InsuranceNewsNet Magazine | November 2023 by InsuranceNewsNet

THIS ISSUE: THE TECH GUIDE Life Insurance Health/Benefits Annuities Financial Services NOVEMBER 2023

Insurers’ AI races ahead of rules Insurers are embracing the potential of AI, but regulators are slowly catching up with new rules to guard against discrimination and protect privacy. PAGE 12

ALSO INSIDE Deep thoughts on retirement with Wade Pfau

Turning client referrals into introductions

All eyes on the DOL fiduciary rewrite

PAGE 8

PAGE 36

PAGE 40

Life Insurance • Health/Benefits Annuities • Financial Services NOVEMBER 2023

The Power of Story in Long-Term Care Conversations OneAmerica® introduces a transformative approach for guiding clients to informed long-term planning care decisions.

Discover the power of the new OneAmerica Care Solutions Sales Story experience and how it can lead to meaningful conversations that help guide clients through long-term care planning. Plus, get key insights from long-term care studies and more in this exclusive interview with Jeff Levin, vice president, Care Solutions distribution.

» Find out more on page 7

Changing the narrative. The landscape of long-term care planning is evolving, and the demand for relevant and informed discussions is higher than ever. Yet, many financial professionals grapple with initiating these crucial conversations. OneAmerica is pioneering a shift with its innovative storytelling tool, transforming data into compelling narratives and enabling you to engage with clients effectively to bridge the LTC coverage gap through meaningful conversations.

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IMG23210 | INN 11.2023

WELCOME LETTER FROM THE EDITOR

Will we need AI to monitor AI?

s we look at technology in this month’s issue, artificial intelligence jumps out as the trend that continues to create the most buzz in the insurance industry. One survey, for example, found that 88% of auto insurers currently use, plan to use or plan to explore using AI or machine learning as part of their everyday operations. Seventy percent of home insurers plan to do the same. AI has been employed across the industry at many levels: » Underwriting: AI is used to assess risk by analyzing vast amounts of data, including historical claims, demographics, and real-time data such as weather patterns and social trends. » Claims processing: AI automates claims processing by quickly evaluating damage, detecting fraud and determining payouts. This reduces the time it takes to settle claims and ensures accuracy. » Customer service and chatbots: AIdriven chatbots and virtual assistants provide 24/7 customer support. They can answer policyholders’ questions, help with policy changes and even initiate claims reporting. » Predictive analytics: AI algorithms analyze data to predict future trends, such as identifying high-risk areas for specific types of claims (e.g., auto accidents or property damage). Insurers can use this information to adjust pricing and underwriting strategies. » Fraud detection: AI helps detect fraudulent claims by identifying patterns and anomalies in data. It can flag suspicious activities, reducing insurance fraud and saving costs for insurers. » Risk assessment: Insurers use AI to assess the risk of insuring specific individuals or properties more accurately. This leads to more personalized pricing and coverage options. 2

accurately, helping reinsurance companies manage their portfolios effectively. » Regulatory compliance: AI can assist insurers in staying compliant with evolving regulations by monitoring and adapting policies and practices. » Customer engagement: AI-powered tools personalize marketing and communication efforts, improving customer engagement and retention. Insurers can offer relevant policy recommendations and incentives based on customer behavior. » Telematics: In auto insurance, telematics devices and AI analyze driving behavior, allowing insurers to offer usage-based insurance policies. Safer drivers may pay lower premiums. » Data analysis: AI can process and analyze vast amounts of data to uncover insights, helping insurers refine their business strategies, improve operational efficiency and make data-driven decisions. » Policy management: AI streamlines policy administration by automating tasks like policy issuance, endorsements and renewals, reducing manual errors and administrative costs. »R isk modeling: AI helps insurers create sophisticated risk models by considering a wide range of variables and scenarios, enhancing their ability to manage risk effectively. » Health insurance: AI is used to assess health risks, optimize pricing for health insurance policies and support claims processing in this insurance sector. » Property/casualty insurance: In P/C insurance, AI can assess property values, calculate replacement costs and estimate the risk of natural disasters. » Reinsurance: AI is being employed in reinsurance to assess and price risks more

InsuranceNewsNet Magazine » November 2023

One of the more interesting uses for AI is developing what is called “synthetic data,” which can be used to improve predicative modeling when, for example, there may be a lack of actual data for certain models. Overall, AI has the potential to modernize and make more accurate and efficient many aspects of the insurance industry. At the same time, there are concerns about oversight and regulation — to ensure that its use does not create issues of discrimination, for example. As Senior Editor John Hilton writes about in this issue, the National Association of Insurance Commissioners has been surveying each segment of the insurance industry to quantify exactly who is using AI and how they are using it. The NAIC will use this information in developing AI guidelines for the industry. As rules and regulations evolve, including at the state level, we will see how the oversight of AI develops. Overseeing AI, however, has a number of wrinkles. There are, for example, “AI hallucinations,” when AI programs make up information out of whole cloth, based on no real data or information. As we see more uses of AI to create images and video, there is more opportunity to move away from reality and create very convincing content that misrepresents the facts. The next question after regulation is developed, though, is how to monitor AI. Many uses of the technology are so complex, they may require AI tools to monitor and ensure compliance. At that point, will we have AI overseeing AI? John Forcucci Editor-in-chief

IN THIS ISSUE

View and share the articles from this month’s issue

» read it online InsuranceNewsNet.com/topics/magazine

NOVEMBER 2023 » VOLUME 16, NUMBER 11

FEATURE

Insurers race to use AI By John Hilton and John Forcucci

Insurers are surging ahead with their adoption of artificial intelligence, but are the regulations catching up?

HEALTH/BENEFITS

32 Could voluntary benefits ease the retirement/LTC crisis? By Zach Iovino Workplace benefits can impact an employee’s well-being beyond their working years.

IN THE FIELD 18 B uilding a secure financial house

By Susan Rupe Rith Nou wants to help people of all cultural backgrounds understand the importance of life insurance as the foundation of creating financial security.

LIFE

By Dan Pierson Medical underwriting can intimidating to navigate, but advisors still can help clients obtain the right coverage.

10 T he Retirement Thinker

Wade Pfau began his career as an economist but switched his attention to creating retirement income strategies. In this interview, he describes how research goes into a retirement income strategy.

ANNUITY

PUBLISHER EDITOR-IN-CHIEF MANAGING EDITOR SENIOR EDITOR

Paul Feldman John Forcucci Susan Rupe John Hilton

By John Hilton Respondents are bullish on annuity sales despite fears of a possible recession.

CREATIVE DIRECTOR SENIOR CONTENT STRATEGIST EMAIL & DIGITAL MARKETING SPECIALIST TRAFFIC COORDINATOR MEDIA OPERATIONS DIRECTOR

By Ayo Mseka Helping build client confidence can also help build a practice by increasing client referrals.

BUSINESS

By Bob Richards The biggest determinant of your success is your ability to understand your clients’ needs and concerns.

IN THE KNOW

40 A ll eyes on the DOL fiduciary rewrite

28 S urvey: Annuity providers see a path in the RIA channel

INSURANCE & FINANCIAL MEDIA NETWORK

36 4 tactics for turning client referrals into introductions

38 Y our success depends on your point of view

24 What every advisor must know about underwriting

INTERVIEW

ADVISORNEWS

By John Hilton A number of exemptions are likely to change how business is conducted.

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

717.441.9357 www.InsuranceNewsNet.com Jacob Haas Lori Fogle Megan Kofmehl Sorayah Talarek Ashley McHugh

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Brian Henderson Tobi Schneier Sapana Shah Katie Turner

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November 2023 » InsuranceNewsNet Magazine

IN CASE YOU MISSED IT

What’s in the news on InsuranceNewsNet.com A model law to better regulate public adjusters comes under debate, the financial services labor shortage is on the decline and the industry pays attention to the surging impact of weather-related disasters. [Editor’s Note: These are some of the major stories to which we are devoting ongoing coverage at INN. Visit our website to sign up for our free newsletters at insurancenewsnet.com/subscribe and don’t miss another important story!]

NCOIL debates fee caps for public adjusters in proposed model law Texas investigators said. Mitchell’s adjusting business, Mitchell Adjusting International, was located in Clear Lake Shores, Texas, but solicited clients across the country online.

To cap or not to cap?

by John Hilton Fee caps remain a key issue as state insurance legislators near completion of a model law to better regulate public adjusters. A National Council of Insurance Legislators subgroup discussed its Public Adjuster Professional Standards Reform Model Act, sponsored by Rep. Mike Meredith, R-Ky., and cosponsored by Rep. Matt Lehman, R-Ind., and Del. Steve Westfall, R-W.V. The model act is based on a public adjuster bill that passed in Kentucky, Meredith said, adding that the Property & Casualty Insurance Committee hopes to have the model ready to move forward during the NCOIL annual meeting this month in Columbus, Ohio. “I think the time is now to address 4

this,” Lehman said. “It gets down to making sure we don’t get rid of an industry that could be needed in certain cases, [but] at the same time making sure we’re dealing with those who have abused the situation. And here’s evidence of [abuse].” Several states have already passed new regulations for public adjusters, who have come under fire in recent years. Adjusters inspect property damage or personal injury claims to determine how much the insurance company should pay for the loss. Earlier this year, the Texas Department of Insurance announced an indictment of Andrew Joseph Mitchell, accused of stealing more than $268,000 in insurance claims from multiple victims. Mitchell has a pattern of similar alleged activity across several states,

InsuranceNewsNet Magazine » November 2023

The NCOIL subgroup debated whether the model should cap the fees adjusters can charge the public. “Any amount of money that comes out of that claim is money that the insured will not have to be able to do repairs that are needed to their home or auto,” Meredith said. “I think it’s very, very important that we understand and don’t have some large amount of compensation coming out of that, because that’s just going to be a shortfall that they’re either going to have to dip into a huge amount of their savings or go borrow money.” But industry lobbyists said fee caps are likely to have the opposite effect. Cole Kline is president of the American Association of Public Insurance Adjusters, which did a study of 129 claims in 2022. Of the residential roof claims, it took an average of 377 days from the time the public adjuster was contacted to reach a settlement, Kline told legislators. Read the full story online: http://bit.ly/ncoil23 Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.

