tax-deferred status. The company does not provide tax or legal advice. Contact a licensed professional.

CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Annuities are issued by CMFG Life Insurance Company (CMFG Life), 2000 Heritage Way, Waverly, IA 50677. CMFG Life is a stock insurance company.

Investment and insurance products are not federally insured, may involve investment risk, may lose value, and are not obligations of or guaranteed by any depository or lending institution. All contracts and forms may vary by state and may not be available in all states or through all broker/dealers. Base Policy Forms: ICC20-SPDA, 2020-SPDA FOR REGISTERED REPRESENTATIVE USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. Fixed Annuities are issued by

CMFG LIFE INSURANCE COMPANY, a stock life insurance company CMGA, CMP-4500382.1-0322-0424

© CUNA Mutual Group

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IN THIS ISSUE

View and share the articles from this month’s issue

» read it

JULY 2022 » VOLUME 15, NUMBER 07

HEALTH/BENEFITS

FEATURE

16

Kings of the hill

By John Hilton The market for indexed products is robust, but regulation and class-action lawsuits could rain on its rosy outlook.

INFRONT

8 Inflation hits the insurance industry with no letup in sight

By Doug Bailey Premiums are caught in the crossfire as insurers deal with increasing claims costs and a worker shortage.

10

INTERVIEW

10 Building a network of success — one step at a time Matt Sapaula became a million-dollar earner after only three years in the business. In this interview with Publisher Paul Feldman, he describes an approach that helps new agents get their feet wet.

IN THE FIELD 21 C alled to serve

By Susan Rupe Nathan Smith’s life changed in the aftermath of a tornado.

Now he serves his fellow veterans.

LIFE

26 Life insurance: Build and protect multigenerational wealth

By Howard Sharfman Although high net worth individuals have many vehicles for building and protecting wealth, life insurance provides some unique ways of doing so.

ANNUITY

30 H ow financial advisors can help clients weather market turbulence

By Al Dal Porto Inflation and market volatility make fixed indexed annuities a good option for a client’s portfolio.

INSURANCE & FINANCIAL MEDIA NETWORK PUBLISHER EDITOR-IN-CHIEF MANAGING EDITOR SENIOR EDITOR VP SALES MANAGER/ACCOUNTANT

Paul Feldman John Forcucci Susan Rupe John Hilton Susan Chieca Jen Wingard

CREATIVE DIRECTOR GRAPHIC DESIGNER SENIOR CONTENT STRATEGIST DIGITAL CAMPAIGN MANAGER TRAFFIC COORDINATOR MEDIA OPERATIONS MANAGER

online

www.insurancenewsnet.com/topics/magazine

34 What agents need to know about the cost of long-term DI

By Mike Brown Like all insurance, the price of disability insurance is tied to risk.

ADVISORNEWS

38 Advisors can turn to client reviews to help repair their image

By Brian Thorp Before financial advisors can get started with online reviews, it’s important to understand the regulatory landscape and prerequisites.

MULTILINE

42 Flood damage can happen where you least expect it

By Tim Radcliff If you haven’t noticed an uptick in floodrelated damage in your area, it’s likely you will soon. What your clients need to know.

BUSINESS

The Know-It-All Client.

44 Customer service is always easy … until it isn’t!

By Joanne Pietrini Smith Educating and communicating can go a long way in diffusing a difficult customer relationship.

INSURANCE & FINANCIAL MEDIA NETWORK 150 Corporate Center Drive • Suite 200 • Camp Hill, PA 17011

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NATIONAL SALES DIRECTOR NATIONAL ACCOUNT DIRECTOR NATIONAL ACCOUNT DIRECTOR NATIONAL ACCOUNT DIRECTOR DATABASE ADMINISTRATOR

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Copyright 2022 Insurance & Financial Media Network. All rights reserved. Reproduction or use without permission of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail editor@insurancenewsnet.com, send your letter to 150 Corporate Center Drive, Suite 200, Camp Hill, PA 17011, fax 866.381.8630 or call 717.441.9357. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 717.441.9357, Ext. 125, or reprints@insurancenewsnet.com. Editorial Inquiries: You may e-mail editor@insurancenewsnet.com or call 717.441.9357, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.innmediakit.com or call 717.441.9357, Ext. 125, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 150 Corporate Center Drive, Suite 200, Camp Hill, PA 17011. Please allow four weeks for completion of changes. Legal Disclaimer: This publication contains general financial information. It should not be relied upon as a substitute for professional financial or legal advice. We make every effort to offer accurate information, but errors may occur due to the nature of the subject matter and our interpretation of any laws and regulations involved. We provide this information as is, without warranties of any kind, either express or implied. InsuranceNewsNet shall not be liable regardless of the cause or duration for any errors, inaccuracies, omissions or other defects in, or untimeliness or inauthenticity of, the information published herein. Address Corrections: Update your address at insurancenewsnetmagazine.com.

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InsuranceNewsNet Magazine » July 2022

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IMG22920 | INN 7.2022

WELCOME LETTER FROM THE EDITOR

On a journey to understand the changing financial landscape

T

his year, like many recent years here in the Northeast where I live, the majority of spring was relatively cool — sometimes downright cold. Then it suddenly heated up as we edged closer to July, in some cases jumping from the 50s one day to 90 degrees the next. We often say that we really don’t have much of a spring here: We go right from early spring directly to the start of summer. We’ve begun to grow accustomed to this quick change, but the extremes are tending to get, well, a bit more extreme.

As I start my tenure as editor-in-chief, the financial markets also are undergoing rapid — and sometimes extreme — shifts.

Where we were once used to a smaller, more familiar set of financial products and instruments, we find ourselves in a new, rapidly changing reality.

Inflation is creating havoc throughout the economy and is having an impact on everything from consumer goods to the cost of auto insurance. Inflation is also creating concerns among advisors and those planning for their retirement — whether it’s near term or a still distant prospect.

The Federal Reserve will do battle with inflation with rate hikes as their main weapon. How they deploy rate hikes — slow vs. rapid, incremental vs. larger — will likely have its own set of consequences.

are working to understand new products that are arising to address these financial challenges, and to be prepared to advise consumers in navigating the quickly growing range of options. Indexed life insurance and annuity products, for example, are growing at a historic pace, as are the indexes they are based upon.

Pandemic has its own series of impacts

What does all this turbulence mean?

Of course, the pandemic has had its own series of financial consequences, including a wounded economy and supply chain interruptions that have caused productivity problems around the globe. The Great Resignation and Great Retirement are phenomena we’re still trying to understand and grapple with. Climate change, with worsening West Coast fires, East Coast hurricanes, and a growing occurrence of tornados in between, is also having its impact on insurers, policy costs and managing risk.

Insurance agents and financial advisors 4

InsuranceNewsNet Magazine » July 2022

What does all this change and turbulence mean? Can anyone predict what the landscape will look like even a year from now?

Information is crucial to navigating these rough waters successfully. As these changes come into focus, our role will be to understand the implications of the changes and bring in many expert voices who can inform your next steps.

I’d also like to hear from you, our readers.

» What are the issues that concern you most?

» What topics would you like us to cover that we have not covered yet, or that you would like us to cover more in depth?

» Are there questions you’d like us to answer?

The chances are good that if you have a particular question or challenge you are facing, many of our other readers will as well. Also, if you have found something new that is working well for you, many in our audience could benefit from your discoveries.

We hope to use these pages to provide the information you need to navigate these changing markets, products and services. And we hope you join us on the journey to understand what these growing series of changes will mean to you and your customers.

John Forcucci Editor-in-chief

Turn headwinds into tailwinds by capturing the benefits of market uncertainty.

Deteriorating economic conditions have created three headwinds that your clients face: inflation at 40-year highs, short-term interest rates forecasted to rise, and renewed market volatility. How can you help clients take advantage of this uncertainty?

Turn those headwinds into tailwinds with solutions that can protect principal, earn interest based on part of the positive changes in market indices, accumulate tax-deferred, and even take advantage as rates rise.

Scan the QR code to get the details, or visit us at SecurityBenefit.com/CreateCertainty.

FINANCIAL PROFESSIONAL USE ONLY — NOT FOR USE WITH CONSUMERS Annuities are issued by Security Benefit Life Insurance Company (SBL) in all states except NY. Services offered through Security Distributors, a subsidiary of SBL, which is wholly owned by Security Benefit Corporation ("Security Benefit").

One Security Benefit Place | Topeka, KS 66636 | SecurityBenefit.com SB-10019-03 | 2022/05/20

Sponsored Content

A guarantee shouldn’t be a guess Some investment guarantees make complex promises with fees to match. Others deliver the clarity and protection investors deserve.

Your guidance helps clients know the difference.

Guarantees should be simple and strong Clear communication with your clients is the basis of long and beneficial relationships. But when it’s time to explain how guaranteed products work, it can get complicated:

• What’s protected, and in what situations?

• What happens in up markets vs. down markets?

• What are the fees?

Today’s investors are interested in market growth potential but fear the possibility of catastrophic loss. And in the ever-changing market, they want to know they’re getting value for their hard-earned savings. If we go back to the basics, it’s annuities

that can offer that value — providing a tax-deferred way to participate in market gains, combined with a measure of protection against market loss.

But all annuity guarantees are not created equal.

Educate your clients about what to expect Now more than ever, your job is to make sure clients understand what they’re getting for the fees they’re paying. Some guarantees deliver more clarity and protection than others, while charging competitive, even lower, fees. Successful advisors don’t simply help an investor find ways to manage their money — they help manage expectations and emotions.

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There are better ways to guarantee You may want to reconsider the guarantees you recommend to help clients meet their goals:

• If you’ve been using traditional fixed or index annuities as a way to keep things simple, there may be other straightforward ways to help guarantee the upside potential and provide a measure of downside protection clients need.

• If you’ve been using annuities with lifetime withdrawal benefits as a way to deliver potential gains and protect against loss, products with risk control accounts may offer more opportunity for growth, along with loss limits and lower costs that can be less ambiguous.

Annuities with risk control features may improve the predictability of future cash flows.

Remember, all guarantees are not created equal. At CUNA Mutual Group, we’re committed to breaking down the barriers to financial security for all, and

The question of income For clients seeking both growth potential and protection, advisors may recommend an index or variable annuity with a lifetime withdrawal benefit even when the client isn’t looking for guaranteed income. The rationale often being, “In good markets you’ll have opportunity for growth, and in the worst-case scenario of dramatic loss, you can fall back on your benefit base and draw income for life.”

36%

Only 36% of guaranteed lifetime withdrawal benefits were utilized, according to a report released in 2021, and more than threequarters of those withdrawals were taken systematically.1 If accumulation potential with guarantees against market loss is what your clients are looking for, there may be better ways — like risk control — to provide account value guarantees.

we do that by offering understandable products that help investors realize gains without risking it all.

Call the CUNA Mutual Group Annuity Solutions Desk at 877.345.GROW (4769) to talk more about what different kinds of guarantees can do for your clients.

1

LIMRA & Society of Actuaries, 2018 Variable Annuity Guaranteed Living Benefits Utilization, 2021.

Annuities are long-term insurance products designed for retirement purposes. Clients should consider a variable annuity’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information. Encourage clients to read it carefully.

All guarantees are backed by the claims-paying ability of the issuer and do not extend to the performance of the underlying accounts which can fluctuate with changes in market conditions. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates.

Annuities are issued by CMFG Life Insurance Company (CMFG Life) and MEMBERS Life Insurance Company (MEMBERS Life) and distributed by their affiliate, CUNA Brokerage Services, Inc., member FINRA/SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, IA 50677. CMFG Life and MEMBERS Life are stock insurance companies. MEMBERS® is a registered trademark of CMFG Life Insurance Company. Investment and insurance products are not federally insured, may involve investment risk, may lose value, and are not obligations of or guaranteed by any depository or lending institution. All contracts and forms may vary by state and may not be available in all states or through all broker/dealers.

CMGA, CMP-4500382.1-0322-0424

FOR REGISTERED REPRESENTATIVE USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC.

© CUNA Mutual Group

INFRONT

Inflation hits the insurance industry with no letup in sight The industry is caught in a perfect storm of increasing claims costs and a worker shortage. What does that mean for premiums?

By Doug Bailey

I

nsurers were generally slow to raise rates and premiums as inflation blossomed and bloomed over the last year or two. But that is now changing. Premiums for auto, health, life and homeowners policies are climbing, some at a higher speed than the current inflation rate. And experts say they see no letup in sight.

Inflation with its effects on premiums is “the topic of conversation among our clients within the industry, among boards of directors and a lot of the executives that we speak to,” said Marlene Dailey, financial services senior analyst with RSM US. “I’ve attended a lot of conferences where this is the main topic of discussion, specifically for middle-market carriers.”

Research by Bankrate shows that the average cost of car insurance likely will rise for many drivers this year. Several major auto carriers — including Allstate, Progressive, Geico and State Farm — increased rates in late 2021 or early this year in many states. Allstate and its subsidiaries, for example, have had at least 41 rate increases approved since the fourth quarter of 2021. The increases have varied from around 3% to less than 12%, according to S&P Global Market Intelligence.

Although they seem to be more than making up for lost time, insurers say the delay in reacting to spiraling inflation rates was mostly a factor of forbearance during the pandemic. Some auto insurers even offered rebates and supplements during the height of the pandemic because people weren’t driving. However, that is changing rapidly.

“The overall cost of doing business is increasing for practically all companies in 8

InsuranceNewsNet Magazine » July 2022

the U.S., including insurance companies,” said Steve Ellis, assistant vice president and claims field manager for Bankrate.

“And because the ‘cost of doing business’ is part of the calculation of premiums, consumers can expect, in general, higher premiums in 2022.”

The forces pressuring rate increases are the same as those pushing overall inflation: labor shortages; supply chain disruptions; rising costs of goods and services, particularly healthcare and auto costs; geopolitical factors; wage increases; and lifestyle changes brought on by the pandemic.

Moreover, there has been an uptick of dangerous driving as the pandemic has lessened, with a record number of fatal accidents contributing to rising premiums.

cost inflation is leveling,” Dailey said.

“And we are seeing a slight decline in auto parts costs. But the price to repair autos continues to rise.”

According to Bloomberg, auto repair costs since 2019 are rising at an average rate that is twice as high (at 4.9%) as the 2016–2019 average rate (2.3%).

“People are driving more and, obviously, the more you drive, the more likely you are to have an accident,” Dailey said.

“And cars are more expensive. With supply chain issues, there are problems of getting parts and shipping delays. All of this is putting inflationary pressures on the industry.”

And with all the innovations in auto technology and safety features, more people are surviving serious accidents, which leads to higher medical costs.

“There are some indications that claim

“For instance, the traditional private passenger windshield claim typically costs less than $500. However, many of the tech-enabled capabilities and sensors designed to protect you are located right behind or within the windshield. Estimates to recalibrate this technology can cost between $1,000 and $1,500 on top of the typical replacement cost, depending on the manufacturer.”

In addition, new tech-enabled vehicles require new skill sets and training, she said. For repairers or auto insurance

Technology comes at a cost

While technology, such as advanced driver assistance systems in newer vehicles that help navigate and park more safely, provides improved protection, it also comes at a higher cost when repairs or parts are required, Dailey noted.

“For the near term, this means that these tech-enabled automotive parts will be more expensive to repair or replace in the event of an insurance claim,” she said.

INFLATION HITS THE INSURANCE INDUSTRY INFRONT appraisers, this requires an investment in technical training programs and certifications that focus on requirements to meet the rapidly changing needs of the industry.

Labor issues plague the industry

Yet, of all the overriding factors pushing insurance rate increases, Dailey is most concerned with the labor issues facing companies.

“Having been in the industry for 20 years, I think this period shows the most serious labor and skills shortage,” she said. “We’re at a point where baby boomers are leaving the industry. And you have digital natives entering the industry who don’t have the knowledge and skill set of somebody who’s been there and can handle severe claims, litigation, D&O and very complex claims issues. They’re leaving, and it’s difficult to replace those skills, or get all of that knowledge or upskill and retrain and attract this new talent. Let’s face it, insurance isn’t sexy and it’s not the first thing that millennials are interested in.”

Surveys support that opinion. Nearly 400,000 employees are expected to retire from the insurance industry within the next few years, according to the U.S. Bureau of Labor Statistics.

The crisis facing insurers, according to some, is a growing lack of interest in insurance as a career path. Eight out of 10 millennials say they have limited knowledge and understanding of the employment opportunities available in the insurance industry, according to a survey conducted by The Institutes. In addition, 44% of millennials do not find a career in insurance interesting, according to Valen Analytics, even though insurance can offer opportunities in marketing, finance, data analysis and information technology — things that should appeal to the millennial generation.