TOP PICKS FROM INSURANCENEWSNET.COM

Talent gap narrows in financial services, concerns remain by John Hilton At its peak, the labor shortage in financial services hit an estimated 500,000 openings. That number is down to about 325,000 and on a steady decline, said Kenneth Kim, a senior economist at KPMG. The employment news for financial services is good, Kim said, but it isn’t great. “Yes, [job openings have] come down, but if you take the latest figure and go back in time, just draw a straight line, you can see still see that the current level is still higher than the highs in the previous two business cycles — the business cycle that lasted from 2001 to 2008, and the one that went from 2009 to the beginning of 2020.” A lot of what has happened with wages and employment can be traced to inflation and rising interest rates. Health care and social workers were

Online saves time

seeing wage increases in the 9% range for a short time, Kim noted. Those rising wages are cooling but remain higher than they were before COVID-19. “The Fed’s interest rate increases, bringing them up from 0% to 5.5% currently, are having the intended impact,” he said, “not only on inflation but also on labor market costs.” Read the full story online: https://bit.ly/talentgap23 Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.

Go digital Get more done

Weather disasters break record, industry taking notice by Susan Rupe The U.S. is witnessing a rise in both the frequency and the economic impact of weather and climate-related disasters, and the insurance industry must take notice. That was the word from Steve Bennett, chief climate officer for The Demex Group, a company that designs risk management solutions for insurers and companies with exposure to non-catastrophic but extreme weather. Bennett also is chairman of the American Meteorological Society’s Forum on Climate Linked Economics. By the end of the third quarter of 2023, the U.S. already had broken a record for costly weather disasters, with 23 events each causing more than $1 billion in damages, totaling $58 billion in 2023 so far, according to NOAA. This surpassed the previous 2020 record of 22 such events.

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This trend can be attributed to a blend of factors, including heightened exposure (meaning more assets and infrastructure at risk), increased vulnerability (referring to the extent of damage caused by specific environmental conditions like wind speed or flood depth), and the exacerbating influence of climate change on the occurrence of extreme events. Read the full story online: https://bit.ly/recordweather23 Susan Rupe is managing editor for InsuranceNewsNet. 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 X @INNsusan.

November 2023 » InsuranceNewsNet Magazine

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NEWSWIRES

QUOTABLE

Insurers facing robocall lawsuits A raft of lawsuits across the country seek-

ing class-action status allege marketers, particularly insurance companies, are guilty of knowingly cold-calling consumers by the millions even when the targeted recipients have placed their names on the do-not-call list to stop the offending calls. The biggest among the insurers, Allstate, has been hit with at least three such suits alleging violations of the Telephone Consumer Protection Act, which governs telephone solicitation. The suits, all in Allstate’s home state of Illinois, say the insurer and its vendors have been on notice since at least 2019 that it was in violation of the TCPA, “yet Allstate has allowed the violations to continue,” reads one such suit. A Connecticut insurer, Family First Life Insurance, and its corporate owner, is facing at least two lawsuits alleging TCPA violations in Michigan and Florida, and in May settled a third. Terms of the settlement are confidential, according to court filings. The lawsuit, by a single Michigan resident, accused Family First Life of contacting him three times via text messages even though he said his number has been on the do-not-call list since 2003. Family First Life is facing another suit in Michigan that also lists four other companies — United of Omaha Life Insurance, Americo Financial Life and Annuity Insurance, Great Western Insurance, and Our Senior Care Inc. — as well as several individuals for alleged illegal phone calling.

SEC CRACKS DOWN ON 9 FIRMS FOR MARKETING RULE VIOLATIONS

In a sudden and significant crackdown on misleading financial industry marketing, the U.S. Securities and Exchange Commission moved against nine registered investment advisers for alleged violations of the marketing rule, which strictly governs the use of hypothetical performance data in advertising. The SEC said the charges stem from the firms’ dissemination of theoretical performance data to the general public on their websites without having requisite policies and procedures mandated by the marketing rule. The nine advisory firms that faced charges ranged from Massachusetts to DID YOU

KNOW

San Francisco, and all agreed to settle with the SEC without admitting or denying guilt. Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said the potential risks posed by hypothetical performance ads can be enticing to investors whose financial situations and objectives don’t align with the advertised investment strategies.

NATURAL CATASTROPHE INSURED LOSS JUMPS TO RECORD $133B

The annual average insured losses from natural catastrophes have soared to a staggering $133 billion, marking a new record high and serving as a stark reminder of the escalating risks faced by

Inflation dragged U.S. household real incomes down 2.3% in 2022.

InsuranceNewsNet Magazine » November 2023

Source: U.S. Census Bureau

I think some of the excess savings from the Covid years are getting close to depletion. — Jane Fraser, Citigroup CEO

insurers worldwide. The numbers are from Verisk’s 2023 Global Modeled Catastrophe Losses Report. Although global climate change may factor into the surge of catastrophic losses, according to Bill Churney, president of Verisk’s extreme event solutions group, most of the blame is attributed to two more mundane circumstances: the continued expansion of exposure values, driven by construction in high-hazard regions, and escalating replacement costs, largely fueled by inflation. Beyond traditional natural disasters such as hurricanes and earthquakes, losses from other hazards like floods, severe thunderstorms and wildfires now constitute a significant portion of annual losses. These events are occurring more frequently and often involve more valuable properties, amplifying the financial toll.

12% OF US HOMEOWNERS SKIPPING HOME INSURANCE

How to beat the high cost of homeowners insurance? For some, it’s forgoing the insurance completely. An Insurance Information Institute survey found 12% of homeowners in the U.S. don’t buy insurance for their dwellings. The unprecedented weather-related disasters roiling the country are also raising havoc with insurers, throwing underwriting formulas and forecasts out the window, boosting the cost of repairs to unprofitable levels. LexisNexis Risk Solutions data shows that on average, nationwide premiums for home insurance are up roughly 21% since 2015, with some states seeing huge increases (Texas up 40%, Colorado up 41%, Florida up 57%). The national average for home insurance based on $250,000 in coverage increased this year to $1,428 annually, up 20% from 2022, according to Bankrate.

Bridging the LTC Coverage Gap Through Meaningful Conversations with Jeff Levin, vice president of Care Solutions distribution at OneAmerica

As more consumers are recognizing the urgent need for long-term care (LTC) protection, we sat down with Jeff Levin, vice president of Care Solutions distribution at OneAmerica®, to delve deeper into the behaviors and mindsets surrounding LTC coverage. Drawing from insights gleaned from the company’s two comprehensive studies, Levin sheds light on the collective desire for meaningful LTC conversations, exposes the present gaps in the industry, and identifies the forward-moving strategies at OneAmerica. OneAmerica and Hanover Research recently conducted two studies, one with financial professionals and one with consumers, in order to understand the behaviors and thinking regarding LTC planning. Why is this research important and what was the most surprising finding? Levin: Understanding the mindsets and shifting patterns of behavior of both consumers and distribution partners is essential, especially in an ever-evolving long-term care landscape influenced by medical advancements, potential cures for diseases like Alzheimer’s, and unforeseen challenges like the pandemic. But the standout revelation from our studies was a unanimous sentiment from both consumers and financial professionals: the desire to have a meaningful conversation about long-term care. A lot of financial professionals think consumers avoid the topic, but they are, in fact, actively discussing it — albeit with peers and family. The gap lies in having these discussions with financial professionals. Many financial professionals hesitate to initiate the conversation, perhaps fearing a lack of expertise. Yet, both parties are eager to engage in these discussions. This underscores a critical missed opportunity in long-term care planning. Starting a meaningful and educational conversation is key. Our mission is to equip both financial professionals and consumers with the tools, such as our step-by-step guide to long-term care, necessary for informed decision-making. According to the study findings, 21% of financial professionals have never offered LTC coverage to their clients.

What resources is OneAmerica providing to change this? Levin: We recognized that traditional methods, like inundating clients with numbers on an illustration, often fall short in conveying the real value and understanding of LTC protection. That’s why we co-created a new storytelling tool with Ensight, a leading life, long-term care and annuity digital sales acceleration platform. This Care Solutions sales story transforms the numbers into a coherent and compelling narrative tailored specifically for the client. It outlines the features and benefits recommended by the professional in a relatable manner. It’s like a script, allowing the professional to paint a clearer picture of the coverage’s impact. Our aim is to make financial professionals feel more confident introducing LTC protection to their clients using this narrative approach. Asset-based LTC protection is a core offering at OneAmerica. What makes this type of long-term care protection attractive to consumers? Levin: Asset-based long-term care protection stands out for its value and flexibility. Unlike traditional LTC insurance, which operates like a term policy with no residual value upon cancellation, asset based LTC protection guarantees an underlying value. It benefits policyholders in all situations — whether it’s the need for care, or a desire to opt out, or if they pass away without using the coverage — because their heirs receive a death benefit. People may perceive it as being pricier initially, but it eliminates the “use it or lose it” dilemma, so consumers are always receiving value, no matter what happens. Your research highlights cost as a significant barrier. What steps is OneAmerica taking to address this? Levin: Cost is always a pivotal factor. OneAmerica asset-based products guarantee no premium increases, unlike standalone products that might see premiums rise over time. Obtaining coverage doesn’t always mean purchasing it all up front and in one

product. Clients who find it difficult to get full coverage immediately can start with a minimum, and as life’s circumstances change, they can decide to “stack coverage.” By the time retirement rolls around, the client can adjust the amount of coverage that is needed. Ultimately, it’s better to have some level of protection in place than to have no strategy in place when a long-term care need arises. How can conversations reshape perceptions and decisions surrounding LTC? Levin: Storytelling and clarity are essential. Clients often want to know the direct impact on their lives, not just features and benefits. By simplifying the narrative, we connect more deeply. To use an analogy: Many Mount Everest climbers who are injured or lose their lives do so on the descent, not the ascent. Similarly, while we focus on accumulating assets for a dream retirement at life’s peak, the plan for how to protect and use those assets during retirement — the descent — is often overlooked. We spend all this time getting to the top to enjoy what we think will be a long and healthy retirement, but we don’t plan for what could happen coming down the other side of the mountain. The one prevailing issue is LTC often stays out of sight and out of mind until it becomes an urgent need. Although many consumers are comfortable discussing LTC with doctors and attorneys, the conversation should also include a financial professional who can act as a guide, not only leading clients safely to the top of the retirement mountain but also helping them down the other side by navigating and deciphering LTC solutions. Hanover Research and Ensight are not affiliates of the companies of OneAmerica. To get a firsthand look at the Care Solutions sales story and how it can be used to start meaningful LTC conversations with your clients, visit http://bit.ly/OALTCStorytelling for a sample output.

INTERVIEW

InsuranceNewsNet Magazine » November 2023

THE RETIREMENT THINKER — WITH WADE PFAU INTERVIEW

A proposal to create retirement accounts from Social Security steered Wade Pfau from a potential career as an economist to becoming one of the foremost thinkers in retirement income strategies.

o call Wade Pfau an expert when it comes to retirement income planning is an understatement. Pfau is co-founder of the Retirement Income Style Awareness Profile (the RISA) and founder of Retirement Researcher, an educational resource for individuals and financial advisors on topics related to retirement income planning. “I mainly write programs to simulate how different retirement strategies perform,” says Pfau, who serves as a principal and the director of retirement research for McLean Asset Management and as a research fellow with the Alliance for Lifetime Income and Retirement Income Institute. He is a professor of practice at the American College of Financial Services and has published more than 60 research articles in a wide variety of academic and practitioner journals. His research has been featured in the Economist, New York Times, Wall Street Journal, Time, Kiplinger’s, and Money magazine. “Essentially, not much changes in retirement,” explains Pfau. “You still have your diversified investment portfolio, but rather than adding new savings, you start taking distributions.” What strategy you employ, though, to help ensure a successful retirement, he says, is what sets investors apart. Paul Feldman: For those not familiar with you, can you tell us a little about your background and why you got interested in the business? Wade Pfau: I’ve been in the retirement income space and financial planning side now since about 2010. I studied economics in college and went to graduate school for economics. I was thinking about becoming a U.S. government economist. I did an internship at the Social Security Administration. When I finished

graduate school, I decided not to become a U.S. government economist, at least not right away. I thought it’d be neat to live in another country, and so I found a job as a professor in Japan where I was teaching at a public policy school — mainly with students who are from emerging market countries or developing countries and looking at their pension systems. I spent 10 years in Japan, but when I was ready to return to the U.S. I realized that emerging-market pension systems was not a very marketable topic to U.S. audiences. So I started to pivot. I studied for the Chartered Financial Advisor designation on the investment side, but as a part of that, I came across some of the concepts of retirement income planning. The research I had done on Social Security for my dissertation was about President George W. Bush’s proposal to create personal retirement accounts from Social Security. I was evaluating that, and that ultimately led to this transition into retirement income planning. I mainly write programs to simulate how different retirement strategies perform. I came across the idea of the 4% rule and the concepts from the investment world. Essentially, not much changes in retirement. You still have your diversified investment portfolio, but rather than adding new savings, you start taking distributions. Feldman: Are the risks different in retirement? Pfau: There are different risks in retirement. Longevity risks, for example. People don’t know how long they’ll need to stretch their money out for the sequence of returns risk. When you’re taking distributions, market volatility effectively has a bigger impact on retirement. There’s a lot of disagreement about how to approach retirement.

There are two different schools of thought. Probability based is more of an investments-only school of thought. Safety first looked at the role for insurance. And so I started learning about risk pooling and insurance and how you can build strategies that also include insurance in the retirement income phase. And my research has pointed to that while there are different viable options, risk pooling through insurance is competitive with anything that an investment portfolio can do. The math is really in favor of using risk pooling as part of a retirement strategy. I developed research in that area. I was at the American College of Financial Services full time for 10 years with their Ph.D. program and with the RICP (Retirement Income Certified Professional) designation. While I was doing research, I started writing books. My retirement planning guidebook has done well in becoming a resource that I try to make as comprehensive as possible about how to build retirement strategies, looking at all the different aspects — not just the investment side or not just the insurance side, but also Social Security, long-term care planning, health care and Medicare decisions, retirement housing, and tax planning, which is an active area of research for me right now. I also look at tax-efficient retirement planning, estate planning, and the nonfinancial aspects of retirement as well. And I work with a registerd investment advisor firm based out of Virginia, McLean Asset Management, that has approximately a billion dollars in assets under management. I have a website, RetirementResearcher. com, which is more of an educational website for consumers and advisors on retirement topics. And I’ve worked on creating RISA, the Retirement Income Style Awareness assessment tool, which helps people provide a starting point for how they want to build a retirement strategy. Feldman: Are you an active financial advisor? Pfau: I am not a financial advisor myself. I work more behind the scenes helping to support the advisory team with research. When there’s a client who likes to get into the weeds, I do join those conversations sometimes, but not on a day-to-day basis.

November 2023 » InsuranceNewsNet Magazine

INTERVIEW THE RETIREMENT THINKER — WITH WADE PFAU Feldman: What types of conversations do you have when you’re pulled into a discussion with a client?

bonds? The stocks and the annuities both provide at least the potential to spend more than do bonds alone.

Pfau: It’s always interesting to have those conversations and to see their perspective, especially where they may not be fully immersed in the retirement research. They bring a different viewpoint or perspective to things, and that can lead to some interesting conversations. I remember one example. Initially the idea was to help explain why risk pooling through insurance might contribute to their retirement strategy. I started explaining about how you could think of building a bond ladder to generate retirement income as a starting point, and then how you can add insurance on top of that. But ultimately what came out of that conversation was the client saying, “Oh, I like the bond ladder idea.” The idea of a retirement income bond ladder is the same as a regular bond ladder, except you spend the proceeds as they mature rather than reinvesting them, and rolling the ladder forward. So that was a pretty interesting highlight where going into a conversation using something as a baseline became what the individual was most interested in.

Feldman: What is your take on the 4% rule?

Feldman: How does the bond ladder do compared with risk pooling? Pfau: The bond ladder is the foundation, and then we generally have two ways you could generate more spending power than with a bond ladder. One option is the diversified investment portfolio, where you rely on the stock market to generate higher returns to support more spending than bonds. And the other is risk pooling, where you pool that risk with an insurance company with fixed annuities, effectively having something like a bond ladder or a fixed income portfolio of their own. That provides an ability to subsidize payments to the long-lived through some of the premiums from the short-lived who end up not needing as much to fund their retirement. And so that risk pooling supports a higher level of spending than bonds. You have the two different options: Are you more comfortable with the stock market to fund more spending than bonds, or risk pooling to fund more spending than 10

Pfau: When you talk to somebody in the real world, they’ll immediately say, “Well, the 4% rule is ridiculous. Nobody would behave that way.” The 4% rule does assume you always just increase your spending precisely for inflation. You never deviate. You’re never going to reduce your spending if it looks like your portfolio is losing value and so forth. It is very unrealistic in that regard. And so that’s always been an issue with the 4% rule: You can’t use it to define an actual retirement strategy. It’s meant just to be a benchmark to see what level of spending might be sustainable. I used to have a lot of concerns that something like the 4% rule is not actually sustainable in a low interest rate world. But interest rates are now at the point where you can make the 4% rule work. For example, it assumes 30 years of spending, inflation adjusted. So we have TIPS — Treasury Inflation Protected Securities — in the U.S. so that you can build a 30-year TIPS ladder and get 30 years of inflation-adjusted spending. As long as the real interest rate on TIPS is about 1.3%, the 4% rule will work. And we’re now higher than that. The average TIPS yield is somewhere in the ballpark of 1.8% or higher. So the 4% rule can survive certainly as a benchmark in today’s interest rate environment.

Pfau: If Congress doesn’t take further action, we’ll have the higher tax schedule return in 2026 as it existed in 2017. And so we do have this period right now where there can be opportunities to generate taxes as part of a long-term planning strategy when we are in these lower tax brackets. But there’s so much for advisors to understand with tax planning. We have all these nonlinearities in the tax code for more mass affluent retirees who may have just under a million dollars — but even in excess of $2 million. If they’re in their 60s and they’re retired and they’re delaying Social Security, they can create a Roth conversion strategy that will set them up so that even when

RISA Style Matrix

Feldman: What are some things that are changing or on the table right now in regard to tax planning and estate planning? Estate planning could change significantly in the next couple of years.

InsuranceNewsNet Magazine » November 2023

required minimum distributions start later, they may not face taxes on 85% of their Social Security benefits — and that can have a huge impact on longevity of their funds. For clients who may be a bit wealthier than that, there’s also the Medicare surcharges, called IRMAA [income-related monthly adjustment amount]. In those cases, if you have $1 too much of income, depending which threshold you’re at, it has a huge shock or impact. And so when we think about the federal marginal tax rates, right now a lot of people in retirement may end up in the 12% or 22% bracket, which in a few years will become 15% and 25%. But your actual effective marginal tax rate could be a lot higher, because if you’re in the phase where you have another dollar of income that forces more of your Social Security benefit to be taxed,