A report by Amtrust Financial Services blames the lack of interest among millennials on the fact that many have put off homeownership or buying a car, and thus haven’t had much experience with insurance, despite the industry’s moving trend in adopting new technology and social media. ”More and more insurers are realizing they have to get better and faster access to data,” Dailey said. “They can no longer

sit on legacy systems and have to use these data-driven insights to augment the shortage with labor and skills. Now we’re seeing more and more a sense of urgency on how they make that transition.”

But the huge investment in technology won’t initially decrease pressure on costs and rising premiums, she said.

Meanwhile, US employers expect group health plan premiums to rise an average of between 4.7% and 5.2% this year, despite cost-management initiatives, according to recent employer surveys. Overall costs for health claims are also expected to rise, health insurers forecast. Premium increases in 2020 and 2021 were the smallest in decades as many people deferred nonemergency care and turned to telemedicine during the pandemic, according to a report from Willis Towers Watson.

Employers are not expected to increase their workers’ share of coverage this year, according to Mercer’s Survey of Employer-Sponsored Health Plans. On average, Mercer reports, employees will pick up 22% of total health plan premium costs, unchanged from 2021. However, Mercer’s survey was conducted before the record rise in inflation this year.

On the homeownership front, homes valued at less than $1 million saw an average insurance rate increase of 5.3% in the first quarter this year, while houses valued at more than $1 million saw a 7% increase during the period, according to a report from MarketScout.

Increases reflect higher rates than the previous quarter, which saw rates for homes valued under $1 million increase by 3.7%, and 6.3% for homes valued at more than $1 million, according to the report.

“Insurers can be hurt in many ways by inflation,” according to a report by Conning. “Inflation impacts the real (adjusted for inflation) values of the portfolio, income and returns. The impact on liabilities can be more complex, and it can have greater effect on insurers with longer tail risk.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

July 2022 » InsuranceNewsNet Magazine

DIGITAL MONTHLY F CUS Be sure to check out our

NEW MONTHLY FOCUS section, highlighted on our home-page.

The Monthly Focus topic for JULY 2022 is:

INDEXED PRODUCTS

www.insurancenewsnet.com/ topics/monthly-focus 9

For more information about sponsoring the monthly focus please contact a National Account Director. 717-441-9357

INTERVIEW

How multilevel marketing companies are bringing fresh blood to a dwindling sales force.

An interview with Matt Sapaula

by Paul Feldman, publisher

M Building a network of success… one step at a time 10

InsuranceNewsNet Magazine » July 2022

att Sapaula, chief distribution officer of the PHP Agency, tells InsuranceNewsNet Publisher Paul Feldman about his success in the insurance industry, first working in a traditional insurance business model, and later at the PHP Agency, which uses a multilevel marketing model. He also discusses what it takes to attract new agents into the business and what is required to keep them. While the MLM model has taken some criticism, Sapaula describes what he believes are its advantages, including building a profit stream that is not as dependent on an agent’s personal sales output, and the ability to work part time while an agent’s network is initially built up. While the model is strictly commission, Sapaula points to training that helps an agent become entrepreneurial and a defined set of procedures that helps the company operate uniformly, creating “speed” and “massive growth.”

Sapaula served as a United States Marine, eventually coming home after eight years of service to learn about financial services. After joining the PHP Agency, it only took him three years to establish himself as a million-dollar earner and become one of its first Board Council members. Founded in 2009, the PHP Agency is a tech-enabled national field marketing organization. PHP partners with leading insurance and annuity carriers and provides a part-time or full-time opportunity to those seeking careers as life insurance agents. PHP, with more than 20,000 agents, is headquartered in Addison, Texas.

BUILDING A NETWORK OF SUCCESS…ONE STEP AT A TIME INTERVIEW

PAUL FELDMAN: Matt, we’re here today to talk about recruiting new agents into the business. I would say that bringing new blood into this industry has never been more critical than it is now. The population is growing and yet the number of agents in this industry is declining.

There is a call to arms for the industry to address this.

At PHP, you are doing that. PHP is an MLM organization in structure, where participants receive commissions on their sales as well as on any sales of the participants they recruit.

Some people think MLM has a bad reputation, but at the end of the day, that model is bringing in new people to the industry, arguably much more than the major career carriers. Why? MATT SAPAULA: The model obviously

works. The model attracts people into the industry from neighborhoods that sadly have been overlooked and underserved for multiple generations. When you’re looking at the network marketing style of recruitment, a lot of people think it’s only about recruitment. But a guy like me spent 12 years in the insurance industry.

I was the No. 1 personal producer out of our 25,000 licensed agents. I was selling a ton of indexed universal life; 80% of my business was indexed universal life and 20% was annuities. However, I’m only one guy, and I realized that I was burning out. I was the guy who was recruited in the bathroom of a Best Buy in Southern California and had also served in the Marines. I respected the boldness of that recruiter who prospected me, even though I didn’t stick with an MLM at that time.

happy. I wasn’t burning up until I made it about other people, which is what a network marketing model is all about.

I looked at this model where, long term, the agency builder and agency manager didn’t have to fully depend upon personal production to keep the lights on. I took what I learned from the insurance industry to be a top producer and incorporated it through our agents who are willing to listen.

FELDMAN: What is MLM doing differently from the largest career carriers? What are you doing better?

SAPAULA: I believe that we are doing the

best in leadership development and mentorship inside the insurance industry. The MLM model has a few things going for it: The top thing is that we’re built on one system. Everybody inside the entire company is speaking the same language about how to advance within a company, how to increase your commission level, etc.

We market and sell within the company.

That centralizes training, that centralizes mentorship. Within the entirety of the agency, we have a little more than 23,000 licensed agents. And we started with only 66 agents in 2009. So everybody in the company is talking the same language.

FELDMAN: How are you getting your leads? What products are you offering?

SAPAULA: Everybody has a different way

of doing business. At the PHP Agency, we have one way of asking the same financial questions of a client. We have one way to set up a first appointment. We have one way to set a follow-up appointment. When

The MLM model has a few things going for it: The top thing is that we’re built on one system. That centralizes training, that centralizes mentorship.

Instead, I went into the traditional industry, but I went back to multilevel marketing because I studied the model. Even though in the short term, I made a lot of money in the traditional industry — I made six figures short term — I was not

you have a network marketing model with a systematized process that’s simple for everybody to duplicate, you create speed and you create massive growth.

Quite frankly, the reason why a lot of our competitors love to talk to our agents

is because they’re well trained and well versed. We know that there are some people we’ll keep and some people we’ll lose.

That’s part of the business.

We hope to engender loyalty. We hope to engender friendship. I know this from just an economic standpoint when I was at 140% contracts with other carriers, I never made more than $350,000, and I had to spend a lot of money on leads. And today, with a 75% commission contract and the way PHP splits up a dollar to pay all the agents up and down the line, I made more than $1.8 million during the recording of this interview.

Yet 2% to 3% of our income is based on our personal efforts. That’s the benefit of a network marketing model with leadership development, a system and a forward-thinking CEO at the top. I can’t tell you how much Patrick Bet-David, the PHP Agency founder, has done to stretch our vision and get us thinking. Patrick says, “Hang around with us long enough, because then you’ll start thinking for yourself.”

FELDMAN: You know, other than a few big industry producers of the old days, most of the large carrier companies don’t seem to feature “personality.” But your founder and company seem to excel in that arena.

SAPAULA:

Yes, he does. He is out there doing interviews with Joe Rogan, interviews with Jordan Peterson. He’s doing thought leadership. When you’re the CEO of the company, you have to be a powerful leader. That’s helpful, because most of the FMOs are looking for some lead generation — some way to get business. Using a network marketing model, which is what the insurance industry has done for eons, means being very good at building local, warm friendships in your local community, around friends and family.

Another way to do business is to buy leads. With our way of doing business, none of our agents — none of my 3,500 licensed agents, none of PHP’s 23,000 licensed agents — ever have to spend money on marketing and lead generation. We teach them by providing scripts, mentoring and coaching on how to build friendships and how to engage and how to use social media to build up their brand.

July 2022 » InsuranceNewsNet Magazine

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INTERVIEW BUILDING A NETWORK OF SUCCESS…ONE STEP AT A TIME

FELDMAN: How important is personal sales versus recruiting in your business? Do you have successful people who do only personal sales?

Is that the driving force?

SAPAULA: Sure, we do. We have a lot

of people who early on will wrap their minds around the financial products and services very quickly. And they’ll make their first $100,000, $200,000. I had a guy get to a half-million dollars in income.

But the moment he stopped selling, his income dropped. So what we say in our system is when you are recruiting, that drives the profitability of your company.

You help people build their business — in other words, go deep and build their organization and help them build their infrastructure.

That creates consistency and security.

In this model, you don’t have these big fluctuations of high income, low income, high income, low income, etc., because you can’t always market, market, market.

A network marketing business is able to streamline and smooth out those spikes and income.

People can use this model for whatever their goals and dreams are. We have people in our company who are happy making $60,000, $80,000 a year because we generate so much business from the top down, and we are able to take advantage of our natural leads. Social media is another thing that connects us. My agents who are trained are confident based on that training. We have a curriculum and certified field trainers. They take care of our newbies when they first come on board the business, as well.

FELDMAN: When you bring somebody new into the business, do you pay them anything or is their compensation strictly commission?

SAPAULA: All 100% commission. They

have to pay for their insurance license.

They have to pay for coming to our big events — plane ticket, hotel — because we’re coaching people on how to have their own business, to have the habits and behaviors of an entrepreneur. We’re creating entrepreneurial agents in a marketplace. They’re not waiting on anybody else to tell them to do something. They want to take initiative.

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InsuranceNewsNet Magazine » July 2022

Often we think that paying a salary will get a new trainee much more rooted in the business. What we found, though, is that people don’t value what they don’t work hard for. If they work hard for something and they earn something, they value it more. It deepens their conviction in what they’re doing.

That’s why we allow people to start with us on a part-time basis, and that’s 80% of our field force. You don’t have to quit your full-time job. Let’s find a way for you to meet — and exceed — your full-time income on a part-time basis.

Then you have options. This allows you to double your savings, pay down some debt, double the money you pay into your mutual funds or whatever savings and investments you’ve got going. If you really want to be your own boss, now you can make the smooth transition.

We’re teaching entrepreneurial habits as well as educating our people about their finances. Many people may not know the difference between personal finance and business finance, personal credit and business credit, a personal checking account and a business account, business tax deductions and no business tax deductions.

Those are the things that a lot of people aren’t learning. When they come into our mix, we give them a broad base of financial awareness and education.

I can’t tell you how many people I know in this industry who are making seven, eight figures a year and who originally thought they were going to fail. And they were told they were going to fail.

Somebody told them they’re not good enough. That’s what drove them.

I have an engineer. He made $230,000 a year with us before he went full time in the business. He was a high-income-earning engineer here in Chicago. I have a doctor and he just made $430,000 with us and decided to go full time in the business.

That’s the benefit of a network marketing model. We have leadership willing to provide overlapping support. So while you’re at your day job, we’ll call your top leads on your behalf. And while they’re at their job, they have a manager who’s helping them grow the equity in their business. This is exciting. They’re learning how to monetize their network. One of the most gratifying things is when we can show people how this industry works and how they can help clients.

FELDMAN: I know you consider this a noble profession, as do I, and you have a lot of passion for what you do. How important is that to bringing new people into the business?

SAPAULA: I’m always thinking about me

coming out of the Marine Corps. I was married, got divorced, became a single father and filed for bankruptcy — all in one year. Had it not been for an insurance agent wanting to recruit me into this industry, well, that conversation changed my life.

I just moved my parents here because of the insurance industry, because of that guy who was bold enough to recruit me out of a bathroom in Best Buy. I bought a long-term care policy for both my parents never thinking in a million years I’d ever need it, but now I have them in a senior living community — not a retirement home funded by the state, but a dignified retirement community with activities every day, food every day.. And they’re having a blast. That’s roughly $6,500 a month that I don’t have to pay because somebody educated me about long-term care. So these products have already affected my life. The only way we make money is that dignified approach, improving somebody else’s life first. If I don’t improve your financial life first, I don’t make any money. If I didn’t have the desire to improve your life and have an in-depth conversation about it, I would not have a long-term career.

That is what I love about the business.

Maybe in the initial years of my career, I was thinking about just surviving, transitioning out of the military, paying the bills, because I had three jobs. I started my insurance business part time, and then I eventually was able to make more money in insurance than I was in my other three jobs. There was a progression of me growing as an individual and then having an environment for me to develop. I’m going to pay that forward for the rest of my life. I hope my children do as well.

FELDMAN: You talked about a couple of people who are highly successful. A lot of people think that MLM is aimed at going after lower-income people, versus bringing in somebody who’s an engineer.

What’s the difference, and is there a misconception?

BUILDING A NETWORK OF SUCCESS…ONE STEP AT A TIME INTERVIEW

SAPAULA: I hope it’s a misconception,

because guess who was at the bottom?

Me. I was making less than $20,000 a year. A lot of people see who I am today, but they don’t see the guy who was making only $20,000 a year. They don’t see the guy who was a statistic. They don’t see the guy who had immigrant family here from the Philippines. They don’t see

2. Are you willing to invest money to obtain your own insurance license?

3. Are you a decision-maker in this process; will you call a shot, make a decision and stick with it?

4. You need to show a desire and ambition to want to change your life.

FELDMAN: How do you decide on who’s right for this business? Is it by gut? Do you conduct in-depth personality assessments or multiple interviews?

SAPAULA: We do it by asking people to

The only way we make money is that dignified approach, improving somebody else’s life first. If I don’t improve your financial life first, I don’t make any money.

the guy who could barely rub two nickels together. In my opinion, that’s an arrogant way to look at people. You can never determine the burning desire of a man or a woman until you at least start having a conversation with them.

I never thought a guy like me would be inside this industry, living the life I’m living, having the conversations I’m having. I spent time during the NFL draft hanging out with the Dallas Cowboys, while Jerry Jones is in the other room drafting players. Never in a million years did I think I would associate with football players and celebrities, hip-hop artists, and all the people I looked up to when I was growing up. If it hadn’t been for somebody who thought enough of me to say: “This kid, he might have a shot.”

FELDMAN: Take me through the a normal process for you getting a new agent. What does that look like?

SAPAULA: Here are some behaviors I look for regardless of what’s on a resume.

1. Do you have time to invest into learning this craft?

make a decision and follow up with some action. For example, I’ll say, “Call me back at 10:30” or “Show up at five o’clock.” If they don’t call me back at 10:30, if they don’t show up at five o’clock, then they don’t want it. They’re not showing the burning desire. I don’t get hung up on people who don’t want to change their lives. I don’t want to be more excited about your financial future than you should be about your financial future. Please be active in your own rescue.

We have a development process because not all the people we recruit are going to be in your starting lineup right away. The insurance industry, for the most part, is only looking for a starting lineup type of person. I wasn’t a starting lineup type of person, but thankfully somebody had patience with me.

Early in my career, I didn’t have a network to train me, so I had to come to these insurance industry conferences by myself in order to get some coaching. Every time an insurance company would put together a lunch-and-learn at a local restaurant, I’d show up. I was the youngest kid, the only multicultural kid in the room. For a large part of my early career — for the first 12 years of my career — I always felt that way.

I just wanted to prove I was good enough to earn a seat at the table.

Once we have a prospect and they come on board, we have a fast-start process, which has eight steps. When they go through these eight steps, that’s another filtering process for us to see if somebody is a good fit. These aren’t hard steps. Can we talk to your spouse? Can you fill out a one-page business plan? Can we look at your financial analysis, see what life

insurance product is appropriate or suitable for your situation?

If you’re coming from the military, for example, don’t you think it’s smart to have your own insurance policy, have your own financial structure squared away and to address that before you try talking about this to other people?

Those are some of the steps that are part of the eight-step process. And then we have a once-a-month school called the Fast Start School. They get to see the other people who were just like them: former Apple executives, former UPS drivers and pastors who are in financial services now on a part-time or a full-time basis.

FELDMAN: Again, going back to that perception of MLM. Some people see multilevel marketing as being a type of pyramid marketing. What’s your response to those who say that?

SAPAULA: Early on, we coach, mentor

and guide somebody who has zero experience with MLM, and has zero experience with life insurance as a business. There’s a large amount of work that a manager will have to invest in time, money and emotion to coach somebody from scratch. For the most part, a lot of people in the insurance industry are without a system, they don’t have any patience for that, which makes more room for us.

Then we split up a dollar to benefit those who develop people more long term.

When we educate our people, the first question is: Long term, what do you want to be? Do you want to be selling policies for the rest of your life? Because eventually you’re going to burn out. Or do you want to create an agency and build a business where this thing starts taking on a life of its own?

Even though through most of the insurance industry, you’re going to have a model where you get high commission, there’s really no incentive for you to build and develop. Everybody starts going their own way.

With our model, we start people off a little lower, but in the long term they make more money. When we split up our dollar, it’s designed to benefit those who build. If people realize they don’t want to build, then that’s OK. But we’re confident knowing that we’re going to attract the right people that want to build for the long term.

July 2022 » InsuranceNewsNet Magazine

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NEWSWIRES

Medicare insolvency could be put off until 2030 — maybe

The predictions about Medicare were dire at this time last year, when the Medicare trustees projected that its trust fund would be exhausted in 2026. There’s a more optimistic forecast about Medicare this year, but it comes with a caveat.

The Budget and Economic Outlook: 2022 to 2032 reports that Medicare’s Hospital Insurance trust fund will become insolvent in 2030. That’s four years later than what was predicted last year. But that scenario depends on a strong economy and moderate inflation.

The Congressional Budget Office’s improved Medicare outlook was based on the CBO’s estimate that revenue received by the trust fund would increase but spending would not. The latest estimate reported no change in spending but increased revenue by $420 billion over the next decade. That is an 8.8% increase in trust fund revenue, almost entirely from higher payroll tax collections.

SENATE PANEL RELEASES RETIREMENT SECURITY PACKAGE

When it comes to retirement savings, a Senate committee wants Americans to RISE & SHINE. The Senate Health, Education, Labor and Pensions Committee released a draft of the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act — legislation aimed at strengthening people’s emergency savings and retirement security.

The RISE & SHINE Act includes a wide range of policies to create additional protections for workers and retirement savers at all stages of their retirement timelines. These policies include steps to bolster savings by allowing employers to offer emergency savings accounts, expanding access to employer-provided retirement plans through multiple employer plans and through increased access to plans for part-time workers, and improving communications to retirement plan participants and transparency around lump-sum buyout offers for pension plan participants.

The package builds off legislation in the House — the Securing a Strong Retirement Act of 2021 (SECURE 2.0) and DID YOU

KNOW

?

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the Retirement Improvement and Savings Enhancement Act (RISE Act) — as well as the Retirement Security & Savings Act introduced in the Senate.

MORE THAN HALF OF CEOS SEE RECESSION LOOMING

A Conference Board measure of CEO sentiment showed that 57% expect the economy to sustain a “very short, mild recession.” Just 14% of CEOs reported that business conditions had improved in the second quarter, down from 34% in the first quarter. Sixtyone percent said conditions were worse.

Despite fears of a looming recession, 63% of the CEOs surveyed said they expect to hire in the second quarter, down only slightly from the 66% who said they planned to hire in Q1. However, some 80% said they were having problems getting qualified workers. Meanwhile, 91% see wages rising by more than 3% over the next year, up from 85% who saw wages going up in the first three months of the year.

Also, only 38% of surveyed CEOs expect to increase capital spending, a sharp

QUOTABLE

I don’t want to declare victory on inflation before I see really compelling evidence that our actions are beginning to do the work.

— Cleveland Fed President Loretta Mester

decline from 48% in the previous quarter.

Some 20% see stagflation conditions of low growth and high inflation.

RETIREMENT TAX BREAKS LEAVE MIDDLE CLASS BEHIND

Tax breaks designed to boost retirement savings may leave middle-class families behind, according to the National Institute on Retirement Security. Although Congress created tax incentives to boost savings, the tax code and uneven plan participation have funneled more benefits toward top earners, an institute report said.

More than half of tax breaks for company retirement plans, such as 401(k) or 403(b) plans and individual retirement accounts, go to the top 10% of earners — those making $117,224 or more, according to the report, based on data from 2019.

One reason for this inequality is the U.S. tax structure, which means that tax breaks for retirement savings increase only as families and individuals earn and contribute more toward retirement. Adding to the dilemma is that workers aren’t participating in employer-sponsored savings plans at the same level. Top earners are more likely to contribute more money sooner, giving them greater tax benefits over time.

The nation’s three largest credit bureaus will clear medical debts from consumer credit reports beginning in July.

InsuranceNewsNet Magazine » July 2022

Source: CNBC

Sponsored Content

FORMER REGULATOR, FORENSIC ACCOUNTANT AND CERTIFIED FRAUD Sponsored Content EXAMINER TOM GOBER REPORTS MANY POPULAR LIFE & ANNUITY CARRIERS HAVE TROUBLING LEVELS OF RISK ON THEIR BALANCE SHEET

Introducing a breakthrough client risk ratio tool for conscientious advisors who embrace their fiduciary duty to their clients

FORMER REGULATOR, FORENSIC ACCOUNTANT AND CERTIFIED FRAUD EXAMINER TOM GOBER REPORTS MANY POPULAR LIFE & ANNUITY CARRIERS HAVE TROUBLING LEVELS OF RISK ON THEIR BALANCE SHEET Price is a significant factor for clients when they purchase life insurance and annuity products. But an affordable price or higher payout potential is useless if the policy issuer can’t uphold the promises they make for future death benefits, income guarantees and living benefits.

The most prevalent chicanery in the insurance industry today is reinsurance “sleight-of-hand.” The truth is in the numbers issued by the insurance companies themselves on their own sworn annual statements. The facts these reports show, but companies don’t willingly admit, is that many popular stock insurance companies are risking insolvency using financial engineered techniques —through creative reporting of assets and liabilities.

Breaking Down the Bermuda Triangle Strategy

The problem, as was recently reported by journalist Kerry Pechter, is the so-called “Bermuda Triangle” strategy involving private equity companies purchasing insurance companies then transferring billions in liabilities to reinsurance companies that are owned and controlled by the same private equity company. Often, these captive reinsurers are in Bermuda or other offshore locales. These private equity firms are employing increasingly complex financial transactions to discount liabilities and enhance yields relative to their size and surplus, possibly jeopardizing your clients’ future promised benefits.

Not all insurers are employing these risky, unconventional strategies, however. You just need to know how to identify carriers with competitively priced products and balance sheets you can trust.

Unfortunately, you can’t do that by just looking at the AM Best rating of a company.

is high-risk assets compared to the financial cushion: the insurance company’s stated surplus.

But what about regulators? State insurance regulators are required to examine admitted carriers’ annual statements. Examiners do onsite examinations every three to five years. But today’s examinations are less rigorous, with a “by exception” focus, relying heavily on the audit firm, hired and paid by the insurance company. So, what’s an agent to do?

Tom Gober, the only forensic accounting expert in the U.S. who focuses exclusively on the insurance industry and has worked with federal law enforcement to combat criminal fraud in the industry, has an answer for you.

T h om as G ob er

fraud in many criminal cases, including Gen Re and AIG. He is also a former regulator in a state where his testimony landed his boss’s wealthy friends in jail for accounting fraud.

Now, Tom has partnered with Matt Zagula as the Forensic Accountant for the SMART Advisor Network to create the TSR ratio, which shines a light on excessive risk-taking by some insurers relative to their surplus. The TSR ratio exposes troubling jurisdictional risk-shifting and aggressive asset-purchasing patterns becoming more common with stock-owned and private equity-owned insurance companies. It identifies the most significant counterparty risk areas recognized as non-traditional and higher risk by the NAIC and Federal Reserve researchers.

While the TSR is a simple to understand ratio that will help you better assess the financial strength of an insurer and its chosen reinsurer, the process Tom undertakes to calculate this ratio for each company’s TSR ratio report is highly complex and requires peeling back layers of affiliate interdependence and tracing reinsurance through cessions and retrocessions.

The TSR ratio makes it easy for you to understand the deep, potentially troublesome details of many of the more popular insurance companies, from information taken directly from their own annual sworn statements — documents which can range from 1,500 to over 6,000 pages!

It also reveals when complex reinsurance is involved as a tool for financial engineering— reducing the reserves held to protect your clients.

Introducing a breakthrough client risk ratio tool for conscientious advisors who embrace their fiduciary duty to their clients Simplifying A VERY Complex Carrier Selection Issue Today, Tom helps legal professionals, insurance agents and the public understand the non-traditional financial practices of many for-profit stock and private equity owned insurance companies. He also assists fiduciaries and insurance agents through his work at the SMART Advisor Network, finding those carriers maintaining appropriate financial security to fulfill the long-term promises they make.

Tom, a champion of the policyholder and true believer in the benefits of life insurance and annuities, is the expert law enforcement relied on for education and consultation with federal agents to prove

Price is a significant factor for clients when they purchase life insurance and annuity products. But an affordable price or higher payout potential is useless if the policy issuer can’t uphold the promises they make for future death benefits, income guarantees and living benefits.

The most prevalent chicanery in the insurance industry today is reinsurance “sleight-of-hand.” The truth is in GET THIS REPORT BEFORE IT IS TOO LATE! the numbers issued by the insurance companies themselves on their own sworn annual statements. The facts these reports show, but companies don’t wil ingly admit, is that many popular stock insurance companies are risking TSRR ATIOR EPORT. COM insolvency using financial engineered techniques —through creative reporting of assets and liabilities.

Where Rating Agencies Fall Short and Regulators are Limited

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COVER STORY

Indexed life insurance and annuity products are immensely popular.

But some critics charge they are too complicated and immersed in fraud.

By John Hilton

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InsuranceNewsNet Magazine » July 2022

KINGS OF THE HILL COVER STORY

W

hen Sheryl Moore And class-action lawsuits are being heard started her market in more than one federal courtroom. research company 17 years ago, there Inflation-driven changes were exactly a dozen The U.S. economy is not doing great two indexes on which one could earn interest years after the start of COVID-19 panfrom an indexed annuity product. demic. Uncertainty over everything from Today, there are at least gas prices to staffing has busi150 different indexes being nesses jittery and consumtracked by Wink Inc. and ers paying hefty inflationary Moore, president and CEO prices. of the company. Ninety-four In response, the Federal percent of them are hybrid Reserve raised its benchmark indexes, which include a mix borrowing rate in March for Sheryl Moore of one or more indexes, plus a the first time since late 2018, cash or bond component. increasing it by a quarter of Hybrid indexes are the biggest trend in a percentage point. Two months later, the the most popular segment of insurance Fed hiked rates half a point, sending a sharp product sales. message in the process.

“It’s just crazy to me how this has Investors expect the Fed to continue evolved,” Moore said. “It’s the most raising rates through the end of 2022, prolific trend in product development putting the federal funds rate in a range of indexed annuities right now, and it’s between 2.75% and 3% by year’s end. bleeding over into indexed life as well.

Given their safety features, indexed Today, when you take a look at indexed products are possibly more popular in annuity sales, more than 60% of all al- times of economic turmoil. In fact, the locations are to these hybrid indexes. stock market pullback in 2022 is giving That’s just a huge, huge shift from where indexed annuity sellers a great story to we were even a decade ago.” tell, said Michael J. Eustic, head of insurIndexed products are largely responsi- ance at Invesco. ble for the massive tailwind boosting life As this issue went to print, the Dow insurance and annuity sales over the past Jones Industrial Average had plummeted 30-plus years. nearly 15% in 2022. Having Indexed universal life ina no-loss investment hedge surance and fixed indexed product really shines amid a annuities are some of the market slide, Eustic said. bestselling products in any “There’s not a client out there agent’s portfolio. Product who bought these products sales and innovation soared who is disappointed with the to greater heights following results,” he added. “What they Michael J. Eustic the industry’s 2010 success got did exactly what we said it keeping indexed products exwould do to protect them.” cluded from securities regulation.

In a simple comparison on investment More recently, registered indexed-linked options, life insurance and annuities do annuities (RILA) rocketed up sales charts, very well. And indexed products are leadwith more and more insurers creating ing the way. their own RILA products to compete.

Total 2021 indexed annuity sales were The good times might not last forever, $65.5 billion, according to Wink. While but experts say indexed products are sure the 3% return annuities offer is not a fito continue selling well as interest rates nancial windfall, Moore noted, it is very climb and even if the economy slumps good relative to where fixed instruments into a recession — in fact, maybe better. A are right now. CDs and checking accounts common feature of most indexed products come with an interest rate of less than 1%. is the zero floor, star of many a “Zero is RILAs are on track to set another sales Your Hero” marketing campaigns remind- record in 2022 and are averaging annual ing clients that they will never lose money. point-to-point caps of over 6%, Moore It all sounds rosy for indexed products, said. Some life insurance products are dobut critics remain. Regulators are lurking. ing even better, she added.

July 2022 » InsuranceNewsNet Magazine

17

COVER STORY KINGS OF THE HILL

Interest rate dance

The pace of interest rate hikes is of great importance to life insurance and annuity sellers. A panel of insurance executives debated several scenarios during the Insured Retirement Institute annual conference in May. “What I would say is that rising interest rates are kind of a double-edged sword,” said Mike McCarthy, vice president, distribution strategy for Prudential. “Slow and steady is good. But fast and furious could be bad and potentially disastrous.”

The Fed released a May report that looked at two different scenarios: slow, sustained rates increasing over time and a short-term significant rise in rates.

The former scenario is considered good for insurance companies and their earnings. It also dissuades them from looking at investing in potentially illiquid highly interest-rate-sensitive investments, McCarthy explained.

But the rapid rate increases bring the “potential of having large amounts of life insurance policies surrender, annuity contracts surrender, because investors have an opportunity to drive higher yields elsewhere,” he added. “So, what I would say there is to make sure you know who you’re doing business with.”

In a recent interview with The Wall Street Journal, Fed Chair Jerome Powell vowed to hike rates again and again if needed to bring inflation down to the Fed’s 2% target.

“We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down,” Powell said. McCarthy cited two other reports that paint a troubling picture for insurers if rates rise too quickly:

» An April Moody’s report studied the

impact of a 3% rise in long-term interest rates. The report pointed out that the leverage ratio — the ratio of assets to equity — is currently at a 20-year high among life insurers, McCarthy noted. That ratio stands at 12-to-1, compared with that of P&C channels, where it’s 3-to-1.

“It’s significant,” McCarthy said. “Over the past 10 years, as insurance companies have stretched for yield, what they’ve said is that more and more of their portfolios are going into illiquid investments like CLOs [collateralized loan obligations] and are going into commercial real estate debt.

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InsuranceNewsNet Magazine » July 2022

This stuff is highly sensitive to the movements in interest rates.”

Hybrid index controversies

Not everyone is a fan of the exotic hybrid indexes. Regulators, for one, are downFund released “the most ominous” report, right uncomfortable about some aspects McCarthy said. It concluded that a rapid of the indexes, like when they are used rise in interest rates would cause “massive in illustrations that clients may not fully disintermediation” and could lead to U.S. understand. policy surrenders totaling $550 billion.

Most major carriers selling indexed products developed their own proprietary Opportunity for indexed annuities indexes, accounting for the 150 indexes An Insured Retirement Institute panel Moore is tracking. What gives regulators agreed that rising rates could open the heartburn is the lack of appreciable hisdoor for annuities sold with risk-controlled tory with the mishmash of indexes, she indexes. These types of products will uti- explained during a May webinar. lize, for example, a heavy bond component A standard index, such as the S&P 500, in order to remove the risk elehas a lengthy history of rements, explained Pete Miller, turns, upon which a reasoninsurance research strategist able illustration projection with Invesco. can be made simply by look“I think for FIAs [fixed ing back. indexed annuities] in par“When I looked at all the ticular, that’s likely to get new hybrid indexes for last substantial share flows in the year, I think the statistic was Pete Miller coming months, quarters, … 92% of those indexes were years,” Miller said. “Because not even 10 years old,” Moore those products do often utilize these said. “So, we don’t have a lot of history risk-controlled and hybrid indexes, I think for those indexes. That’s a problem when that’s a tailwind for that type of index.” you’re trying to say, here’s the past 10 years With the 0% floor, FIA owners can of history of this index that hasn’t existed never lose money. Fixed products are for longer than a year.” traditionally more popular in economic The problem comes when agents sell downturns. products using illustrations of possible reFixed annuity sales overall took off in turns. Carriers argue that the components March, coinciding with the first Fed rate used to create their indexes have enough increase. Fixed indexed annuity sales were history to allow for illustrations. $16.3 billion, 21% higher than in the priA National Association of Insurance or year, the Secure Retirement Institute Commissioners working group debated reported. Year-over-year sales increased the issue over several meetings in 2018 10% in the first quarter to $16 billion. and 2019 before ceasing work. A 2019 FIA indexes normally have a 10- to proposal put forth by John Robinson of 20-year “lookback” period to determine Minnesota would have doubled the time performance. In the present environment, indexes must be in existence from 10 to 20 that lookback period will make FIA prod- years to be used in annuity illustrations. ucts look more attractive, Miller said.