THE RETIREMENT THINKER — WITH WADE PFAU INTERVIEW that also may push some of your longterm capital gains from the 0% bracket to the 15% bracket. You may think that this year you’re in the 22% tax bracket, but you could end up being in a 55% federal income tax bracket. Feldman: How do you figure that out with your clients? Pfau: I’ve spent a lot of time writing programs to simulate different strategies to try to look at what you should be targeting when you start doing Roth conversions, generating additional taxable income this year, and then simulating that out through a full retirement. Some of the research in this area looks for mathematical solutions, but they have to make so many simplifications to do that. I take more of a simulation-based approach where I’ll say, “Instead of targeting this tax rate or that tax rate, let’s target them all. It takes a long time to run these programs, but then let’s see which one supported not just the retirement spending goals but then had the most legacy at the end as well.” And then whichever strategy just does best becomes the recommended course of action. And it does call for potentially paying more taxes in the short term to create stronger long-term benefits. Now with the SECURE Act, an inherited IRA used to be able to get that lifetime stretch. Now there’s that 10-year window to take the distributions. So, if your adult children are inheriting an IRA, say in their 50s, they may, in their peak earnings years, face a much higher tax rate on those distributions than what you as a retiree would face. And therefore, if you think your children would be in the 25% tax bracket when they receive that IRA, you might want to take advantage of paying taxes now at 12% or 22% so that you got the taxes paid at a lower rate. When the Roth goes to the beneficiary, they still have to take the money out, but they don’t have to pay taxes on it. It’s all about looking for opportunities to pay taxes at the lowest possible rates. Feldman: Where do most people go wrong with claiming Social Security? Too early or too late? Pfau: I am a big advocate of the idea that, generally, at least the high earner in the

couple should think about delaying as close to age 70 as possible. And I would say the big mistake is people who claim too early. Things are improving a lot. It used to be 10 years ago that about half of the population claimed at age 62. That number has fallen dramatically over the past 10 years. More people are waiting until their full retirement age or even past their full retirement age. So I think that’s a big improvement. But I do think, for most couples, it’s a mistake to have both individuals claim at 62. Sometimes people just want to get access to the funds, and they don’t have any choice. But at the end of the day, I’ve done a lot of research along the lines that it is OK to spend other assets down as a part of delaying Social Security because the increased Social Security benefits that you’ll receive mean you’ll be able to take much less from your other assets in the future. And, so, in the long run, that’s going to leave you in a much better position. You’ve got more than a 50% chance of making it past age 80 these days. I don’t know if everyone realizes that, but that really speaks to why it often makes sense delaying Social Security and getting that higher inflation-adjusted lifetime income backed by the government. Feldman: People usually don’t spend what they had planned to spend. They usually will spend less. Have you found that to be the case? Pfau: There have been plenty of studies. It’s the retirement consumption puzzle — this idea that even with extremely conservative assumptions, it seems like these retirement households could be spending more than they are, but they seem to hold on to their assets. Part of that may just be worrying about things like long-term care or just that they might live too long. They need to make sure they keep those assets in place. Feldman: How much should they spend in retirement? Pfau: Are they focused more on growth for their assets, or are they focused more on having predictable income? And of course, if you want more predictable income, you’re not able to have volatile assets

backing that. Having a volatile investment portfolio implies you have the ability to have a volatile spending strategy as well. And so it does become an important factor for people to start thinking about how do I actually want to structure my retirement strategy? Those who want more predictable income might lean more toward an insurance-based starting point. Those who are more flexible with their spending and are more comfortable having volatile spending in retirement may feel more comfortable taking an investment-based approach that is much more focused on maximizing returns to the portfolio. Feldman: So, at a higher level, how should advisors and their clients be thinking about retirement options? Pfau: The idea of the retirement income style awareness is helping people see which strategy may resonate best with their personal preferences. What we’ve found in the research was two primary factors. The first is the one I mentioned earlier, the idea of probability based versus safety first: Are you comfortable relying on the stock market to fund your retirement spending, or would you prefer safety-first contractual protections to cover your bases? The second main factor is this idea of optionality versus commitment. Optionality is do you want to maintain as much flexibility as possible for your assets? Or are you actually more comfortable committing to something that you know solves for your lifetime need. We do find very strong predictive power, in that individuals who are more income protection oriented are much more likely to include an annuity as part of the retirement planning process. People who have that total return orientation — the probability based and optionality — they’re much less likely to ever resonate with a conversation around annuities. I think having people take the RISA assessment — that’s the major initiative I’ve been working on these past few years — really does provide a helpful starting point and will provide an idea of how they might want to approach their retirement. How people feel about these two factors translates into a very interesting way to think about the different retirement strategies out there.

November 2023 » InsuranceNewsNet Magazine

COVER STORY

Insurers’ AI races ahead of rules

InsuranceNewsNet Magazine » November 2023

INSURERS’ AI RACES AHEAD OF RULES COVER STORY

Insurers are embracing the potential of artificial intelligence, but regulators are slowly catching up with new rules to guard against discrimination and protect privacy. By John Hilton

hen it comes to insur- ‘Guiding principles’ ance and the use of ar- In August 2020, the NAIC adopted guidtificial intelligence, the ing principles on artificial intelligence main questions are “how after lengthy discussions. Regulators much?” and “how fast?” added language encouraging insurers to There is, however, one more vitally im- take proactive steps to avoid proxy disportant question: What rules will insurers crimination against protected classes be following? when using AI platforms. They are going to use AI up and down There are numerous examples of how the delivery funnel. They enthusiastically big data algorithms discriminate against admit as much in industry surveys. A lot communities of color. For example, a of that usage is already happening. 2018 study by Consumer Reports and Insurance was one of the first indus- ProPublica found disparities in auto tries to use big data, said Scott insurance prices between Shapiro, principal, advisory, minority and white neighborKPMG U.S., speaking during hoods that could not be exthe recent KPMG Insurance plained by risk alone. Industry Conference. Consumer advocates were The ability to take large encouraged by the principles sets of data, build even larger and the gesture to fight proxy bodies of data around them discrimination in AI use. But Shapiro and then query them in natwhen the model bulletin apural language was used by peared in July, those things the industry years before ChatGPT cap- were missing, said Birny Birnbaum, exectured the world’s interest. utive director of the Center for Economic The National Association of Insurance Justice, in comments sent to the NAIC. Commissioners is surveying each segThe draft bulletin lacks teeth in general, ment of insurance to quantify exactly he added, in one of 28 comment letters the who is using AI, who wants to use it and NAIC received. what tasks they want it to do. “In place of guidance on how to achieve An initial survey of auto the principles and how to insurers found that 88% of inensure compliance with exsurers currently use, plan to isting laws, the draft tells use or plan to explore using insurers what they already artificial intelligence or maknow: AI applications must chine learning as part of their comply with the law and ineveryday operations. Seventy surers should have oversight percent of home insurers said over their AI applications,” Birnbaum they plan to do the same. Birnbaum wrote. “The draft That leaves the question of bulletin fails to provide essenthe rules. While technology evolves fast, tial definitions — it doesn’t even define regulators work at a more leisurely pace. proxy discrimination. It not only fails to Although some states are moving faster address structural racism in insurance. It to establish rules governing AI and big incorrectly tells insurers that testing for data usage, so far, the NAIC remains in protected class bias may not be feasible.” a survey-and-study stage. A principles-based approach to racism An NAIC working group published its in insurance is not necessary or desirable, Model Bulletin on the Use of Algorithms, Birnbaum said. The model bulletin proPredictive Models, and Artificial vides “no guidance regarding the actual Intelligence Systems by Insurers in July. outcomes a regulator expects and how Comments were accepted through Sept. 5. the insurer should demonstrate those The bulletin is not a model law or a reg- outcomes,” he added. ulation. It is intended to “guide insurers to “AI system governance should start employ AI consistent with existing mar- with the outcomes desired by regulators ket conduct, corporate governance, and through the AI principles, and testing to unfair and deceptive trade practice laws,” measure and assess the outcomes for fair the law firm Locke Lord explained. and unfair discrimination should be the

November 2023 » InsuranceNewsNet Magazine

COVER STORY INSURERS’ AI RACES AHEAD OF RULES

“The draft bulletin fails to provide essential definitions — it doesn’t even define proxy discrimination. It not only fails to address structural racism in insurance. It incorrectly tells insurers that testing for protected class bias may not be feasible.” Birny Birnbaum

Executive director of the Center for Economic Justice

foundation of the governance,” Birnbaum explained. “You can’t evaluate something unless you measure it, and the draft bulletin offers no metrics or methods for measuring outcomes.” Industry comments focused on the cost of oversight, particularly with third-party providers. The draft model requires that third parties meet the standards expected of insurers. Allowing insurers to include a provision in their third-party contracts that they have the right to audit third parties could be helpful, the National Association of Mutual Insurance Companies said in a comment letter, although “many vendors may be resistant to such provisions.” “Eventually all third parties will be using AI, so this effectively requires the industry to audit every third party even in cases when due diligence does not uncover an issue or there is low risk,” wrote Andrew Pauley, public policy counsel for NAMIC. “This would be extremely costly and resource intensive.” The NAIC had not announced the next step for the model bulletin when this issue went to press.

Colorado passes own law

The Colorado Division of Insurance became the first state to go ahead with its own AI rules for life insurers. The state recently passed new rules prohibiting life insurers from using data and technology in any way that could lead to unfair discrimination with respect to race, gender and protected characteristics. Taking effect Nov. 14, the regulation applies to all life insurers that do business in Colorado. It covers a wide range of technology life insurers are using in underwriting including algorithms, predictive models, and online data collection. Public comments softened the final rule somewhat, the law firm Mayer Brown said in its analysis. “The final regulation has a more focused scope than what was initially proposed, with a clear focus on unfair discrimination based on race,” the law firm wrote. All life insurers authorized to do 14

InsuranceNewsNet Magazine » November 2023

business in Colorado are required to submit a progress report regarding compliance with the regulation on June 1, 2024, and must submit a report attesting that they are in full compliance on Dec. 1, 2024, and annually thereafter. While Colorado took the lead on AI regulation, it is not alone. New Jersey, Rhode Island and New York are considering bills that would regulate the use of AI by insurers. At least two dozen states have passed rules governing commercial AI use. Still, the prospect of new rules and regulations is not expected to slow the steady growth of AI use by the insurance industry. Pauley Insurance executives should look at all aspects of the business to determine where AI can make processes smoother, said Jeanne Johnson, advisory principal with KPMG. “I think we start with going across the value chain — from marketing to service to claims — and look at where things get stuck because you need more information and you need to move the needle,” she said. “For example, you can use AI to enhance risk profiling, and Johnson that could enhance underwriting. You can give better insights to your agents so you can get better qualifying leads.” Managing Editor Susan Rupe contributed to this report. InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.

Read more. Sell more. InsuranceNewsNet.com has the top stories you need to be an informed and educated producer, advisor or broker, and you can’t find them anywhere else. Visit insurancenewsnet.com today and get the tips, tactics and how-tos to take your agency to the next level.