Industry representatives balked at the These products are due to change, howev- proposal, and it died. er, he added.

“I’d love to see something happen with “The next 10 years look quite different,” that,” Moore said, “but it’s kind of stalled.

Miller said. “How do we design a hybrid This is an illustration issue. It does not index or a risk-controlled index where affect the product development at all, we still need that bond exposure, but it needs to be somehow more thoughtfully designed, maybe more dynamic, somehow have something incorporated that can manage that duration risk?”

» In October, the International Monetary

KINGS OF THE HILL COVER STORY because the NAIC is not putting any boundaries on what can be developed from gains, in the actual separate account and what can’t.” assets or hypothetical portfolio assets.

While the NAIC’s work on indexed illustrations is dormant, its Indexed Linked Collapse of IUL? Variable Annuity subgroup is busy trying Indexed universal life insurance is a prodto rein in RILAs. The subgroup is work- uct that is popular and controversial at ing on an actuarial guideline for technical the same time. IUL premium grew by 21% changes to RILA values that would bring in 2021, LIMRA reported, and held a 25% the products in line with traditional vari- market share. able annuities.

But the product is dogged by allegations Regulators are concerned about RILAs of improper sales practices and unrealistic because they do not exactly fit two key illustrations. The IUL cash value is tied to model laws: Model 250, Variable Annuity an index, of course, but the associated “opModel Regulation, and Model 805, tions budget” is where things get tricky.

Standard Nonforfeiture Law for Individual An options budget facilitates the purDeferred Annuities. chase of the underlying index at a certain The former sets the nonforfeiture rules, time at a certain price, which can rise or the rules that determine how much or fall. Exercising the option at the right money a contract holder can time is crucial and can result get back if they give up the in a healthy profit. But if the annuity, for traditional VAs. option expires before hitting The latter set the nonforfeion that windfall, the money ture rules for fixed annuities. invested in the option is gone.

While RILAs are closer to The insurer controls the variable annuities, and clasoptions, while the client gets sified as such by some, they the security of life insurance, Larry J. Rybka do not fit into Model 250 with a chance to rake in marbecause their daily values are ket gains. But it doesn’t often not based on the value of units of a sepa- end up as rosy as promised, said Larry J. rate account. Rather, the daily values are Rybka, CEO of Valmark Financial Group. based on formulas set forth in the conRybka is a persistent critic of indexed tract. products and noted the results regularly As of press deadline, subgroup mem- fall short of the expectations set forth in bers were still meeting to discuss how to sales proposals. regulate RILA values.

“The market volatility of the first quarter

to tie up their own capital.

“The end of 2021 certainly gave us some clues as to what might be coming here,” Rybka said. “First, it starts with basic economics. As bond rates continue to fall, and portfolio rates drop, the options budgets for IUL products continues to drop, forcing caps lower and lower… .

This means complete devastation for IUL premium financing programs that rely on them.”

As clients see “just how far off they are from their original sales proposal,” Rybka added, “we will likely see litigation increase dramatically.”

Courts already busy

If Rybka’s vision comes true, more litigation will only add to the legal issues with indexed products. Two issues attracted plenty of industry attention in recent years and seem destined to remain unsettled:

» Class-action lawsuits claiming that proprietary indexes are little more than a “fraudulent scheme.”

» A pension scam that was applied to hun-

dreds of IUL sales before collapsing into a series of lawsuits and the bankruptcy of a midsized Arizona independent marketing organization.

On the former issues, lawsuits were filed in Florida, California and Kansas alleging that Security Benefit Life Insurance Co.

As bond rates continue to fall, and portfolio rates drop, the options budgets for IUL products continue to drop, forcing caps lower and lower… . This means complete devastation for IUL premium financing programs that rely on them. — Larry J. Rybka Regulators explained their reasoning during a December meeting: If a RILA owner is being subject to the risk of loss, then the contract holder should also benefit

certainly highlights one of indexed annuities’ and life’s most compelling features: having a floor of zero,” he acknowledged.

“That being said, all is not well in the land of index IUL and especially when it comes to premium-financed IUL.” Rybka is predicting a 2022 collapse of the IUL premium financing market.

Premium financing uses borrowed money to pay for life insurance premiums. This tactic is most often used with very large policies, so that policy owners do not need

misled consumers via a proprietary index used in two fixed indexed annuities. The complaint is a common one with proprietary indexes: plaintiffs claimed Security Benefit manipulated clients to invest most of their FIA account values in the company’s synthetic index, which performed far worse than portrayed.

Plaintiffs claimed that two of Security Benefit’s FIAs, the Total Value and Secure Income annuities, were offered with proprietary indexes that the company July 2022 » InsuranceNewsNet Magazine

19

COVER STORY KINGS OF THE HILL

Pension scam alleged

Minnesota Life Insurance Co., along with its IUL products, found itself dragged into

SABRINA SCHAEFFER/Staff

advertised as “capable of producing double-digit returns.”

Generally, annuities are marketed with a cap or participation rate that leaves owners with less than 100% of the market gains. In exchange, the client is protected against market losses. The plaintiffs say Security Benefit marketed its TVA products as “uncapped” and with a “100% participation” rate.

In a February 2021 decision, U.S. District Judge Holly Teeter sided with Security Benefit in dismissing the class-action lawsuit.

“To the extent Plaintiffs allege that the hypothetical illustrations were misleading because they were based on ‘cherry-picked’ time periods of ‘non-representative historical performance’ that Defendant ‘knew’ could not be repeated, the Court finds no factual support in the first amended complaint that backs up these conclusory allegations,” she wrote in a lengthy opinion.

The nine defendants appealed to the 10th Circuit Court of Appeals, where arguments were heard in November. As of this issue’s print deadline, both parties awaited a decision.

Kohn

his plan was simple: Using various marketing efforts, FIP and Kohn solicited pensioners by offering the ability to receive a lump sum in exchange for a portion of their future pension payments. FIP called

manager led agents into the scam without their knowledge. As of early June, Shurwest and various attorneys were attempting to work out an agreement with a court-appointed overseer to compensate victims of the scam.

Motivation to create new products

Indexed life insurance and annuity products are no doubt here to stay. For consumers, the allure of the market, with downside protection and even a zero floor, is just too enticing. And those strong sales numbers mean insurers will remain motivated to create new, some say more complex, product designs.

For agents, the calculus is simple: indexed products deliver good compensation.

History has shown the indexed market is rife with players willing to stretch the boundaries, if not break the rules. That means regulators and litigators will continue to monitor the indexed market as well.

“I remember when I was super gungho about indexed products and no one was really talking about them,” Moore recalled. “We had product manufacturers that were pooh-poohing the index insurance products. Some of that had to do with controversy and unsuitable sales and a cowboy mentality that we had going on at the time.

“It’s so funny to me that now we have those same product manufacturers that were bad-mouthing indexed products kind of emulating indexed insurance products.” — Sheryl Moore a wide-ranging nationwide fraud case that attracted federal authorities and is taking years to unwind.

The fraud played out in courtrooms across the country in 2021, with Minnesota Life suing Shurwest, an Arizona independent marketing organization, in July.

When Shurwest filed for bankruptcy on Aug. 31, it attracted little notice beyond a single line in a local business journal.

In the weeks that followed, court documents would reveal the IMO’s alleged role in a fraudulent scheme to pump up indexed universal life sales.

The scheme originated with Scott Alan Kohn, who formed Pensions, Annuities, and Settlements in 2011. Prosecutors say 20

InsuranceNewsNet Magazine » July 2022

the practice “structured cash flows,” and the company used brokers and insurance producers to find investors — often retired veterans, teachers and firefighters.

Unknown to many investors, the future pension payment terms required them to pay what often equated to an annual interest rate exceeding 100% over a five-year term.

The scheme was allegedly adapted to IUL sales by Shurwest agents. Minnesota Life claims the agents altered policy applications on more than 1,000 policies sold through Shurwest between 2014 and 2018.

The insurer said 222 of those policies were linked to an investment in FIP. Shurwest executives claim a rogue

“It’s so funny to me that now we have those same product manufacturers that were bad-mouthing indexed products kind of emulating indexed insurance products.”

Insurance N ewsN et Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton @innfeedback.com.

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the Fıeld

A Visit With Agents of Change

CA L L E D TO

S E RV E

Nathan Smith’s passion for service led him to the National Guard and now he is called to serve his fellow veterans.

BY SUSAN RUPE

July 2022 » InsuranceNewsNet Magazine

21

the Fıeld

A Visit With Agents of Change

N

athan Smith had spent his early life in Jerusalem as a child of missionaries. He then moved to the United States when he was 18 years old so that he could attend Union University in Jackson, Tenn. He was a sports management major who dreamed of working in minor league baseball.

But on the night of Feb. 2, 2008, when Smith was a freshman at Union, everything changed.

An F-4 tornado ripped through Jackson, tearing the roof off the residence hall where Smith and many of his classmates lived at Union. The campus sustained about $40 million in damages as many buildings were destroyed. About a dozen students were injured as well.

In the midst of the chaos and destruction, Smith went into action to help those affected.

“I was able to help work with the firefighters to help clear some debris, and the National Guard came soon to bring some order to everything that had happened and to look for survivors,” he recalled.

Smith’s encounter with the National Guard was an “aha” moment for him and redirected his career path.

“It really stood out to me that here was a group of people who served in the military — not just overseas but also in your communities, coming to your aid in a time of need,” he said. “This became a deep calling for me. I was an able person who wanted to help the local community and was willing to serve on the frontlines.”

Smith enlisted in the Kentucky National Guard during his junior year and frequently was called to serve the floodprone communities along the Ohio River.

“There were many times we would get late night calls for units being called up to move sandbags or clear off an area that was going to flood,” he said.

Today, Smith is a wealth manager at Stivers Financial Services in Knoxville, Tenn., a practice that his father-in-law started nearly 30 years ago. But Smith’s experience with the Guard remains with him.

He had an overseas deployment when his unit was called to Djibouti in the Horn of Africa to provide security for a military base there. But for much of his time in the 22

InsuranceNewsNet Magazine » July 2022

I think there are actually a lot of resources for veterans, but they don’t know where to turn.

So I try to point them in the right direction.

Kentucky National Guard, he served in the chaplain corps.

“Even though I had to train in shooting and do the physical training, I was attracted to the chaplain corps because it was a way for me to serve my fellow soldiers,” he said. “I counseled the soldiers and led Bible study. I even performed weddings for a couple of my friends who were in the Guard with me.”

A family member makes an offer

During Smith’s time in the Guard, he and his wife, Alicia, had their first child. They decided to move to Knoxville to be closer to her family so that she and the baby would have some support while Smith was away on deployments. As they prepared to move, Smith’s father-in-law offered him the opportunity to join his firm.

“The offer was that I could work at his firm alongside serving in the Guard, and then when I got out, I could go full time with him,” Smith said.

Smith transitioned from the military to working full time with Stivers Financial 11 years ago. He still works with the family firm, and he and his wife now have four children.

At Stivers Financial, Smith specializes in serving small-business owners, helping them to create benefits packages for

their employees.

“A lot of times, these small employers don’t get the same kind of hands-on service from a bigger firm,” he said. “I help them with everything from health insurance, dental and vision to 401(k) accounts or SIMPLE IRA plans.”

Smith’s typical business clients are employers with 20 or fewer workers. He works with many blue-collar employers such as tool and die makers and auto mechanic shops.

He appreciates his small-business clients’ concerns about using benefits to attract workers but doing it in a cost-effective way.

“When dealing with small businesses, there is a great struggle between the employer wanting to save his dollars while having the right set of benefits to attract and retain employees,” he said. “Because otherwise, if the business owner is only looking for the cheapest plan possible, they’re going to get lower-level employees and they won’t stay with their employer long. It’s a balancing act, and I work with business owners to try to minimize their costs while offering the right insurances so they can hold on to the people who serve them.”

Smith’s father-in-law, Brian Stivers, found that it was easier to begin working

CALLED TO SERVE — WITH NATHAN SMITH IN THE FIELD

Nathan Smith participated in the Team RWB’s Old Glory Relay, in which volunteers walked, ran, pushed and cycled an American flag from the site of the former World Trade Center in New York to Atlanta.

with clients by offering them help with their benefits. Then, after the business relationship was formed, he could move to working with them on their retirement planning. Now he is working solely with investments and assets under management, leaving Smith to work on the benefits and insurance side of the practice.

“My goal is that in 30 years, I will be focused more on working with people on the money side and helping veterans prepare for retirement,” Smith said.

Serving those who serve

After 11 years in the National Guard and six years in the Army Reserve, it’s no surprise that Smith is called to provide advice for those who serve in the military. But although it seems that the veteran and active military community would be a natural market for him, Smith said that in the early years of his practice he was too busy to seek out that niche.

“But over the last few years, people have reached out to me knowing what I did,” he said. “These were friends of mine, and they were veterans and they would say, ‘I really need help with this. I don’t know where to go.’ So I discovered there’s an unfamiliarity with places veterans can turn to for certain answers. I think there are actually a lot of resources for veterans, but they don’t

know where to turn. So I try to point them in the right direction.”

When someone is in the military, so many things are already taken care of for them, Smith said. But after their military service is over, they need help in making many financial decisions on their own.

Smith said many veterans are looking for resources to help them start their own businesses, and many of them also need help with debt reduction.

“So many veterans come out of the military and still act like 18-year-olds and go out and buy the biggest truck and the largest house — and then they have no money,” he said. “I work with them to create a budget and a debt reduction plan. I point them in the right direction to give them the tools and education so that they can afford to pay for things, such as a house, and also plan for retirement.”

Smith’s calling to serve the military and veteran community extends to his volunteer work as well.

Last year, he participated in the Team RWB’s Old Glory Relay in which volunteers walked, ran, pushed and cycled an American flag from the site of the former World Trade Center in New York to Atlanta. He and a friend organized a 5K run to raise funds for the American Amputee Softball Team, which is made

up of veterans who lost limbs. The softball team members work with children who have disabilities, helping them to get involved with sports.

He volunteers to help connect veterans with services that can help them with their financial needs, such as applying for VA loans for a home or applying for college benefits under the GI Bill. “There is a network in the veteran community here in Knoxville that we can refer people to and help them out,” he said.

Smith said his work with veterans’ groups led him to work with vets on a professional level. “I never want to push my services. But I’m often shocked at how many people don’t have anyone to work with. So many local advisors have such high minimums and many people think they don’t have enough assets to work with a planner. So my father-in-law and I waive our minimum for military members to try and get them in the door and help them as best as we can.”

Looking to the future of his practice, Smith said he would like to expand more into the life insurance and retirement planning side of the business.

But whatever route his practice takes, he said, serving veterans always will be a part of it.

“Just like when I was in the Guard and worked in the chaplain corps, I still have a passion within my heart to work with veterans and with service members who need help,” he said. “Obviously, I still work with plenty of nonveterans and businesses who need help. But in growing my practice, I want to continue working with veterans more directly.”

Susan Rupe is managing editor for I n s u r a n c e N ew s N e t .

She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor.

Contact her at Susan.Rupe@innfeedback. com. Follow her on Twitter @INNsusan.

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Take advantage of our award-winning journalism, licensure and reprint options.

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July 2022 » InsuranceNewsNet Magazine

23

What led US consumers to purchase insurance?

LIFEWIRES

Not prompted by a specific event Recommendation from family / friends

22.1% 19%

COVID-19-related events Marriage I don’t know Birth of a child Illness other than COVID-19 Retirement

13.5% 9.1% 8.2% 7.4% 6.7% 5.6%

Industry looks to extend pandemic-related sales boom Sales of life insurance exploded during — and because of — the pandemic, and the Other Buying a property

5% 3.6%

Source: ReMark Global Consumer Survey 2021 - 2022

industry is puzzled by whether the world has changed so that the growth could be maintained after COVID-19.

Yet, according to the Society for Insurance Research, COVID-19 may have changed people’s perceptions of life insurance. This is leading some industry executives to think application and sales levels could continue, if not exactly at pandemic levels, then at something approaching them.

Behavioral scientists credit the boom in sales to something called “availability bias,” a basic mental shortcut that forgos typical supply and demand pressures and causes people to purchase goods based on one particular choice over others that may exist.

People’s attitudes toward insurance changed during the pandemic. Allison Broglie, head of Americas for ReMark, a global insurance consultancy, said, “Compared to 2020, about a third of people are saying that their attitude did change, and we see an even larger percentage of people who either tested positive or knew someone who did or someone who died and feel like their attitude has changed.”

ALLIANZ SELLS $120B IN ASSETS TO VOYA

Allianz SE is selling $120 billion in assets under management to Voya after Allianz agreed to pay $6 billion to settle charges that its investing division defrauded clients by hiding losses and risks that led a hedge fund to collapse during the 2020 market meltdown.

The collapse wiped out pension funds of more than 100,000 people, while three portfolio managers reassured 114 institutions that their money was secure, in what federal investigators called a historic fraud. Allianz has agreed to pay $5 billion in restitution to victims, along with $1 billion to settle the Securities and Exchange Commission’s charges.

Allianz Global Investors is also banned from advising registered investment funds, such as mutual funds and some pensions, for 10 years, but the company said it expects that the SEC will exempt Allianz Life and Pacific Investment Management from the order.

DID YOU

KNOW

?

24

INFLATION: THE GOOD OUTWEIGHS THE BAD

It’s a good news/bad news scenario: Inf lation is hitting the life insurance industry, but the benefits outweigh the negatives. That’s according to Moody’s Investor Service, which reported inflation and rising interest rates are a benefit for life insurers, whose bond yields and investment income are rising and whose spreadbased product margins are widening.

Wage inflation from the U.S. tight labor market has been another benefit, boosting life insurance purchases, with help from pent-up demand.

On the negative side, inflation is weighing on bond and equity valuations, which Moody’s said will pressure economic growth this year. For life insurers, however, Moody’s said the benefits of current inflation levels outweigh the negatives for now.

QUOTABLE How we communicate the value of life insurance to consumers — emphasizing its benefits, busting myths and reaching underserved markets — will go a long way in closing the life insurance coverage gap.

— Tina Beckwith, LIMRA chief marketing officer

NAIFA FOUNDATION AIMED AT GROWING NEXT GEN OF ADVISORS

The National Association of Insurance and Financial Advisors became the latest industry association to create a foundation. The NAIFA Foundation for Financial Security aims to increase the pool of professional advisors as well as promote financial literacy and financial security to underserved populations.

The foundation is launching a program to promote and support the recruitment of diverse advisors to the industry. The foundation will award diversity scholarships to current or recently graduated college students who are members of underrepresented populations in the industry.

A second scholarship program is in development and will assist honorably discharged U.S. military veterans transitioning out of the armed forces to prepare for careers in the insurance and financial services industry.

Northwestern Mutual will invest $5M in Blackled financial institutions in Milwaukee.

InsuranceNewsNet Magazine » July 2022

Source: Northwestern Mutual

Key Drivers Medicare Advantage 2022/2023 Among Medicare-eligible seniors and those about to age in to Medicare eligibility, three main factors drive the selection of a Medicare Advantage policy.

DDG’s “Medicare Options Consumer Key Drivers Analysis” is an in-depth assessment of what drives consumers to make the Medicare decisions they do. The study quantifies those key reasons for Medicare-eligible (as well as those soon to be eligible, age-ins) consumers’ decisions.

Does your messaging address the items consumers believe are important?

DDG uses surveys and data science to create the target audiences for: Persons most likely to choose Medicare Advantage

Persons who qualify for Dual Eligible plan

Persons most likely to buy Medicare Supplement

And we also provide these trigger event audiences every month: Age-ins

Movers who now live in new country/state

Improve your response rates immediately. Ask DDG for the executive summary of this study with over 2,300 consumers that examined 19 plan attributes for 29 providers by name. Your brand was most likely measured.

Email david.schneider@ddgme.com or scan the QR code to access this study today!

LIFE

Life insurance: Build and protect multigenerational wealth There are lessons that middle-class clients can learn from the ways wealthy individuals use life insurance to grow and transfer wealth.

By Howard Sharfman

S

ome advisors may wonder what value life insurance can offer high net worth individuals, considering people in that income bracket already have accumulated significant wealth.

But although they might have more wealth, they typically have more debt and more expenses and owe more in taxes. They also may expect or desire to pay for their children’s or grandchildren’s educations, for their children’s or grandchildren’s weddings, or a charitable legacy. Life insurance can help build multigenerational wealth while ensuring that a person’s or couple’s hard-earned money 26

InsuranceNewsNet Magazine » July 2022

passes to future generations in the most tax-efficient way possible.

Avoiding estate tax

The federal estate tax exemption is $12.06 million for individuals and $24.12 million for couples. Estates in excess of that amount are taxed at 40%. People who have worked hard to earn, save and invest this much money do not want it going to the government; they want it to go to future

generations or perhaps to charity. To help pay estate taxes, high net worth individuals often purchase life insurance, which when designed correctly not only grows taxdeferred but will pay a death benefit that is free of income and estate taxes.

For example, a couple with an estate in excess of $200 million wants to leave their children $50 million. They can use the federal estate tax exemption, which allows a tax-free transfer at death of $12.06

Parents should talk with their children about what wealth means to the family and how to use the money to sustain and grow their wealth to provide for future generations.

LIFE INSURANCE: BUILD AND PROTECT MULTIGENERATIONAL WEALTH LIFE million for individuals and $24.12 million for couples, while the remaining $26 million can be funded with life insurance.

The remainder of their estate can go to a private foundation to create a charitable family legacy.

This way, the children receive enough to live comfortably and build generational wealth. The foundation, which can be controlled by the children, has a significant amount of money to donate to charity and the federal government does not get anything. In addition to considering federal taxes, it is important to consider whether the client’s state imposes an estate tax. Not every state does, but those that do may have a lower exemption amount.

$1.5 million. That extra money changed everything for his child who had fallen on hard times. It made the difference between living a stressful life and a stress-free life.

Life is full of uncertainty. Maybe your client has a child or grandchild with special needs or has a child who is going through a divorce, as in the example I cited. Life insurance is a great way to provide a financial cushion to meet those future uncertainties.

Life insurance is a selfless purchase.

Those insured might not receive any benefit from it, but their beneficiaries may be able to use it to build multigenerational wealth, allowing them and their children to live well and perhaps enable them to

their children and grandchildren so that the wealth continues.

Value of life insurance for the middle class

What can the average person learn from the way high net worth families use life insurance? Life insurance provides predictable, tax-deferred wealth that can pass to the next generation. Upon the death of the insured, the beneficiaries receive a guaranteed death benefit.

Whether it is a lot of money or a little, it can truly make a difference in a person’s life. It could pay for education or weddings, pay off a mortgage or pay off student loans. It can provide a cushion if

Why should the wealthy own life insurance?

• To keep heirs from having to sell real estate or other property to fulfill tax obligations.

• To buy out partners or co-owners in their business.

• To pass assets tax-free.

Preparing for the unknown

Parents cannot predict what will happen in the future, so it is important to provide for unanticipated changes in circumstances.

One of my clients died at age 88 and left his three children an estate of $3.6 million, or $1.2 million each. Two of the children lived financially successful lives, so the inheritance was nice to receive but it did not materially affect their lifestyles.

However, the third child found herself divorced at age 60 after not working outside the home for the past 35 years. Her only means of support was the $1.2 million inheritance. Although that seems like a lot of money, it had to last for the rest of her life, which could be 30 years or more.

Fortunately, my client had purchased a $4.5 million life insurance policy, which provided each child with an additional

pursue charitable endeavors. However, in order to achieve their parents’ vision, the children need to learn how to manage the money they will receive.

Parents should talk with their children about what wealth means to the family and how to use the money to sustain and grow their wealth to provide for future generations. Parents also should teach their children about the responsibility that comes with wealth, and how they can use that wealth to help others.

For example, the conversations may include topics such as philanthropy or how to manage or grow a family business that provides employees with jobs that support their families. Their parents’ life insurance policy proceeds provided them many opportunities, and they should do the same to provide for

someone’s business goes under or if they lose their job, allowing them to take the time to find the right job instead of jumping into the next available position. A life insurance policy, whether it is for $50,000 or $50 million, can be instrumental in setting up your children, and possibly their children, for success.

Howard Sharfman is senior managing director, NFP Insurance Solutions. He may be contacted at howard.sharfman@innfeedback.com.

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July 2022 » InsuranceNewsNet Magazine

27

ANNUITYWIRES

AIG tops LIMRA annuity sales rankings

Total US Individual Annuity Sales 1st Quarter 2022 ($ in thousands)

1

AIG Companies

4,999,572

2

New York Life

4,469,006

3

Jackson National Life

4,245,176

4

Equitable Financial

3,713,783

5

Allianz Life of North America

3,248,299

Source: LIMRA U.S. Individual Annuities Sales Survey

American International Group roared to the top of first-quarter annuity sales, according to LIMRA’s U.S. Individual Annuity Sales Survey.

Total first-quarter annuity sales increased 4% to $63.3 billion over 1Q 2021, driven by fixed indexed annuity and fixed-rate deferred sales growth, LIMRA reported.

AIG led all insurers with nearly $5 billion in sales.

AIG benefited from a surge in fixed annuity business in the first quarter, executives reported earlier this month, even while it continues a plan to split off its Life & Retirement business.

According to data by Wink Inc., first-quarter sales for all deferred annuities were $59.7 billion, an increase of 2.2% over 1Q 2021.

Deferred annuities include the variable annuity, structured annuity, indexed annuity, traditional fixed annuity and MYGA product lines.

Jackson National Life ranked as the No. 1 carrier overall for deferred annuity sales, with a market share of 7.8%. New York Life moved into second place, while AIG, Equitable Financial, and Allianz Life rounded out the top five carriers in the market, Wink reported.

MINNESOTA ADOPTS BESTINTEREST RULES

Minnesota became the 25th state to adopt best-interest annuity sales rules favored by the industry.

In February 2020, the NAIC adopted a model law that articulates a best-interest standard through the following four obligations: care, disclosure, conflict of interest and documentation. With the outbreak of COVID-19, states were slow to adopt the model in the months that followed.

Activity began to pick up in late 2021 and has continued in 2022.

Supporters celebrated getting half of all states to adopt the rules and hope to finish the year with a strong majority of states having the rules in place.

PRINCIPAL FINANCIAL GROUP CLOSES ANNUITY REINSURANCE TRANSACTION

Principal Financial Group completed a deal DID YOU

KNOW

?

28

to reinsure the company’s in-force U.S. retail fixed annuity and universal life insurance with secondary guarantee blocks of business with an affiliate of Sixth Street and its insurance platform, Talcott Resolution.

Under the agreement, the company has reinsured approximately $25 billion of in-force statutory reserves, and Talcott engaged Principal to manage approximately $4 billion in commercial mortgage loans and private credit assets for the lifetime of the assets.

Principal continues to expect deployable proceeds of approximately $800 million in 2022 from the closed transaction in combination with additional transactions designed to improve the capital efficiency of its in-force individual life insurance business, the insurer said in a news release.

QUOTABLE Indexed annuity sales are blowing past where they were this time last year.

— Sheryl Moore, CEO of both Wink Inc. and Moore Market Intelligence

NATIONWIDE TO PAY $5.6M FOR NY ANNUITY VIOLATIONS

Nationwide agreed to a $5.6 million penalty for violations pressed by New York regulators.

Nationwide will pay approximately $3.4 million in restitution to New York State consumers and another $2.24 million in penalties. Impacted consumers will also receive higher monthly payouts for the remainder of their contract terms.

An investigation found that Nationwide failed to properly disclose to consumers income comparisons and suitability information, causing consumers to exchange more financially favorable deferred annuities with immediate annuities. Hundreds of New York consumers, primarily elderly individuals, received incomplete information regarding the replacement annuities, resulting in less income for identical or substantially similar payout options, the state said.

Nationwide released the following statement: “Nationwide remains committed to protecting people, businesses and futures with extraordinary care. We continue to urge the NYDFS to focus on promoting clearly articulated regulatory expectations for all industry participants in a manner that protects consumers while concurrently protecting their access to affordable and innovative product offerings. We will continue to work with NYDFS to further develop and maintain clearly defined standards as it relates to transactions that may involve the replacement of an existing annuity. We are pleased to put this matter behind us.”

Retirement income planning is the most popular desired service among older and younger consumers alike and is equally popular among men and women.

Source: The American College of Financial Services

InsuranceNewsNet Magazine » July 2022

ANNUITY

How financial advisors can help clients weather market turbulence Inflation has impacted many asset classes. But fixed indexed annuities can give clients confidence in the swirl of economic uncertainty.

By Al Dal Porto

A

s consumers seek advice from their financial advisors regarding rising interest rates and inflation’s impact on their investments, many are closely monitoring the direction of these volatile market conditions.

With more rate hikes from the Federal Reserve expected for the rest of this year and into 2023, advisors have the opportunity in order to rebalance client portfolios to better position them for ongoing turbulence. Checking in with clients and getting a good read on how they are faring is especially important as we look to the second half of 2022.

Inflation has supplanted COVID-19 as the major concern for many retirement savers’ portfolios. This is in addition to other concerns such as the Federal Reserve’s rate increases, the war in Ukraine elevating geopolitical risks, and serious supply chain issues. The expected shift in the Fed’s monetary policy has created fears that the Federal Open Market Comittee’s actions could cause a recession later this year.

Many asset classes have been impacted by the Fed’s moves to fight inflation, including stocks, bonds, real estate investment trusts and cryptocurrencies such as Bitcoin. Corporate profits, consumer spending and the labor market have been resilient but could wither during the stream of rate increases.

Although bonds often have provided a ballast for portfolios in the past, offering stability in the face of equity volatility, they are facing a treacherous environment. As rates rise, prices decline, so most bond sectors have been in the red this year. What 30

InsuranceNewsNet Magazine » July 2022

Protection from market loss

Annual 6.50% Cap

$1.2M $1M

In market downturns, the annuity is protected from market loss.

Instead of losing value, the previous year’s Account Value is locked in at each contract anniversary and remains unchanged.

$800K $600K $400K $200K $0

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options do advisors have to offer clients?

Among other products, fixed indexed annuities can deliver principal protection and appreciation (in the form of interest credits) that are linked to the performance of an underlying index. The contract owner holds the FIA for the contract period, although principal withdrawals are available (surrender charges may apply).

But unlike a bond, an FIA accumulates interest on a tax-deferred basis throughout its life, enhancing accumulation potential. In addition, the upside for an FIA is not driven by yield — as it is in fixed income — but rather the underlying indices that are available. The contract maintains an account value throughout its life too, allowing advisors to consider the FIA in their clients’ asset allocations.

FIAs can be a reliable vehicle for clients to continue to accumulate assets for retirement, even during times of uncertain market conditions. At each annual reset period, the original principal value, plus any accumulated interest credits, is locked in.

“An FIA contract can provide significant benefits since the account value is updated annually,” said David Byrnes, head of distribution at Security Benefit. “This aspect of FIAs is especially critical given the losses most bond segments have experienced so far in 2022. Essentially, FIAs provide advisors the ability to de-risk a portion of their clients’ retirement portfolios.”

Choosing the underlying index account allocations allows advisors to adjust portfolios to changing market conditions.

Advisors need to educate clients on the range of FIA options available and ways in which they can seek to take advantage of them. As with portfolio asset allocation in

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general, diversification can be helpful.

Today’s FIAs often offer a broad range of traditional and alternative indices for linking, including various U.S. equity segments, Treasuries, commodities, volatility controls, factor-based indices and more.

FIAs also feature fixed accounts, which can be used as a hedge against equity-focused index accounts.

Consider capped and uncapped FIAs

To guarantee principal in contracts, issuers design options on interest credits through a combination of account parameters including caps, participation rates and spreads.

These parameters often include both uncapped and capped options. One strategy often preferred by advisors and their clients is allocating funds between both options.

A cap is essentially the maximum credited rate your client can earn during the index term, regardless of the change in the underlying index. For example, if the cap is 5% and the value of the chosen underlying index rises by 10% during the contract period, the cap amount of 5% would be credited to your client’s contract. However, if the index rose just 2%, the contract would be credited only 2%, as that is lower than the cap.