ROBO ADVISORS FIND THEIR NICHE COVER STORY

Robo-advisors find their niche The robo-advisory market continues to grow, but traditional advisors haven’t been left out in the cold. By John Forcucci

he robo-advisory market is booming. The global robo-advisory market, valued at $4.6 billion three years ago and estimated by some at $41.5 billion in 2023 is expected to grow to as much as $206 billion by 2028, according to recent studies. And the amount of assets under robo-advisory management — about $2.7 trillion — is expected expected to nearly double by 2027. When robo-advisor platforms arrived on the scene in 2010, there was a hue and cry that they would replace traditional advisors. That, of course, never happened. As the market has evolved, these platforms have found a place with investors who might not be able to afford traditional advisory services. Some robo-platforms pair automated robo-investing with advice available from advisors. And, most recently, B2B platforms meant to assist traditional advisors in their practices have appeared on the scene. Robo-advisor platforms offer automated, algorithm-driven financial planning services with little to no human oversight. The customer costs are low, with services frequently offered at $0 commission. Account minimums generally range from $2,000 to $25,000. Clients pay annual advisory fees of 0% to 0.55% or a flat fee of around $75 annually. The authors of a recent Georgetown University study called robo-advising

“a transformational force in personal finance” because it puts complex investment decision making, previously not available to the general public, in the hands of many who could not afford the fees of a traditional advisor. The first automated investor platform was a semi-automated financial manager offered by Mint in 2006. More platforms appeared on the scene following the 2008 market downturn. Betterment, launched by John Stein in 2010, was one of the first robo-advisors marketed to the public. “I think that especially with the Vanguards and the Schwabs, they often rolled out a product that emulated what we brought to the table,” said John Mileham, Betterment’s chief technology officer.

Integrating with ‘human advice’

“We’re really thrilled that the robo-wave has taken over,” Mileham said. “Now it gives us the opportunity to integrate that better with human advice and integrate that better with what comes next. If AI-based augmentation is the next thing, then we’re here to bring that to the table as well.” Financial giants such as Vanguard, Fidelity, Charles Schwab and T. Rowe Price — as well as fintech leaders including Acorns, SigFig and Wealthfront — offer such algorithm-driven automated

investment platforms. Use of these platforms was also accelerated by the COVID-19 pandemic. In addition to adding lump sums to your investments, Acorns lets you round up your purchases on linked credit or debit cards, then adds the change to a computer-managed investment portfolio. One defining feature of robo-advisors is their low cost. Vanguard Digital Advisor, for example, requires a minimum of $3,000 in assets to enroll. For the all-index investment option, investors don’t pay more than $2 per year for every $1,000 Digital Advisor manages. Vanguard describes its robo-advisor as Mileham an online platform that manages investments automatically. Its investment advice “comes from an algorithm instead of a person and can take a lot of the time, guesswork and stress out of owning a portfolio.” Betterment charges $4 a month or 0.25% annually for its automated investing account, which promises “expert-built portfolios, ongoing guidance and tax-efficient strategies at just a fraction of the cost of a traditional advisor.” Betterment also offers access to certified financial planners with its premium plan, which requires a minimum balance of $100,000 and charges a 0.40% annual fee. When getting started with one of the many robo-advisor platforms, investors

November 2023 » InsuranceNewsNet Magazine

COVER STORY ROBO ADVISORS FIND THEIR NICHE will be asked questions similar to those that a traditional advisor would ask, such as ones about goals, risk tolerance and the length of time the client wants to stay invested. At that point, technology will take over to suggest a portfolio. The roboadvisor will manage the investments over time, rebalancing periodically.

Empowering consumers with investing skills

The crucial disruptive feature of robo-advising is “the empowering of consumers with skills and rules of thumb for investing that are based on finance and economic theory and that would not be accessible to ordinary households who have no training in either field if not through the payment of large human advising fees,” according to “IT Meets Finance: Financial Decision Making in the Digital Era,” a study conducted at Georgetown University last year. The disruption by the early entrants, including Betterment and Wealthfront, eventually led to the established investment firms, such as Vanguard, Fidelity, E*Trade, Charles Schwab, T. Rowe Price and many others, introducing their own robo-advisor platforms. Wealthfront, with about $43 billion in AUM, primarily offers a robo-advisor platform. However, Betterment offers both a purely robo-advisor platform and its premium service, which makes a team of Certified Financial Planners available to clients who have a minimum of $100,000 invested on the platform. In addition, Betterment for Advisors enables a traditional advisor to leverage the use of the platform within their practice. This provides the advisor with the capability to build and manage custom model portfolios with options such as automated trading, rebalancing, tax-loss harvesting, asset allocation and a low-cost 401(k) solution. The platform also provides backoffice support and allows easy onboarding of customers and transfer of their assets. Betterment, which describes itself as a $40 billion AUM business serving more than 800,000 clients, said that although the company is heavily weighted toward retail clients, the B2B side of the business is growing rapidly. Mileham said Betterment for Advisors provides traditional advisors with stateof-the-art tools for their clients. “The expectation of having easy access 16

to your investments through your phone is an increasingly just-expected capability,” explained Mileham.

A role for AI?

Although AI may be the technology talk of the day, its application in the robo-advisor world is mostly limited to non-customer-facing aspects of the business, said Mileham. “With all of our clients, all of our end users, we’re in a fiduciary RIA relationship with them,” said Mileham. “As a result, all of the things that smell like advice from us have to be actual advice to the highest standard. “So we have industry-leading experts doing the quantitative analysis that goes into our portfolio construction and the trading algorithms that we do to minimize tax impact and all of that stuff. “It’s math, right?” While AI isn’t used at the core of the investment program, Mileham said, Betterment is looking for places to use it in ways that won’t impact the company’s fiduciary responsibilities. “We’re always looking at what the opportunity is. … I run a large engineering team. We build a lot of software. Having an AI assistant at your seat while you’re coding — helping you identify patterns and auto-complete, and helping you debug and diagnose the issues that you’re banging your head against — is a huge productivity win. It’s not necessarily going to break the internet with how revolutionary the application is, but there’s a ton of value there. “Generative AI, in its current form and its current generation, is an ideal human assistant,” he said. “But it is not capable of being an accountable expert in the way that people are.” At the end of the day, said Mileham, “it’s hard to match a human financial planner who deeply understands your hopes and dreams and is able to translate them into what you want to achieve in your life and how you can go about it.” John Forcucci is InsuranceNewsNet editor-in-chief. He has had a long career in daily and weekly journalism. Contact him at John.Forcucci@innfeedback.com. Follow him on X @INNJohnF.

InsuranceNewsNet Magazine » November 2023

SPECIAL SECTION: TECHNOLOGY THOUGHT LEADERSHIP INSIDE THIS YEAR’S GUIDE:

Embracing AI: Making Informed Technology Choices to Grow Your Business by Nick Graham, Cambridge Investment Research, Inc. PAGE 17

Technology Issue • Special Sponsored Section

Embracing AI: Making Informed Technology Choices to Grow Your Business Nick Graham, Cambridge Investment Research, Inc. Artificial intelligence (AI) has undoubtedly been one of the hottest topics of 2023, and will likely continue to dominate headlines in the years ahead. But amidst all the hype, the term “AI” is often overused both inside and outside the tech realm, to describe or market technology that does not truly fall under the AI umbrella. So what is AI, and how can financial advisors effectively implement it to grow their businesses? AI is a broad domain that encompasses roughly 12 fields of study. True AI is capable of learning from data, evolving, and exhibiting reasoning or problem-solving capacities that would typically demand human-like intelligence. These systems rely heavily on diverse training and auxiliary data to achieve flexibility in their designated tasks, and their efficacy is directly proportional to the quality of their training and depth of accumulated experience. In contrast, programmatic solutions operate based on explicit instructions, defined by set rules. Such solutions, especially when complex, are often mistaken for genuine AI techniques, and it’s important to understand the difference. Basic AI has been around for decades, with the first AI programs developed as early as the 1950s. Today, AI has surreptitiously seeped into modern life, such as “watch next” recommendations, autonomous vehicles, and “smart” home devices. More specific to the financial landscape, algorithmic trading, fraud detection, risk and data assessment tools, and robo-advisors are all examples of successful AI integration (although some financial advisors may be interested to know that 2022 saw the use of robo-advisors fall for the first time ever, especially among individuals with over $500,000 in assets.)1 The “AI in Financial Wellness Market” was valued at $10.23 billion in 2022 and is projected to reach $83.17 billion by 2030, signalling that AI is more than a passing trend.2 What’s driving this explosive growth in the financial landscape? In part, the demand stems from an increasing expectation of personalization from clients, as well as a desire to do more, with more efficiency, from advisors. Recent trends in AI will likely continue to build upon themselves, enhancing operational efficiencies for advisors. This can be through mechanisms such as handling routine administrative tasks, providing risk management and compliance assistance, cybersecurity, and data analysis; as well as predictive forecasting and scenario modeling. Of course, appreciating the growing capabilities of AI is only the first step in the long process of successful integration. AI is likely to become a valuable tool for financial advisors who are willing to allocate resources towards emerging technologies, with some of the shift already happening. Advisors who want to be on the cutting edge – or at least not left “in the Dark Ages” – must be proactive in their approach to AI and willing to embrace new technologies and processes, such as:

• Identify current operational weaknesses in both internal processes and client experiences • Ensure your current tech stack is up-to-date for an easier transition • Make sure your data sources are reliable and complete; AI is only as good as its data • Prepare clients by informing them of impending changes and how it benefits them • Go gradually. It’s prudent to adopt new systems and tools slowly, and it’s crucial to thoroughly test new technology before rolling it out. • Monitor the performance of new AI-based systems, and be ready to pivot as needed We must also be mindful of the risks that come with AI integration. Data safety is of the utmost concern when client information is involved, especially given that many publicly-available AI resources now incorporate user input into their datasets, potentially exposing information to other users. It is vital to control sensitive data and remain cognizant about the lack of security offered – although there is now a growing sub-industry racing to offer solutions. Additionally, standing compliance requirements for data encryption and auditable control of Personally Identifiable Information (PII) conflict with current capabilities of many AI technologies. It is also important that financial advisors not become overly-reliant on AI output, as the integrity of outside data is rarely guaranteed, and it can be all too easy to prioritize hard data at the expense of ‘soft data.’ Furthermore, advisors must be proactive in addressing biases that are inherent to many AI technologies, and ensure these biases do not impact service to clients. While adoption of artificial intelligence into financial services will require planning, preparation, and mindfulness. When done so appropriately, these new technologies can help advisors streamline operations, handle rote administrative tasks, and provide valuable data insights, while improving the client experience by providing enhanced personalization and overall efficiency. Find more insights to help grow your business, visit https://www.joincambridge.com/insights. Learn more at JoinCambridge.com. 1 Neal, R. W. (2022, October 5). Robo-Advisers Struggling to Retain Investors in 2022, Research Finds. Investment News. https://www.investmentnews.com/robo-advisers-struggling-retain-investors-in-2022-research-finds-227476 2 Xherald. (2023, September 11). “AI in Financial Wellness Market Size, Share, Growth Analysis, Trends, and Forecast 2023-2030” (2023). Digital Journal. https:// www.digitaljournal.com/pr/news/xherald/ai-in-financial-wellness-market-sizeshare-growth-analysis-trends-and-forecast-2023-2030 Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc. For financial professional use only.

November November 2023 2023 » InsuranceNewsNet » InsuranceNewsNet Magazine Magazine 17 17

the Fıeld A Visit With Agents of Change

Building a

secure

financial house 18

InsuranceNewsNet Magazine » November 2023

BUILDING A SECURE FINANCIAL HOUSE — WITH RITH NOU IN THE FIELD

RITH NOU

wants to help people of all cultural backgrounds understand the importance of life insurance as the foundation of creating financial security. BY SUSAN RUPE

assachusetts — the city of Lowell and surrounding areas in particular — has the second-highest Cambodian population in the U.S., with more than 20,000 residents of Cambodian heritage calling it home. Rith Nou, a Cambodian immigrant herself, wants to help them — and members of other cultural groups in her community — build what she calls “a secure financial house.” Nou is a New York Life agent in Waltham, Mass., and entered the insurance industry about 10 years ago, after spending 15 years in banking. Her interest in insurance and financial services stems from her desire to educate others. She also wants to help members of the Cambodian and other cultural groups overcome the financial trauma many experienced from being uprooted from their native culture and trying to find their way in the U.S. Nou was born in 1977 in a refugee camp in Thailand to parents who escaped the Khmer Rouge regime in Cambodia, a regime that was responsible for the deaths of between 1 million and 3 million Cambodians during the nearly four years that it held power in that nation. “My mother told me that they hid in the jungle while she was pregnant with me and she was terrified of being attacked by wild animals,” Nou said.

Coming to America

Because Nou’s father had fought alongside U.S. Marines during the war in Southeast Asia, the family eventually was allowed to enter the U.S. under the sponsorship of the Catholic Church. The family settled in a low-income neighborhood in Chicago when Nou was 3 years old. “We lived in the smallest apartment you could imagine,” she recalled. “There was a lot of drug use in the neighborhood, a lot of domestic violence going on in the

street. I would get picked on and beat up in school. I think my dad had PTSD, and he wasn’t really there. I remember my brother taking care of him while my mom worked two jobs.” After Nou’s mother was robbed, the family decided to leave Chicago. Nou recalled they moved from place to place, receiving assistance from various churches, before settling in a public housing project in Boston. That experience taught Nou “that I needed to do well in school and work really hard so I could move my parents out of the projects and into their own house.” Nou went back to Cambodia to visit relatives at one point and realized that her family’s experience in leaving the country “was something that happened for a reason. If we hadn’t left, I could have been one of the kids I saw selling food along the side of the road.” Despite the horrors of the Khmer Rouge rule, Nou said “the Cambodian people are a forgiving people.” “I don’t know if it’s from our Buddhist philosophy or our culture or whatever, but I think we’ve suffered so much loss

realize it at the time, but it was good practice for being in this industry.” Nou said she originally was interested in pursuing a career in education. But after helping her family buy a house, she believed that educating people about money was the career path for her. “I wanted to understand money and help others to understand how money works,” she said. “And from there, I wanted to guide people toward their goals, such as buying a house, saving for retirement.” After 15 years in banking, Nou was ready for a change. She was helping her father transition into retirement and realized that she needed to learn more about financial planning. Her former college roommate introduced her to a friend who was a New York Life agent and convinced her that the company would be a good fit for her. She soon found a mentor in the agency who she credits with helping her find her market niche and create a process for serving her clients. “My mentor believed in my vision when he asked me what I wanted from this business,” Nou recalled. “I said, ‘I really want

“There’s often a superstition about life insurance. People don’t want to talk about it because they don’t want to talk about death. But I understand that and can help people get past that.” that we know how to persevere in the moment. And I think that resilience of the Cambodian people has passed on to me to help me get to where I am now. Which is a good thing because this business is a roller coaster at times.”

to build a business on a practice where there’s cultural diversity … where people can walk in and we have an agent who speaks their language, who understands their culture, and where they feel safe and comfortable.’”

A go-to person

An advisor for all cultures

As a child of 8 or 9 years old, Nou said, her English language skills made her a go-to person for anyone in her family’s immigrant community who needed help with things such as dealing with a utility company or filling out an application. “It made me feel special, but it also made me want to spend my life serving as many people as I could,” she said. “I didn’t

Many of Nou’s clients are from the Cambodian community, but because she had many Indian friends growing up, she also serves Indian immigrants and their U.S.-born descendants. But she said she aspires to be an advisor for people of all cultures and backgrounds. “In order for someone to really understand someone else’s culture, you have to

November 2023 » InsuranceNewsNet Magazine

the Fıeld A Visit With Agents of Change family house as a result. “Because I went through that, I can help other people understand that as well,” she said. “I understand the mental and emotional pieces of a traumatic event. So if I can help people through it, it’s from a place of experience.”

Life insurance is the bedrock

“Life insurance and disability insurance are the foundations of planning... they’re the foundations of building that financial house.” be the glue that brings those two paths together so we can understand each other,” she said. “I want to have an impact on the various communities where I live.” Nou said that many of her clients have experienced what she calls “money trauma,” and she works to help them overcome that. “I want to break those generational traumas and cycles and the relationships we have with money in a torn world,” she said. She said her family experienced financial trauma in 2008, when she and her father both lost their jobs and lost the 20

Nou described life insurance as the bedrock of her practice. “Life insurance and disability insurance are the foundations of planning, they’re the foundations of building that financial house,” she said. “In the cultural markets that I serve, a lot of my clients are laborers, and they need life insurance. But there’s often a superstition about life insurance. People don’t want to talk about it because they don’t want to talk about death. But I understand that and can help people get past that.” Nou said that paying a death claim early in her career for a client who was a personal friend “solidified what I do.” “As much as it hurt losing her, it gave me a new perspective on what my managing partner once said to me, that if it weren’t for the money we pay out in claims, people wouldn’t have the ability to do what they do after a loved one’s death.” Coming from a banking background, Nou said she takes a holistic approach to planning. “I want to understand their position about money, and I appreciate that everyone’s family and lifestyle are different. It’s about tailoring my approach and developing a creative solution for their life. It’s knowing where they are, what they have in place and where they want to go — and knowing their story and relating to it.” Susan Rupe is managing editor for InsuranceNewsNet. Susan formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan. R u p e @ i n nfe e d b a c k . com. Follow her on X @INNsusan.

Like this article or any other?

Take advantage of our award-winning journalism, licensure and reprint options. Find out more at innreprints.com.

InsuranceNewsNet Magazine » November 2023

An annuity is intended to be a longterm, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to nonqualified distributions. Please consult a tax advisor for specific information. There are charges and expenses associated with annuities, such as surrender charges (deferred sales charges) for early withdrawals. These materials are for informational and educational purposes only and are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. Securian Financial Group, and its subsidiaries, have a financial interest in the sale of their products. Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. Securian Financial is the marketing name for Securian Financial Group, Inc., and its subsidiaries. Minnesota Life Insurance Company and Securian Life Insurance Company are subsidiaries of Securian Financial Group, Inc. For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public.

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DOFU 6-2023

LIFEWIRES

3 myths that keep consumers from buying What keeps people from buying the coverage they need and how does the indus-

try convert intention to action? In the 2023 Life Insurance Barometer, LIMRA and Life Happens listed some common misconceptions people have about buying life insurance. 1. It’s too expensive. Research shows more than half of consumers (55%) overestimate the cost of life insurance by three times the actual cost. 2. It can wait. One in five uninsured and underinsured consumers said they haven’t purchased coverage because they “haven’t gotten around to it.” 3. Life insurance is only for final expenses. LIMRA research shows a quarter of Americans view life insurance as only for burial and final expenses. This perception is higher among Black Americans, where nearly 3 in 10 say they believe life insurance is only for final expenses.

RECORD NUMBER OF AMERICANS PLAN TO PURCHASE LIFE INSURANCE

WHY AREN’T MORE WOMEN BUYING LIFE INSURANCE?

Women say that they need life insurance — in fact, 44% of them said they need life insurance, or they need more life insurance. But only 49% of women own life insurance, compared with 55% of men. So why aren’t more women buying coverage? Women are often grappling with a host of financial concerns, said Gina Birchall, COO of LIMRA and LOMA. For example, 47% of women are concerned about not having enough money for a comfortable retirement, 40% are worried about paying for future long-term care needs, and 40% fear they will be unable to save enough money to cover an emergency. Advisors can help address these concerns while presenting life insurance as a way to help women take care of themselves financially, said Alison Salka, senior vice president and head of LIMRA research, LIMRA and LOMA. DID YOU

KNOW

The life insurance story in the United States is some good news offset by a little bit of bad news. First, the bad news: Just 52% of U.S. adults report having life insurance, down from 63% in 2011, LIMRA reported. On the plus side, a record-high number of Americans (39%) say they plan to purchase life insurance this year. There was more good news than bad, LIMRA announced. “The industry experienced broad growth, with 6 in 10 carriers reporting increases in premium. Of the top 10 carriers, eight reported, on average, 15% growth,” said Karen Terry, assistant vice president, head of LIMRA Product Research. Total U.S. life Total insurance new anindividual life nualized premium policy growth was $4 billion in increased 3% the second quarin Q2. ter 2023, a 1% inSource: LIMRA crease, according to final results from LIMRA’s Second Quarter U.S. Retail Individual Life Insurance Sales survey. For the first half of the year, new annualized premium was $7.7 billion, 3% below the same period in 2022.