Uncapped strategies typically involve a volatility control mechanism with the target volatility set at a relatively low level (as compared to the volatility of a typical equity index). This lowers the cost of the derivative used to back the index credits and allows the insurance company to offer the potential for larger interest credits versus having a cap on the return. It also tends to stabilize the cost of the derivative used as well and can result in more consistent

HOW FINANCIAL ADVISORS CAN HELP CLIENTS WEATHER MARKET TURBULENCE ANNUITY renewal parameters around index crediting from period to period.

Capped strategies typically involve indirect exposure to a straight equity index (such as the S&P 500). There is usually less expense built into an index, but a cap is often needed as the cost of the derivative to back the index credits would be too expensive without introducing the cap. This is because the volatility of straight equity indices is usually higher than those that have a built-in volatility-controlled mechanism (such as uncapped strategies).

Buy the dip

What’s more, given the recent drop in market values, clients can “buy the dip” using an FIA — especially with caps on the rise.

Due to increasing interest rates, insurance carriers are able to earn higher yields on their general account portfolios. This in turn allows some to offer higher cap rates on certain index accounts — commonly traditional indices like an S&P 500 annual point-to-point strategy, for example.

The S&P 500 Index recently hit bear market levels. So in an FIA, the index

starting value is significantly lower than at year-end 2021. When a client purchases the FIA, they get the most recent S&P 500 Index value with the chance to earn up to what may be the new, higher cap rate.

Afterward, you can work with your client and reassess annually. So, the FIA “buy the dip” strategy comes with principal protection and possible interest credits, versus “buying the dip” in the stock market.

Market turbulence can reduce risk tolerance

As we enter the second half of the year, financial advisors have an opportunity to work with their clients and rebalance retirement portfolios amid the market’s shifting conditions. Gauging risk tolerance and goals for accumulation during the rest of the year is critical, as volatility can spike the fear of asset loss, which may reduce their risk tolerance.

Considering products like FIAs may be one way for concerned clients to maintain their accumulation efforts while protecting the principal invested and potential interest credits down the line. An

annual rebalancing discussion is advisable to make clients aware of how closely their financial goals and accumulation are matching. However, having more frequent discussions in the current economic environment may allow advisors to address client concerns in a timelier fashion.

Misconceptions do exist around FIAs that can often hold buyers back, and advisors too. Costs and complexity are among the issues, but today’s annuities have been able to successfully simplify these products and offer a number of innovations to help make them cost-effective options for many client portfolios. Plus, reducing risk by reallocating a portion of a portfolio to FIAs helps create a greater sense of certainty for clients given the challenges so many asset classes are facing in this rising rate environment.

Al Dal Porto is senior vice president, chief strategy officer, for Security Benefit. He may be contacted at al.dalporto@innfeedback.com.

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6000 Westown Pkwy, West Des Moines, IA 50266 July 2022 » ● InsuranceNewsNet Magazine 31 www.american-equity.com Call us at 888-221-1234 01AD-INN-MAG 07.01.22 © 2022 American Equity. All Rights Reserved.

TM

AMERICAN EQUITY

®

HEALTH/BENEFITSWIRES

12% of LGBTQ adults claim health insurance discrimination More than 12% of U.S. adults self-identifying

Younger generations more likely to experience LGBTQ discrimination Of LGBTQ individuals who said their health insurers discriminated against them:

22% of millennials

11% of Generation X

20% of

3% of baby

Generation Z boomers as LGBTQ say they have been discriminated against by their health insurance provider, according to a survey by HealthCare.com.

But although 1 in 8 respondents said they had experienced discrimination by their health insurer because of their sexual orientation, about 30% said they believed health insurance coverage was improving for LGBTQ Americans.

The survey also found that 3 in 10 respondents carry more than $1,000 in medical debt, an amount much higher than that of the general population of Americans (6%). For millennial LGBTQ individuals, the share with medical debt rises to 56%.

On the whole, the LGBTQ survey population has an uninsured rate of under 7%, somewhat less than the nearly 9% uninsured rate of the general population.

Among respondents, the largest number have Medicare (33%), followed by employer insurance (23%), Medicaid (18%), and private insurance from a federal or state exchange (10%).

Source: HealthCare.com

TIGHT LABOR MARKET PUTS BENEFITS IN SPOTLIGHT

A majority of employers have introduced virtual solutions in Mental health 55% Primary care 54%

LTCI: MOST CONSUMERS BITE THE BULLET

Long-term care insurance premiums have skyrocketed in recent A growing war for talyears, and policyholders dread reent and rapidly escalatceiving the annual notice of a rate ing health care costs hike. But are policyholders doing Source: NFP’s U.S. Employer Benefits Survey have caused employers anything about it? A majority of to rethink the benefits LTCi policyholders are choosing they offer to their workers. That’s the word to bite the bullet and pay the higher premifrom NFP’s U.S. Employer Benefits Survey. um, according to the American Association The survey revealed that two-thirds of for Long-Term Care Insurance. employers say they want to implement AALTCI reported that between 50% an innovative benefits cost containment and 60% of LTCi policyholders chose to solution as health expenditures are pro- keep their original policy benefit and jected to grow by 47% by 2028. In addi- pay more money for it. tion, 37% of employers surveyed say they But some policyholders decided to adjust want to offer more benefit choices in order their benefits to keep from paying a higher to improve worker satisfaction. premium, AALTCI said. Between 20% and Rising prescription drug costs also 30% of those who were notified of an aphave employers concerned, the survey proved premium increase chose to adjust showed. Most (93%) are at least somewhat concerned, and two-thirds (68%) are very concerned. They have seen the most significant spending increases in commonly used brand drugs (33%) and specialty drugs (30%).

DID YOU

KNOW

?

32

QUOTABLE People to serve are everywhere. You must have enough conviction to serve them.

— Richie Marrero, partner, 360 Benefits

their policy provisions. Some chose to stop paying premiums altogether. Between 10% and 20% of policyholders elected the nonforfeiture option in which they stop paying premiums but will still receive benefits should they need qualifying care.

WASHINGTON STATE LOOKS TO EXPAND COVERAGE TO UNDOCUMENTED

Washington state could become the first state in the U.S. to make health insurance available to its residents regardless of their immigration status. The Washington Health Benefit Exchange, the state’s health insurance marketplace, submitted a waiver application that, if approved, will allow the state to bypass or change some Affordable Care Act requirements. If the federal government gives the go-ahead, Washington state could allow undocumented immigrants to purchase health insurance through the state’s health insurance exchange.

Under the ACA, undocumented immigrants — with an exception for children and those who are pregnant — are not eligible to buy health coverage on the exchanges.

If the waiver is approved, Washington state would expand health insurance access to more than 105,000 people — about 23% of the state’s total uninsured population.

In 2020, most workers withdrew as much from their flexible spending accounts as they contributed.

InsuranceNewsNet Magazine » July 2022

Source: Employee Benefit Research Institute

High Limit Disability Individuals annually earning in excess of $500,000 need disability benefits that can keep pace with their affluent lifestyle - they need High Limit Disability. The benefits of a recently-insured surgeon, making $1,100,000 consisted of: ⌂ $10,000/month Group LTD ⌂ $15,000/month Individual DI ⌂ $32,000/month High Limit DI Call (800) 345-8816 or visit www.piu.org for more information.

Occupation: Surgeon Age: 51 Income: $1,100,000 Total Benefit: $57,000/month

HEALTH/BENEFITS

What agents need to know about the cost of long-term DI Like all insurance prices, the price of disability insurance is tied to risk, and many factors can impact it.

By Mike Brown

D

isability insurance replaces a portion of a policyholder’s regular income — usually between 40% and 60% — if physical injury, medical illness or mental health issues leave them unable to work and earn a paycheck.

When compared to life insurance, disability insurance is a massively undersold product, even though statistics should suggest otherwise. Here’s what brokers and advisors who may be interested in adding this relatively untapped product to their arsenal need to know about its cost.

According to LIMRA, 52% of Americans own life insurance, compared to only 14% who own disability insurance.

Yet the Social Security Administration 34

InsuranceNewsNet Magazine » July 2022

estimates today’s 20-year-olds have a 1 in 4 chance of becoming disabled during their career. Comparatively, a 25-year-old man has a 1 in 6 chance of dying before retirement, while that chance is 1 in 9 for a 25-year-old woman.

Moreover, 48% of mortgage foreclosures are due to disability, compared to only 3% due to death.

With only 14% of Americans owning disability insurance, DI presents a big opportunity for insurance agents.

There are some challenges in selling the product. Chief among those challenges is a complicated and lengthy application and underwriting process.

This challenge is being addressed by insurtechs that have brought the process online and use predictive analytics to expedite underwriting.

Another challenge is a lack of awareness and knowledge about the product. A Consumer Federation survey found that only 13% of employees know “a lot” about disability insurance, compared to 52%

who know “nothing at all.”

Another survey found 38% of millennials are not very familiar with either longterm or short-term disability insurance.

Considering their chances of facing disability, this is concerning.

With this disability insurance knowledge gap in mind, let’s focus on the cost of disability insurance so that agents, advisors and brokers can have the most up-to-date pricing data when their clients ask for it.

The cost of DI

When talking about the cost of disability insurance, the general rule of thumb is that either type (long term or short term) will have an annual premium cost between 1% and 4% of a policyholder’s annual income.

Another rule to follow is that policyholders should expect to pay between 2% and 6% of their monthly benefit amount in premium.

While those are generalizations about the cost of disability insurance, Breeze

WHAT AGENTS NEED TO KNOW ABOUT THE COST OF LONG-TERM DI HEALTH/BENEFITS

As disability insurance sales shrink, opportunity grows 31%

29% 30%

27%

Despite the need, the percentage of Americans with disability insurance (DI) coverage declined from a high of 31% in 2012 to a low of 14% in 2021.

23% 26%

20% 20%

20%

16% 14%

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source: 2021 Insurance Barometer Study, LIMRA and Life Happens

recently put together a report on disability insurance pricing. We analyzed all of our long-term disability insurance quote data from the past two full years to provide the average cost of long-term disability insurance by age, gender, occupation and state.

According to the report, the average annual disability insurance cost in 2021 was $1,297, which breaks down to $108.11 in monthly premium. In 2020, this annual figure was $1,084, or $90.33 monthly.

Although that does represent a yearover-year increase in the price for longterm disability insurance, it’s important to note consumers were looking for a much larger benefit in 2021 compared with 2020.

In 2020, the average monthly disability insurance benefit, according to our data, was $2,561. This figure surged 23% in 2021 to $3,151. It’s possible the COVID-19 pandemic encouraged consumers to seek a larger financial security net by way of a larger disability insurance benefit.

By age, there were significant differences in the annual long-term disability insurance cost. For the 18-24 age group, the annual premium cost in 2021 was $451.

For those between 25 and 34, it was $863, while it was $1,354 for those ages 35 to 44.

For the 45-54 age group, the average annual cost was $1,800, while it was $1,642 for those ages 55 to 64.

There’s a significant financial advantage to taking out disability insurance at a younger age, which is something to note with clients.

Also, the average annual premium cost for women ($1,352) was higher than for men ($1,117), which falls in line with historical data that shows more women than men suffer disabilities that impact their careers.

When it comes to occupation, physicians ($3,027) and dentists ($2,460) had the highest annual premium figures, while drivers ($509) and customer service professionals ($619) had the lowest.

Factors impacting disability insurance cost

Many factors can impact the price of disability insurance, so it’s important to have this information handy for inquiring clients.

Like all insurance prices, the price of disability insurance is tied to risk.

In terms of physical factors, the healthier a client is, the less they likely will pay.

A nonsmoking 25-year-old with no negative health history will likely pay a lower rate than a 45-year-old smoker who has undergone multiple medical procedures.

When it comes to occupational factors, income and occupation will come into

play. The higher their income, the more a client will likely pay, because the benefit will have to be bigger. The riskier the occupation, the higher premium one might pay. A roofer has a much greater chance of getting injured than an accountant does.

Policy details also will have an impact on the cost of disability insurance.

Selecting a longer benefit period likely will increase the premium, as will selecting a shorter waiting period. And last, selecting a larger benefit amount will also probably raise the premium rate for disability insurance.

Disability insurance is a great opportunity for insurance agents, advisors and brokers, but client education remains a hurdle. Keeping your clients informed on what they might pay for disability insurance will go a long way toward producing policies.

Mike Brown is the director of communications at Breeze. He may be contacted at mike.brown@ innfeedback.com.

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July 2022 » InsuranceNewsNet Magazine

35

Financial facts and figures powered by AdvisorNews.com

38% pulled money Americans spread their from the market funds across more firms American investors aren’t going steady with one financial firm but are play- last year ing the field instead. According to a recent survey by Hearts & Wallets, nearly half (42%) of American households with $500,000 to under $2 million have four or more financial relationships, up from 36% of households in 2020.

AMERICANS STASH THEIR FUNDS IN MULTIPLE FIRMS

Households with $2 million-plus were the exception, pulling back slightly from 3.9

relationships in 2020 to 3.6 in 2021.

Maintaining multiple saving and investing relationships is now the predominant conOne in five households now sumer behavior, said Laura Varas, CEO and has 4+ saving and investing founder of Hearts & Wallets. Why? Varas relationships, up from one hypothesized that consumers believe one in six last year. In 2011, less firm can’t be all things to all investors. than 1 in 10 (8%) house“Consumers deliberately seek diverse caholds had 4+ saving and investing relationships. pabilities from different firms,” she said, SOURCE: Hearts & Wallets “and it would be difficult to counteract this preference by trying to meet every need for a consumer within one firm.” In addition, she said, consumers have more options when it comes to selecting financial or investment firms.

60% of adults say pandemic disrupted their finances

Northwestern Mutual’s 2022 Planning & Progress Study found that 60% of U.S. adults said the pandemic has been highly disruptive to the way they manage their finances. Among them, a significant majority (48%) said they have been able to adapt while 13% said they have not.

More than four in 10 (43%) adults surveyed said they made up for lost ground incurred financially during the first year of the pandemic, compared to 30% who said they haven’t and 27% who said

they didn’t lose any ground in 2020.

One way Americans responded to the pandemic was to ramp up their savings, and the study backed that up. A solid majority (60%) of those surveyed said they’ve been able to build up their personal savings over the past two years, and 69% of those surveyed said they plan to maintain their new saving rate going forward. That said, year-over-year numbers show that although savings levels remain high, they’ve dropped 15% from last year.

What has people worried more than inflation?

Inflation may grab the headlines, but Americans are experiencing more mental distress over this aspect of their finances — not having enough emergency savings.

A Bankrate survey showed that two in five Americans

said money issues are affecting their mental health, and that 57% are most worried about whether

they have enough set aside for a rainy day.

36

InsuranceNewsNet Magazine » July 2022

OKAY, I’M WORRIED!

43% say they are financially worse off in retirement than they were during their working years.

SOURCE: Edward Jones

A MagnifyMoney survey showed nearly 40% of investors did what advisors told them not to do during turbulent times — pull money out of the stock market .

According to the survey, 38% of investors defied traditional wisdom to keep their money in the market, and many of them said they regret that knee-jerk decision.

The survey found that younger investors are more likely to pull money from the stock market, with 67% of Generation Z investors and 57% of millennial investors doing so. Not waiting it out could be why a large number of young investors are more likely to have regrets. Approximately 45% of millennial investors who withdrew from the market wish they hadn’t, along with 39% of Gen Z investors.

Although a portion of Americans pulled out of the stock market due to current events, many shifted their focus to saving for emergencies. The survey showed that more Americans are seeing the value in building up their emergency funds. Among those who said current events affect their money decisions, focusing on emergency savings was the top priority for nearly half (46%) of them.

Nearly the same percentage — 56% — said they are most concerned over not being able to pay everyday expenses.

When it comes to other financial woes keeping people up at night, 48% said they were worried about being in debt, 46% said they didn’t have enough discretionary money, 39% were stressed out over saving for retirement, and 38% were concerned about paying for housing.

So, you want to write for InsuranceNewsNet

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What’s in it for you? » RECOGNITION for the expert that you are. » PROOF for your prospects and clients that you are the expert they should trust. » SATISFACTION for giving back to the industry that gave to you.

If you think that you are ready to write for InsuranceNewsNet Magazine, InsuranceNewsNet.com or AdvisorNews.com, run right over to www.insurancenewsnet.com/guidelines to read up on what we are looking for and how to send it to us.

And prepare to get famous!

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May 2020 » InsuranceNewsNet Magazine

37

ADVISORNEWS

Advisors can turn to client reviews to help repair their image Consumer trust in financial advisors could get a boost from a recent rule that permits advisors to solicit and promote client testimonials. • Brian Thorp

W

hile mechanics and financial advisors would not seem to have very much in common, a CFA Institute Trust Report published in 2020 found that the public’s trust levels for both these groups was poor.