QUOTABLE

It’s always the right season to talk to clients about life insurance options.

— Ron Bernas, digital content manager, Crump Life Insurance Services

FTC WARNS ABOUT FAKE LAWYERS AND FAKE INSURANCE

The Federal Trade Commission is sending out a warning about a scam involving fake lawyers and non-existing life insurance policies. Not only does the scheme claim to take advantage of someone who has died, but it also targets several minority communities. According to the FTC alert, the agency is receiving reports from people in Latino, Korean and Vietnamese communities about a letter from a “lawyer” in Canada. The letter states that the lawyer has a deceased client with an unclaimed life insurance policy worth millions of dollars. Since the letter recipient has the same last name and nationality as the deceased, they could add their name to the policy and split the money with the lawyer. And maybe a charity. In order to cash in on this “golden opportunity,” all the letter recipient has to do is email the “lawyer” right away.

BUSINESS OWNERS WORRY ABOUT GAPS IN INSURANCE COVERAGE, SURVEY FINDS

About 8 out of 10 business owners recently surveyed expressed worries that specific events or losses would have the potential to affect their firms despite their existing business insurance coverage. Life insurance and business owner policies tied as the top concerns. While 97% of those surveyed had business-related insurance, 83% are worried about potential losses, and another 83% are either actively looking or very likely to seek additional insurance policies to provide greater protection, according to the Gallagher survey.

John Hancock launched its Premier Benefit Indexed Universal Life individual product in the voluntary benefit employer space.

InsuranceNewsNet Magazine » November 2023

Source: John Hancock

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LIFE

What every advisor must know about underwriting The medical underwriting process is complicated, but advisors still can help clients obtain the right coverage. By Dan Pierson

lthough most advisors are familiar with life insurance’s financial protection and planning benefits, they can be surprised by the complexity of the medical underwriting process and the frictions of obtaining affordable and appropriate coverage. For clients who have higher-risk health or lifestyle factors, the underwriting process can be particularly intimidating and challenging to navigate. All too often, medical impairments may surface late in the process of obtaining insurance coverage, and this can derail a client’s carefully designed financial security plan. Advisors can take a number of steps to minimize the impact caused by underwriting detours and ensure that they get their clients the coverage they need at the most competitive terms they can. These steps include:

» Asking detailed questions upfront to better understand client insurability.

» Getting clients to disclose their medical

history. This reduces underwriting surprises by improving data quality.

» Requesting informal offers from carriers to ensure that clients spend their time applying for the right policy.

» Working with a brokerage partner who has experience crafting underwriting narratives and negotiating with carriers to get the best coverage possible.

A closer look at life insurance underwriting reveals opportunities for advisors to provide exceptional guidance and 24

Technology has made the field underwriting process easier. Digital forms now can be sent to a client, allowing them to input their personal, health and lifestyle information directly.

thoughtful assistance to their clients.

Uninsurable? Not so fast

Although some medical conditions may prevent clients from securing coverage, many chronic ailments — including diabetes, heart disease, some forms of cancer and even HIV — do not. Over the past decades, as medical diagnoses, health care and pharmaceuticals have made major strides, so has the ability of clients with certain chronic conditions to obtain competitive life insurance offers. Because preexisting medical conditions can significantly impact both the cost of coverage and carrier approvals, it’s important for advisors to collect detailed medical information upfront. In doing so, advisors can better assess their clients’ insurability and identify potential underwriting challenges. This proactive approach allows advisors to guide clients toward the most suitable coverage options, minimizing the likelihood of surprises or delays later in the process. Asking detailed questions is commonly known as field underwriting, and the goal is to learn enough about a client’s health history to compile the most complete file possible, including context about how well a client’s medical conditions are managed. Although advisors should always ask general medical questions, many of the

InsuranceNewsNet Magazine » November 2023

important details can be gleaned from targeted follow-ups. For example, if a client has diabetes, much of the underwriting decision will be based on how well managed the disease is. If an advisor learns that their client’s A1C blood sugar levels are below 7.0, it’s more likely that the client will be eligible for a standard rate class (although some select carriers may offer preferred). Similarly, if a client has a history of cardiovascular disease, advisors should get a sense of the disease’s severity, such as whether the client has had cardiac episodes, including stenting, heart bypass surgery or atrial fibrillation. Technology has made the field underwriting process easier. Digital forms can now be sent to a client, allowing them to input their personal, health and lifestyle information directly. This reduces the chance of errors and miscommunication. Finally, once medical information is collected, underwriters or brokerage partners with a deep understanding of the underwriting process can help navigate complex cases. These experts can locate carriers most likely to provide a favorable offer, craft a narrative that outlines why a client’s medical condition is well controlled and, in some circumstances, negotiate with carriers to secure a more compelling offer.

WHAT EVERY ADVISOR MUST KNOW ABOUT UNDERWRITING LIFE

Get informal offers with trial applications

Advisors whose clients are seeking significant coverage amounts — typically more than $10,000 in premium or $5 million in death benefit — or whose health or lifestyle is likely to impact their coverage options can use a “trial” or “informal” application to assist in comparing products and carriers. A trial application is a simplified version of a formal application that can be used across multiple carriers. This method allows clients to get a better sense of what type of policy and premium they may qualify for from multiple carriers without committing to a specific solution. Every carrier also has a maximum amount of coverage they can offer an individual applicant and a market capacity limit composed of both a client’s total market outstanding applications and inforce coverage. Formal applications count against this total, running the risk of hitting capacity limits, but trial applications do not. So, for clients who are seeking a

significant amount of insurance, carriers that reply favorably to a trial application indicate that they have the capacity and desire to provide coverage. Even before submitting a trial application, advisors should cover the basics of underwriting with their clients. Although each carrier has different guidelines, they all share some basic conditions that will affect coverage and cost:

» Preexisting health conditions and chronic illness are regarded as higher risk, as are lifestyle factors like tobacco use and excessive alcohol consumption.

» High-risk hobbies or occupations can also affect insurability or the cost of coverage.

» Clients wanting more coverage will face a more intensive underwriting process.

Advisors want the life insurance purchase process to be as painless as possible,

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Avoid the Bermuda Triangle By Protecting Your Clients’ Annuity Money

so having a backup plan in place is critical. Insurance brokerages can help advisors compare multiple carriers and make a more informed decision. Advisors can also mitigate the risk that a client will be denied or priced out of coverage by working with firms experienced in navigating complex scenarios. Life insurance is an inherently complex product. Risk factors, such as complex medical histories, can make the process daunting for even the most experienced advisors. But taking the right steps from the beginning and engaging trusted partners can help not only ease the burden on advisors but also ensure that their clients get the offers they require and the coverage they need to protect their family and their wealth. Dan Pierson is the head of distribution at Modern Life. He may be contacted at dan. pierson@innfeedback.com.

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November 2023 » InsuranceNewsNet Magazine

ANNUITYWIRES

Study: Sandwich generation better off with an annuity

Sandwich generation members who are getting professional advice and own an annuity are far more confident of their retirement, a new study finds. The Athene survey showed nearly half of sandwich generation parents (47%) are putting off retirement to offer financial support to their aging relatives or adult children. However, on the What concerns does the sandwich generation have for retirement? †* flip side, 45% of the Maintaining my standard of living group say that supNot having enough assets to retire porting their family Having to rely on my adult children for financial support has not affected their Lack of access to affordable health care If I will outlive my financial assets retirement goals or Declining health that requires long-term care plans for the future. Not having the income to support extended family Over the past 50 No concerns for retirement years, the number of † Respondents were asked to select all that apply. * Figures do not add up to 100% due to rounding. people living in multigenerational households has quadrupled, Athene said, with many adults sharing their homes with their parents or older relative, as well as their adult children. Concerns about retirement: Fifty-five percent of respondents said they were most concerned about their lack of assets to retire, followed by a worry they would not be able to maintain their standard of living once in retirement. The annuity difference: Seventy percent of sandwich generation parents with annuities, which comprised 20% of the overall sample, say that caring for loved ones has not altered their retirement readiness. Individual Annuity Sales Survey. In the first half of 2023, total annuity sales jumped 28% to $182.7 billion, the highest sales ever recorded in the first six months of a year.

ATHENE REMAINS KING OF THE HILL IN OVERALL ANNUITY SALES, LIMRA REPORTS

At the midyear point, Athene Annuity & Life solidified its place as the top seller of annuities. Athene recorded nearly $15.5 billion in annuity sales through the first six months of 2023, LIMRA reported. Corebridge Financial trailed with $11.6 billion, followed by New York Life ($10.9 billion), MassMutual ($9.8 billion) and Allianz Life ($9.2 billion). Total annuity sales increased 12% year over year to $88.6 billion in the second quarter of 2023, driven by record-high registered index-linked annuity and fixed indexed annuity sales, according to preliminary results from LIMRA’s U.S. DID YOU

KNOW

SEC PROPOSES NEW RULES FOR RILAS

If a proposed Securities and Exchange Commission rule takes effect, it could make selling registered index-linked annuities much less cumbersome. The proposed SEC amendments would customize the registration form and disclosure requirements for RILAs. The rule changes come at the direction of Congress, which passed the Registration for Index-Linked Annuities (RILA) Act in December 2022. A big hit with consumers, RILAs promise growth beyond a simple fixed rate of return while providing guaranteed protection from losses in market downturns. They are a hybrid of popular fixed

QUOTABLE Given the complexity and growing popularity of RILAs, it is important that investors receive the information they need — in plain English — to make informed investment decisions. — SEC Chair Gary Gensler

indexed annuities that tie performance to major market indexes. However, the forms used to file RILAs are ones designed for use in connection with initial public offerings or other “catch-all” forms not germane to insurance products. These forms require the disclosure of financial information in line with generally accepted accounting principles, as well as other extensive information that is irrelevant for prospective annuity purchasers.