While only 22% of retail investors said they highly trust mechanics, financial advisors scored just as poorly on trustworthiness among investors who don’t currently work with an advisor.

But there is a historic regulatory update that offers our industry an opportunity to reverse the mainstream narrative that advisors shouldn’t be trusted. And perhaps just as importantly, financial advisors gain a proven tool to accelerate the growth of their business.

After 60 years of prohibition, the Securities and Exchange Commission Marketing Rule now permits financial advisors to ask their clients for testimonials that can be published and promoted on advisor websites and online review platforms when accompanied by proper disclosures.

A silver lining found in the CFA report is that most retail investors who do work with a financial advisor believe their advisors are trustworthy. Which means, as reviews of financial advisors begin to proliferate online, the voices of millions of satisfied clients finally will be heard.

Consumers preparing to hire a financial advisor will gain insights into the authentic experiences shared by advisors’ clients to help them make more informed and educated hiring decisions. And positive

38

InsuranceNewsNet Magazine » July 2022

reviews accelerate the trust-building process, resulting in more consumers scheduling introductory calls with advisors, and a higher conversion ratio of prospects becoming clients.

Before financial advisors can get started with online reviews, it’s important to understand the regulatory landscape and prerequisites. Financial advisors licensed as registered representatives of broker-

in getting started with online reviews, it’s important to consult with your compliance team for their advice and guidance. When you do, you’re likely to find this topic is top of mind, as many firms across the industry are actively preparing policies and procedures for advisors to follow.

Once you have the green light from compliance, you’re likely to be told the next step involves sending an email to all of your cur-

How consumers read and write local business reviews

Source: BrightLocal

dealers must satisfy the Financial Industry Regulatory Authority requirements prescribed for soliciting and promoting testimonials, along with adherence to firm policies and procedures. And investment advisor representatives of registered investment advisors first must ensure compliance with the new SEC Marketing Rule prior to its Nov. 4 compliance deadline.

Although some differences exist within FINRA and SEC rules for soliciting and promoting testimonials, the good news is that advisors will find compliance requirements to be manageable, even when those advisors are dually registered.

If you’re a financial advisor interested

rent clients, simultaneously inviting them to write a review. This is because the SEC makes it clear in the new marketing rule they expect advisors to avoid cherry-picking who they invite to write a review.

Beyond cherry-picking concerns, the SEC also wants to ensure that published reviews include accompanying disclosures to help prospective clients learn whether the person who wrote the review: » Is a current client, former client or non-client (e.g., acquaintance, center of influence). » Was compensated for the review

ADVISORS CAN TURN TO CLIENT REVIEWS TO HELP REPAIR THEIR IMAGE ADVISORNEWS

How important a part do online reviews play in your decision to use these types of businesses?

from consumer surveys conducted in the last few years: » 87% of consumers said they read online reviews for local businesses in November 2020, up from 67% in 2010, according to the BrightLocal annual report. » 88% of consumers said online reviews played a role in discovering a local business in 2020, BrightLocal reported. » 58% of consumers said they would be willing to travel farther to a business with better reviews, according to Podium Research.

Source: BrightLocal

(including non-cash compensation such as gift cards or dinner). » Has any conflicts of interest that could influence what they write in their review.

Accordingly, your compliance team may require that you only invite clients to write reviews on platforms designed to display the required disclosures when their review is published.

Although general online review websites such as Google and Yelp may be popular

As reviews of financial advisors begin to proliferate online, the voices of millions of satisfied clients finally will be heard.

among consumers, these platforms were not designed to accommodate SEC or FINRA requirements. Instead, you may be instructed to collect and display testimonials only on your own website where the required disclosures can be added, or on online review platforms specifically designed for compliance with the SEC Marketing Rule.

Beyond the disclosure requirements prescribed in the SEC Marketing Rule, registered representatives should also ensure the following disclosures are present for compliance with FINRA Rule 2210(d)(6) when the review references investment performance or investment advice provided by the advisor: » The fact that the testimonial may not be representative of other customers’ experience. » The fact that the testimonial is no guarantee of future performance or success. » If more than $100 in value is paid for the testimonial, the fact that it is a paid testimonial.

If you’re questioning whether it will be worth your time to ask your clients for testimonials and then promote your reviews online, consider these statistics

Looking more specifically across other trust-based professions such as doctors and lawyers, where reviews have been permitted for many years, consumer behavior could be a harbinger of what’s to come as financial advisor reviews proliferate. » 83% of consumers in a 2018 study said they trust online reviews of doctors more than personal recommendations, according to an NRC Health Market Insights survey. » 47% of consumers used online review sites for attorneys, and legal directories to find a lawyer, ranking higher than any other resource, a Martindale-Avvo survey showed. » 46% of consumers read online reviews of an attorney to conduct additional research after a personal referral, according to Martindale-Avvo.

Whether you plan to be among the first financial advisors to get started with online reviews or you prefer a wait-and-see approach, you’re likely to see an increasing number of advisors in your community promoting testimonials as part of their marketing plan. It’s important to begin thinking about your plans for online reviews today to ensure you’re prepared no matter how you choose to proceed.

Brian Thorp is the founder and CEO of Wealthtender. He may be contacted at brian. thorp@innfeedback.com.

July 2022 » InsuranceNewsNet Magazine

39

MULTILINEWIRES

Disgruntled consumers shop around for auto coverage

Older drivers more likely to chase lower premiums 67% of pre-baby boomers shop for auto insurance based on price.

QUOTABLE

41% of Generation Z auto insurance We’ve seen everything shoppers are price-driven.

Add auto insurance premiums to the growing list of things Source: J.D. Power from a 25% decrease in that cost consumers more. Rising auto insurance rates have lowered driver satisfaction with price, according to a J.D. Power study. This led to a surge Kentucky to a 34% increase in in consumers shopping for new policies while dragging down consumer satisfaction.

Idaho.

The auto insurance industry is being hit on a lot of fronts — including record-high replacement costs, increased frequency and severity of collisions, and a negative eco— Nick VinZant, QuoteWizard senior research analyst, on nomic outlook, said Marty Ellingworth of J.D. Power. the changing prices of homeThe largest factors driving policy shopping are proactive price checking (51%) owners insurance since 2021. and rate increases (35%), the Power report said. Nearly two-thirds (64%) of those who are shopping for new coverage because of a rate hike experienced a price slight increase in net income after taxes increase of 11% or more. to $61.9 billion, from $60.3 billion a year prior, helped by growth in investment FLORIDA, LOUISIANA Property Insurance. Citizens is taking on income and in realized capital gains. A INSURERS BRACE FOR far more risk as private companies shed combination of factors, including signifHURRICANE SEASON policies and raise rates to deal with finan- icant unrealized capital gains, propelled We’re about a month into the official hurcial losses. Citizens had 851,006 policies policyholders’ surplus to a new record of ricane season, and the property insurance on April 30, up from 453,911 policies two $1.03 trillion. market in two states is taking a beating. So years earlier. far, three Florida insurers — Lighthouse FRAUD ADDS BILLIONS TO Property Insurance, Avatar Property DISASTER PAYOUTS Insurance and St. John’s Insurance — Property/casualty insurers paid from $4.6 were ordered into liquidation, the Florida billion to $9.2 billion extra in disaster Insurance Guarantee Association reports. claims due to insurance fraud in 2021, a But more worrisome is that four or five cost policyholders bear through their inFlorida insurers could be unable to surance premiums. That’s according to obtain the proper level of reinsurance the National Insurance Crime Bureau, for hurricane season, which would lead P/C INSURERS STRONG DESPITE which estimated disaster fraud adds 5% to to their being placed into receivership by UNDERWRITING LOSSES 10% to the total claims paid following a dithe state.

The property/casualty insurance industry saster. The FBI found that about 7.5% of If that happens, it will be the biggest ended 2021 strong despite experiencing an the $80 billion in government funding failure of insurers in Florida since 1992, underwriting loss, according to a report for reconstruction following Hurricane when the devastating Hurricane Andrew from Verisk and the American Property Katrina — or about $6 billion — was lost resulted in seven insurers being declared Casualty Insurance Association. to insurance fraud. insolvent.

In 2021, the insurance industry expeThe cost of fraud is contributing to The insurance situation in Louisiana rienced a $3.8 billion net underwriting increasing insurance costs nationwide, is even worse, with at least six insurloss, after a $5.2 billion underwriting NICB reported. In Florida, for example, ers declaring insolvency in the past few gain in 2020, as incurred losses and contractor fraud is one element contribmonths. As a result, more consumers are loss adjustment expenses grew 11.1% uting to increasing premiums, insurer being funneled into the Louisiana Citizens while earned premiums only grew insolvency, and consumers scrambling Property Insurance, the state’s insurer of 7.4%. The underwriting loss was driven under deadlines to find an insurer to meet last resort. More than 13,000 policies have by an increase in non-catastrophe losses, mortgage lender requirements. been added to the state-run organization’s particularly in auto insurance. Meanwhile, NICB encourages disaster victims to rolls since right before Hurricane Laura insured losses from catastrophes, partic- contact their insurer, law enforcement or struck in 2020. ularly Hurricane Ida, were significant, ac- NICB investigators if they suspect a deFlorida also has a state-backed insurer cording to the report. ceitful contractor, or someone passing as a of last resort, and it too is called Citizens On the income side, the industry saw a contractor, tries to take advantage of them.

DID YOU

KNOW

?

40

Greer, SC., led the list of cities with the worst drivers in 2021.

InsuranceNewsNet Magazine » July 2022

Source: Insurance Institute for Highway Safety

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MULTILINE

Flood damage can happen where you least expect it If you haven’t noticed an uptick in flood-related damage in your area, it’s likely you will soon.

What your clients need to know.

By Tim Radcliff

W

hen it comes to selling flood insurance, the world has changed for insurance professionals.

According to the Federal Emergency Management Agency, flooding is already the most common and costly natural disaster in the U.S. Only one inch of floodwater in an average-sized home is capable of causing $25,000 in damage.

Although flooding is already a serious threat, the problem is anticipated to get much worse.

Extreme weather events such as hurricanes, tropical storms, heavy rains and flash floods are increasingly causing flood-related damage to residential and commercial property across the U.S. If you haven’t noticed an uptick in flood-related damage in your area, it is likely you soon will.

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A recent study published in Nature Climate Change estimates that effects from climate change and population growth will contribute to a 26% rise in U.S. flood risk by 2050. Along with the increase in flood risk, researchers estimate that the total annual loss attributable to flooding across the U.S. could rise from a 2020 baseline of $32 billion to $41 billion over the next three decades.

Although many assume flood damage is mainly of concern for properties located in coastal areas and flood plains, trends suggest flood damage can happen anywhere.

According to the American Flood Coalition, 99% of U.S. counties have been damaged by a flooding event in the past 25 years. Additionally, the National Flood Insurance Program and FEMA issued a report in 2020 titled “Answers to Questions About the NFIP,” in which it was noted that more than 40% of all NFIP-paid flood losses from 2015 to 2019 occurred in areas outside mapped highrisk areas.

This data underscores the fact that even properties that are seemingly at little risk of flooding can be susceptible to

major damage. Like many insurance professionals, I have witnessed this phenomenon firsthand.

I recently spoke with a client who had purchased a house on top of a hill in rural Pennsylvania. Convinced that the elevated location of her home made it impervious to water damage, she didn’t even consider the prospect of investing in flood insurance. Sure enough, after a rainstorm built up enough hydrostatic pressure in the soil around the foundation to cause significant flooding in the basement, the client disclosed to me how the event led to a change in her perceptions.

“If you would have told me when I purchased this house that I needed flood insurance, I would have found another agent, thinking you were trying to sell me coverage I didn’t need,” she told me.

“If my house on top of a hill can flood, any house can flood.”

FLOOD DAMAGE CAN HAPPEN WHERE YOU LEAST EXPECT IT MULTILINE My takeaway from this exchange, and from the increasing amount of data on elevated flooding risk, is that flood insurance should be part of the discussion with every client and prospect — regardless of location or the perceived lack of need.

Understanding coverage

Since typical homeowners and renters insurance do not cover flood damage, only flood insurance can give policyholders the peace of mind and financial assistance to get back on their feet quickly after sustaining damage to their home.

Flood insurance covers losses directly caused by flooding, which the NFIP classifies as an excess of water on land that is normally dry, affecting two or more acres of land or two or more properties.

The problem, and opportunity, for insurance professionals is that there are still many misconceptions about what is covered in the part of the home most likely to flood: the basement.

The NFIP defines a basement as, “Any area of a building with a floor that is below the natural ground level on all sides; otherwise, it is considered the first floor. …

Rooms that are not fully below ground level (such as sunken living rooms, crawlspaces, and the lower levels of split-level buildings) may still be considered basements because the lowest floor is below ground on all sides.”

The NFIP offers two types of coverage — building coverage and contents coverage — to protect policyholders’ homes and belongings. The NFIP encourages policyholders to purchase both types of coverage for the broadest protection.

The following items are included under the NFIP’s Standard Flood Insurance Policy building coverage, provided they are connected to a power source or installed in their functioning location in the basement:

» Sump pumps. » Well water tanks and pumps, cisterns, and the water in them.

» Oil tanks and the oil in them; natural gas tanks and the gas in them.

» Pumps or tanks used in conjunction with solar energy.

» Furnaces, water heaters, air conditioners and heat pumps.

14.6 million properties in the U.S. are at risk of flooding (Source: First Street Foundation)

» Circuit breaker boxes, electrical

junctions and required utility connections.

» Foundation elements. » Stairways, staircases, elevators and dumbwaiters.

» Unpainted drywall and ceilings, including fiberglass insulation.

» Cleanup, which can include pumping

out trapped floodwater, labor to remove or extract spent cleaning solutions, treatment for mold and mildew, and structural drying of salvageable interior foundation elements.

In addition to the items included under the NFIP’s building coverage, washers and dryers as well as freezers and the food in them are covered under contents coverage provisions.

Just as important as the items the NFIP covers are the items it doesn’t cover under its Standard Flood Insurance Policy.

The NFIP’s Standard Flood Insurance Policy exclusions include “basement improvements or items not necessary to make the home safe, sanitary and functional — such as carpeting, finished walls, paint, floors, ceilings, furniture or personal belongings that may be kept in the basement.”

Items not specifically listed in a policyholder’s flood insurance policy are also not covered, and neither is the removal of noncovered building or personal property items even if the removal helps facilitate the cleanup of covered building repairs.

When in doubt, insurers and policyholders should refer to their policies for specific language as it pertains to coverage, but the bottom line is this: A client’s bonus bedroom, newly renovated family hangout or kid’s playroom could be at risk of sustaining flood damage where much of the finished space, and the personal items

13 million Americans live within a 100-year flood zone (Source: FEMA)

in it, wouldn’t be eligible for coverage as specified under the NFIP’s exclusions.

Conversely, this coverage can still be pivotal in helping homeowners protect and restore foundational elements of and appliances in the home, which is something my client in Pennsylvania wishes she had known sooner.

As the number of flooding events across the country is expected to increase in the coming years, it is crucial for insurance professionals to initiate a discussion with their clients on flood insurance and what’s included as part of this coverage.

While every homeowner’s situation is different, understanding these policies could make all the difference in a client deciding whether flood insurance coverage is right for their particular needs.

There are few feelings worse than being on the opposite end of a call with a policyholder who has just sustained significant damage to their home and believes they weren’t adequately informed on what their policy covers.

Policyholders rely on us to be knowledgeable subject matter experts capable of leading them through their coverage decisions. By having upfront conversations on the importance of flood insurance — and on what is and isn’t covered under the policy — before a catastrophic event, you can be a hero for your customers even on their rainiest of days.

Tim Radcliff is the CEO of Private Client Insurance, a PCF Insurance Services partner.

Tim may be contacted at tim. radcliff@innfeedback.com.

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July 2022 » InsuranceNewsNet Magazine

43

BUSINESS

Customer service is always easy … until it isn't!

How to be diplomatic when clients are difficult or downright abusive.

By Joanne Pietrini Smith

H

enry Ford debuted his Model T car in 1908, which was revolutionary for many reasons — including that Ford offered a windshield as an option. At about the same time, department store pioneers like John Wanamaker, Marshall Field and Harry Gordon Selfridge began using what would become the universal customer service phrase: “The customer is always right.”

Times have changed. Cars come standard with not only windshields but also onboard computers and state-of-the-art entertainment. One thing that has not changed, however, is that the customer is always right. But what happens when the customer isn’t right?

Let’s look at how financial professionals can use their expertise and the latest tools to best respond to, maintain and further develop client relationships.

Knowledge mismatch: Expectations vs. reality

Industry knowledge is one of the most significant value components financial professionals provide to their clients. They have access to industry-leading resources — from a broad portfolio of carriers to the latest technology tools, as well as their

own deep knowledge and the experience of colleagues. While clients come to financial professionals for that expertise, sometimes a client’s expectations might not align with what may be best for the client.

For example, while more and more carriers are offering simplified — and often quickly available — options for the client, our industry still struggles with long issue times compared to today’s Amazon Prime-style consumer expectations. It’s up to financial professionals and their teams to educate clients on the typical case life cycle and set expectations about requirements and processes. Clients will appreciate the time taken to explain the process and the personal touch provided by proactive follow-up.

This is one of the situations where the customer might not always be correct in their expectations for the speed of transactions, and so they may voice some frustration. In a case like this, setting expectations in advance and staying in close communication with the client can help avoid that frustration or disappointment.

Education: They don’t know what they don’t know

When clients meet with their financial professional, they often come to the meeting with an idea of what they’re looking for when it comes to their financial needs.

There can be a disconnect, however, between what clients think is the best solution for them and what their financial professional recommends for their

A great example where client education can be most effective is the value-add of crossselling or advanced sales opportunities.

Customers may come asking for one thing (a life insurance policy) and end up walking away with much more in order to meet all their needs.

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specific circumstances.

Today’s financial professionals have access to a variety of educational opportunities. Financial professionals can leverage webinars and video tutorials to learn about tools, capabilities and processes from many reputable companies and industry sources. Consumers have access to a lot of information too — but it’s not always current, accurate, from the most knowledgeable sources, or tailored to the client’s specific situation. Additionally, financial professionals have access to brokerage general agencies and carriers with specialists who can provide one-to-one connections, allowing for the necessary time to understand advisors’ and clients’ needs and provide expertise to set expectations appropriately.

This is truly a situation where client education can be most effective. A great example is the value-add of crossselling or advanced sales opportunities.

Customers may come asking for one thing (a life insurance policy) and end up walking away with much more in order to meet all their needs.

It’s not always easy: Suck it up or speak up?

What happens when the customer isn’t right and is verbally abusive toward the financial professional trying to help them?

What if they say something counter to a personal philosophy of diversity, equity and inclusion, such as a racial and ethnic slur, or use highly discriminatory, derogatory or abusively foul language?

How do we find the balance between giving people the benefit of the doubt that their intentions were good and having empathy for someone who is lashing out because they are having a bad day? How do we determine when we should “suck it up” and take inappropriate comments in stride versus when we should speak up for the values we stand for? This dilemma does not always have a clear-cut answer,

CUSTOMER SERVICE IS ALWAYS EASY … UNTIL IT ISN’T!

but years of customer service experience lead to consistent guidance.

Handling difficult situations

Most companies have a vision statement that references empowered and engaged professionals. It’s critical that teammates feel empowered to professionally handle situations that are not in line with their and the company’s values.

Employees are the key to success, and abuse from clients should not be tolerated. Here are some keys to address difficult situations.

1] Leadership support. You are not

the first to encounter a difficult or awkward situation. Be assured that guidance and support from managers or peers are readily available. One aspect of good customer service is learning how to turn negative conversations around. Role-play with a colleague and discuss best practice approaches. Escalate difficult situations if you are uncomfortable, or enlist another colleague to help defuse tension. Share your experiences so your teammates can learn from one another. Make notes in client files to professionally document for future reference and give others a heads up about potentially delicate situations.

2] Educate yourself. Take advantage of the learning opportunities offered by our industry associations and credible sources,

such as LinkedIn Learning, for topics like managing demanding customers, navigating challenging situations with diplomacy, and facing confrontation in sales or customer service.

3] Examine your sensitivity and

accountability meters. Make sure that your bad day, bad mood or other personal frustrations are not interfering with a productive client conversation. Ensure that you are delivering at the expected service levels or raising issues to your business resources (brokerage general agencies, employees or carriers) to address so that you are providing the service you want to deliver.

4] Practice prepared responses.

Rehearsing language in advance will keep you from being caught off-guard and give you tools to disarm tension and attempt to move forward. For example: a. “We strive to create a culture within our company and our community built on diversity, equity and inclusion. While I’m going to assume your intentions were from a good place, your comments came across as hurtful/insensitive/hostile. Would you like to start the conversation again from a more professional place?” b. “I appreciate that you are frustrated/ angry/disappointed; however, speaking to me (or my teammates) disrespectfully isn’t going to solve this situation.

BUSINESS

Would you like to work together to get on the same page?” c. “As I previously shared with you, we have a company culture built on diversity, equity and inclusion. If you continue to treat me (or my employees) disrespectfully, I will have to end this call — even if it means ending our business relationship. I want to provide you with exceptional service, but being unprofessional is not positioning us for a successful conversation.”

Providing an exceptional customer experience is a goal beginning at the start of a sales opportunity through policy delivery and annual reviews. Delivering customer-focused education, setting realistic expectations and encouraging respectful conversations offer an opportunity to build positive relationships.

Financial professionals take pride in providing all customers with quality, productive and rewarding interactions. It’s not always easy. However, taking the extra steps to ensure a positive customer experience can lead to more coverage for more clients and their families.

Joanne Pietrini Smith is chief operations officer at Crump Life Insurance Services.

Joanne may be contacted at joanne. pietrinismith @ in nfe e d back.com.

July 2022 » InsuranceNewsNet Magazine

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INSIGHTS

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

The three-tiered system for retirement security Starting early and not quitting are the keys to saving up a comfortable retirement nest egg.

By Walton Rogers

W

hen I meet with clients, I often ask: “When you are the old man or woman you hope to become, will you have enough ready money?” It’s never too early in a person’s working life to ask this question. However, there is a time when it becomes too late in the game to make up for poor planning.

I think of this approach as a three-tiered system, based on three age groups. Ages 20-40 are the most important, ages 40-60 are where distractions are the greatest, and age 60+ is when “ready money” is vital.

Here are the strategies I use to determine whether a client is willing and ready to commit to achieving their retirement goal.

Stage one: Just getting by (ages 20-40)

During this time, people are partnering up, settling into new jobs, starting families, buying homes, starting businesses, changing partners, etc. The demands on their limited incomes can lead them to feel as though they never have any money for retirement.

Here are three questions I ask clients.

1. At what age do you hope to retire or sell your business?

2. How much money will you need to retire? Clients likely will not have an answer, or they’ll say $500,000 or about 10 times what they currently earn.

3. When do you think you’ll need to start putting money aside? They likely will think later, but not right now.

Not accounting for inflation, a person will need at least $1.5 million in their retirement account at age 65. If that person 46

InsuranceNewsNet Magazine » July 2022

starts saving 6% of their pay at age 25 and keeps it up for 40 years, they can end up with $1.5 million.

Although it is impossible to predict how much a person will accumulate or need after a 40-year period, it is possible to predict where a person will end up if they do not save something for their future. The secret sauce is time! The more time you have, the less money you need to put into your plan each month.

Stage two: Don’t quit now (ages 40-60)

How many of your clients started a qualified retirement plan in their 20s and stuck with it? How many made maximum contributions over a 40-year period?

Based upon my experience, the answer is “very few.” Life has a way of forcing us to shift our priorities. Clients often tell me the cost associated with young children is overwhelming. During this stage, couples may change jobs, decide to start a business, experience a disability, have marital problems, get divorced, remarry or even move to a new city.

Now is the time to keep the discipline of funding those retirement accounts. Tell clients to pay themselves first — then allow what is left to fund the necessities and extras. Remind your clients how the Money Formula works, and that time is the most important variable.

Money Formula: Systematic Deposit X Rate of Growth X Time = Baskets of Cash Advise clients to do the math and they will discover that the more time they have, the lower their deposits can be, and the rate of growth is incidental. Shorten the time available to 10 years — their deposits must be significantly greater and they will feel more compelled to take uncomfortable risks.

Helping clients stick with their retirement plans during these middle years is the most valuable guidance we can provide them.

Stage three: I hope these parachutes work (age 60 and beyond)

We can be most helpful at this stage by listening to what our clients say about their dreams for retirement. You’ll want to discuss their health issues, family issues, income reality, reserve cash available, housing issues, travel issues and any special concerns. If you focused on holistic planning with them in stages one and two, everyone will be grateful that the contingencies have been addressed. You also want to be sure insurance solutions and asset allocations are available, or are already in place to provide the parachutes.

At this stage, you will need to ask them what their life expectancies are, who they expect will die first and how long must the assets last for the survivor.

You’ll also need to ask what legacies they hope to provide. In this stage, advisors must identify where guarantees are vital or important, where risk must be taken, and where to build in flexibility for all the unknowns.

My experience is that holistic planning is crucial to implement at each stage of a client’s life. Older clients typically say two things to me. First, “I do not want to run out of money before I run out of living.” If they love someone or something, they will add, “I want to make sure my survivors have the assets they need, as well.” If we help our clients plan throughout their lives with those statements in mind, we will become their trusted advisors — and they will be confident that our knowledge won’t let them down.

Walton W. Rogers, CLU, ChFC, is the manager of W. Rogers & Associates in Annapolis, Md. He is a 46-year member of MDRT with three Court of the Table honors and is a past MDRT president. He may be contacted at walton.rogers@innfeedback.com.

INSIGHTS

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

Getting more young professionals to swipe right The financial services industry must present the right profile to generate interest from young adults seeking careers.

By Angela White

I

t’s no secret that the insurance and financial services industry must recruit a new generation of young advisors. Attrition among established professionals is thinning our ranks. Meanwhile, increasingly diverse and financially sophisticated American communities, which traditionally have been underserved, need our attention. But recruiting young professionals can be like using a dating app. We must present the right profile in order to generate interest and get good matches.

Why would millennials and Generation Z be interested in financial service careers? As a recruiter myself, I truly believe this industry is a great fit for many young people who are early in their careers or soon to be entering the workforce. So the real question may be: What can we do to better attract talented young professionals to this career path? How can we get them to swipe right?

What does the younger generation want?

The ideals that shape work and careers are evolving rapidly. For one thing, the gig economy really has taken off and is particularly appealing to millennials and Gen Z. It seems as though everyone has a side hustle. Although I wouldn’t refer to a financial services career as a side hustle, it is appealing in similar ways. Financial services offers flexibility, autonomy and a type of career path ownership that you typically don’t get in corporate America.

This industry also appeals to young people who want to help others and have positive impacts on other people’s lives.

When you help someone solve a problem, protect their family or achieve a financial

goal that is important to them, the results can be satisfying.

Why aren’t millennials lining up?

There’s a misconception that financial services is a career field open only to white men. Many women and people of color do not gravitate to the profession because of this view. Financial services is seen as a very business-centered profession. Although that is true in some ways, financial services is actually a people-centered profession.

As employers and recruiters, we should emphasize the people side of what we do.

You can learn or get help with many of the strategic and business aspects of the profession. But there is no substitute for the ability to build and nurture relationships.

It’s important to start changing these misperceptions with students who are still in high school. Then we must bridge the gap to appeal to college students. We must attract students from a variety of majors, not only the traditional finance or accounting majors. We are missing the boat if we are not looking at communications majors, psychology majors, sociology majors and the like, because those are areas of study where many of the people-centric students are.

All Americans need and deserve access to financial services and products.

We have many underserved markets, but just because they are underserved does not mean they are underfunded. To truly serve these markets and tap their potential, we need young, diverse professionals who reflect and relate to the markets they serve. It’s about bridging gaps and making sure everyone has a seat at the table and an equitable opportunity.

How do we recruit young, diverse professionals?

We must listen to what the talent is telling us and craft our messages to recruit from different pools of talent. I don’t run through a script when I’m interviewing candidates.

I try to get to know them. I ask, “Who are

you? What do you really love about your current position? What do you wish you could change about your current position?”

The answers to these questions help me understand what candidates are looking for in a career.

It is important to build trust with candidates and show that you value their time. It’s also important to be transparent.

If a candidate tells me things about themselves that do not translate into a career in financial services, I’m honest with them.

Financial services is not a career for everyone. We owe it to our industry and clients, as well as to the people we are recruiting, to find the right candidates.

The best advisors are people who truly want to help others. I’m not looking for someone who is only eager to go out and sell. I want someone who’s entrenched in their community, who volunteers, who has hobbies and interests. I’m looking for people who have the ability to build relationships and who value relationships in their lives.

It is also important for financial professionals to be goal-oriented and have a strong desire to succeed. They are often very organized or at least committed to looking for ways to become more organized.

The good news is that many young people from diverse communities across our country share these attributes. It’s simply a matter of finding them and showing them how rewarding a career in financial services can be.

Angela White is Northern Complex Recruiting Director, Equitable Advisors. A NAIFA member since 2017, she is co-chair of NAIFA’s Diversity, Equity, and Inclusion Council. Angela may be contacted at angela.white@innfeedback.com.

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July 2022 » InsuranceNewsNet Magazine

47

INSIGHTS

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

Three things advisors want recruiters to know Advisors who are new to the industry didn’t hold back when asked about their opinions of a financial services career.

By Alison Salka

I

The vast majority (85%) said they were likely to stay in their role for the next three years and almost three-quarters (73%) would highly recommend the career to a young job seeker.

This doesn’t mean that the career is all happiness and satisfaction. Almost half of new advisors (48%) who went into the industry for the income potential said the career has not met their expectations.

Many found it harder to get established than they expected and wished they had known more about what would be required to be successful.

t’s hard to overstate the role financial professionals play in their clients’ lives. LIMRA research finds that people who work with a financial professional are more likely to feel What recruiters need to know financially secure. For this reason, it alOur respondents also did not hesitate to ways has been important to recruit strong advise carriers and those who recruit advifinancial professionals to the industry. It’s sors. Their suggestions included: even more critical now given the increased I would highly recommend young job seeker I would highly this career»toBeahonest consumer awareness of — and demand for — especially about income I would highly recommend this career to a young job seeker I would highly recommend this career to a young job seeker recommend this career expectations and work required. This — life insurance. People still want to work with an advisor before they make this purtheme represented the majority of the to a young job 8% seeker 3% chase. Ensuring that the industry has suffi- 3% feedback. One representative comment 3% 8% cient talent to meet that need is a challenge was, “While it has been rewarding, I was 8% 29% in today’s competitive labor market. painted a much prettier picture than the 29% To better understand the needs and perreality.” Trust people to make an informed 29% 17% spectives of advisors new to the decision and don’t recruit to quotas.

17% industry, 17% LIMRA surveyed more than 350 advisors with five years of experience or less. We » Provide support and mentoring. Invest asked them about their backgrounds, in people and help them be successful. practice models and perspectives on their career choice. We also asked them what ad» Pick the right people. Be willing to vice they would give to other new advisors look outside the normal channels and pick and to the organizations recruiting them. people who are self-motivated, coachable, 44% The advisors we surveyed had an avenergetic and entrepreneurial and who 44% erage of 2.9 years of experience. A little 44% want to help people. Life experience and less than half (45%) had sales experience. community involvement were also seen as Strongly Agree Agree Neutral Disagree Those who did not came from a variety of valuable. Strongly disagree Strongly Agree Agree Neutral Disagree Strongly disagree backgrounds. Slightly less than one-third Strongly Agree Agree Neutral Disagree Strongly disagree had been students. Many came from other Helping people achieve financial seindustries: financial services, education, When asked what advice they would curity is a noble profession. Finding and hospitality, retail and the military, among give to other new advisors, respondents enabling the next generation of advisors others. The top three reasons people chose didn’t hold back. The comments were helps them achieve career success and the career were 1) the opportunity to make overwhelmingly encouraging. The most helps enable financial security for their a difference in people’s lives, 2) income po- common message was to be patient and future clients. tential and 3) work/life balance. not give up. We saw this message over For those who joined the industry to and over. One person suggested creating a Alison Salka, Ph.D., make a difference in people’s lives, 98% said “gratefulness list” for the hard days. They is senior vice president and director of the career met or exceeded their expecta- were also very clear that advisors should be research, LIMRA and tions. Almost 4 in 10 advisors (39%) said prepared to work very hard. Other import- LOMA. She may be conthey were very satisfied with their sales ant messages included a learning mindset tacted at alison.salka@ innfeedback.com. careers thus far. Only 8% were dissatisfied. and finding a mentor.

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