CONSUMERS SHIFT INTO PROTECTION MODE

Consumers are concerned about inflation and retirement income, and annuities could calm those anxieties. New research shows consumers prioritizing income protection over maximizing growth, said the Insured Retirement Institute. For financial advisors, insurance agents and similar professionals, this could signal a need to adjust business strategies to better meet clients’ goals in a rapidly evolving economic landscape. IRI’s Vice President of Research Frank O’Connor said that the research suggests clients want to protect themselves against a major, unexpected financial crisis cutting into their retirement income. He said some moderate interest in growth is expected as clients need that growth to keep up with inflation but explained that their primary concern is protecting that growth.

66% of Americans say that student loan repayments will significantly affect their ability to save for retirement.

InsuranceNewsNet Magazine » November 2023

Source: Nationwide Retirement Institute

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ANNUITY

Survey: Annuity providers see a path in the RIA channel Goldman Sachs’ third annual annuity survey reveals strong confidence in the ability to enlarge the sales pie despite potentially tough economic times. By John Hilton

he push to include more annuities in the registered investment advisory channel has, so far, been largely a story of unrealized potential. Annuity companies have wooed wealth managers and independent investment advisors for several years, offering reduced contract expenses and new annuities that focus on retirement planning risks, and creating fee-based versions of popular commission-based annuities. Despite the full-court press, however, annuity sales through the advisor channel remain minuscule. But encouraging signs are there, according to Goldman Sachs Asset Management’s 2023 Annuity Survey. Marci Green leads U.S. Retail Insurance within Goldman Sachs Asset Management. “We are continuing to see, as we did last year, what industry participants believe will be the prospective growth of the RIA channel,” Green said. “As an industry, we are very focused on trying to move where we know the puck is going in the broader wealth management channel, which is full-service registered investment advisory firms that can also incorporate insurance inside these types of fee-based accounts.” Goldman Sachs’ third annual survey gathers insights from U.S. annuity providers to identify market trends and uncover emerging product and distribution themes, the firm said in a news release. The questions were grouped into three categories: 1. Global macroeconomic and investment landscape. 28

2. Product offerings and innovative implementation. 3. Industry and distribution themes. This year’s survey included input from 138 industry participants, which reflects a 15% increase in participation over last year and a 38% increase from the initial survey. The survey responses have been aggregated from 30 insurance companies representing more than $1.1 trillion in variable annuity net assets — including nine of the top 10 annuity issuers in terms of net assets, Goldman Sachs said. “We’re trying to reflect the views of a lot of the functional areas in terms of annuity intuition on design and investment selection as well as the marketing and value-added component of what it takes to really engage with the annuity distribution client,” Green said.

Recessionary views

From an economic perspective, survey respondents are nervous about several things. For starters, 78% consider credit and equity market volatility as the greatest macroeconomic risk to their investment portfolio. Eighty-four percent believe the U.S. economy will enter recession within the

InsuranceNewsNet Magazine » November 2023

next five years, with almost half expecting that the recession will come within the next two to three years. The Federal Reserve has raised interest rates to a level not seen since 2007. Typically, the Fed has never been able to raise interest rates so quickly without prompting a downdraft in the business cycle. Historically, the Fed has also never been able to defeat inflation without a recession. Economic expectations can provide clues to how annuity companies line their product shelf, Green explained. In fact, 50% of respondents place structured or buffered annuities as the top prioritized investment strategy over the next 12 months. These annuity products, also known as registered indexed-linked annuities, protect investors from losses with a zero floor. “When there is equity market volatility or credit market volatility, it does impact how annuity carriers are designing their products,” Green said, “and how these types of annuity products can provide different benefits to the end investor.” Recent sales data shows that to be true. Overall annuity sales hit $181.1 billion in the first half of 2023, increasing 27% and setting a new record, LIMRA reported.

SURVEY: ANNUITY PROVIDERS SEE A PATH IN THE RIA CHANNEL ANNUITY Economic conditions drove buyers to fixed-indexed annuities, with sales up 34% through six months. Respondents are bullish on technology helping annuity sales continue to grow. Fifty-six percent of respondents said the rise of insurtech presents positive opportunities for the insurance industry, with only 2% holding that the impact will be negative. The finding aligns with the growing increase in collaboration between insurance carriers and insurtech entities.

Advocacy remains important

Survey respondents cited annuity advocacy as “the most sought-after value-added resource.” Market insights and practice management were the next two ranked-choice resources, but advocacy is top of mind. Annuity companies are facing regulatory challenges from the states as well as another fiduciary rule rewrite by the Department of Labor. Leadership from industry trade organizations paid off in

Eighty-four percent believe the U.S. economy will enter recession within the next five years, with almost half expecting that the recession will come within the next two or three years. 2018 when the Obama-era fiduciary rule was tossed out by the Fifth Circuit Court of Appeals. But the threat has returned, with the Biden administration DOL working on a new definition of fiduciary. Anxious industry executives expect regulators to craft a rule that satisfies the precedents set by the Fifth Circuit decision. In that scenario, having trade industry advocacy is even more valuable. Otherwise, having trade groups like the Alliance for Lifetime Income advocate for the importance of lifetime income in financial planning discussions is

vitally important to annuity companies, Green said. “They really need support, particularly from third parties like the Alliance for Lifetime Income and as well, the folks that work in their asset management partner businesses, to really showcase the value of annuities,” she said. InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john. hilton@innfeedback.com. Follow him on X @INNJohnH.

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HEALTH/BENEFITSWIRES

Lifestyle spending accounts gain in popularity Flexible Lifestyle Spending Accounts have experienced double-digit increases

across companies of all sizes, according to a recent Benepass study. LSAs are nonsalary allowances designed to support employees’ physical, mental and financial wellness. They are fully funded by the employer and were developed on the basis that flexible and employee-led benefits lead to happier and more productive employees. FSAs for the WIN Benepass found 51% of companies offering this Flexible spending accounts perk, compared with 37% in 2022. The largest jump were the most popular in percentage of companies offering LSAs came from type of pretax account in 2023, followed by health large companies — a staggering 75% of large compasavings accounts. nies provide an LSA in 2023 compared with just 40% Source: Benepass in 2022. Small and medium-sized companies also were seen rapidly embracing LSAs, with medium-sized companies experiencing a 33% boost and small companies increasing LSA adoption by 10%. Two industries in particular, technology and health care, saw strong growth in the adoption of LSAs, with tech companies experiencing a 25% increase, and health care and life sciences companies seeing a 21% increase.

WORKPLACE SUPPLEMENTAL HEALTH SALES KEEP GOING UP

TRUST, LARGE SELECTION DRIVE GROWTH IN MEDICARE ADVANTAGE

Member trust and the large number of plan options have helped make Medicare Advantage plans the fastest-growing segment of the health insurance market, according to the J.D. Power 2023 U.S. Medicare Advantage Study. The study also found overall satisfaction with Medicare Advantage plans is generally good. The level of trust and resolving problems or complaints holds the key to whether Medicare Advantage members are likely to renew their plan. However, plan members have some pain points. The biggest headache is using their plan’s digital tools, while ease of finding care was another problem members cited with their plan. DID YOU

KNOW

Workplace supplemental health product sales continue their rise, LIMRA reports. After a 6% increase in new annualized premium in the first quarter, workplace supplemental health sales totaled $513 million in the second quarter — an increase of 5%. Supplemental health products include accident, critical illness, cancer and hospital indemnity insurance. In the first six months of 2023, new premium for supplemental health products totaled nearly $1.8 billion, a 6% increase over the same period in 2022.

While short-term disability insurance premium increased 6% in the second quarter, long-term disability insurance premium plummeted 21%. Source: LIMRA

The supplemental health market is experiencing a resurgence fueled by COVID-19, LIMRA reported. All major supplemental benefit product lines have shown quarterly growth since the second quarter of 2021.

QUOTABLE

Too many hospitals continue to give the middle finger to presidential executive orders. — North Carolina State Treasurer Dale Folwell

MOST WORKERS FEAR BENEFITS WILL COST MORE

A majority of American workers fear the cost of their workplace benefits will take a bigger bite of their paychecks, according to a Voya survey. Nearly 80% said they worry their workplace benefits will cost them more this open enrollment season because of inflation. This is an increase from the 66% recorded in June 2022 when inflation was at its peak. Voya’s research

also found that 7 in 10 (72%) employed Americans believe they will spend more time reviewing their benefit elections during open enrollment. Mental health is top of mind among workers, Voya found. Nearly half (48%) said they would select a workplace benefit offered by their employer that provides more mental health support and resources, even if it costs them more. In addition, more than half (55%) of employed individuals believe their employer has a responsibility to ensure they are mentally and emotionally well.

89% of employers are considering offering individual coverage healthcare reimbursement arrangements for their workers over the next three years.

InsuranceNewsNet Magazine » November 2023

Source: Gravie

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HEALTH/BENEFITS

Could voluntary benefits ease the retirement/LTC crisis? Enrollment season is the perfect time to educate employees on the ways various benefits can impact their health and financial well-being beyond their working years. By Zach Iovino

lenty has been written about the care crisis in our country — and with good reason. Thanks to advances in modern medicine, people are living longer than ever before. At the same time, the costs of the care people may need as they age and the access to that care are becoming more restrictive than ever. One factor that doesn’t get as much attention in that conversation is the fact that retirement savings aren’t coming close to covering those golden years, and most people are woefully unprepared for the increasingly expensive costs of long-term care. AARP summed it up best when it said, “Only a modest percentage of Americans have the wealth needed to afford whatever long-term care needs emerge in their later years.” Although it’s certainly fair to say that one of the challenges of the care crisis

is that many Americans aren’t thinking about their need for care, the same can’t be said for retirement. People are thinking about their retirement. And if they’re thinking about retirement, they should be thinking about care. Let’s look at a few numbers to start to show why. According to a recent Forbes article, the average American’s retirement savings total $255,200. And according to Bankrate, the average monthly Social Security check for a retiree is $1,693. Those numbers alone probably point to an unsustainable plan for retirement. How long can a retiree stretch those benefits? For many, the answer is “not long enough.” A recent survey from Retirable found that 63% of respondents don’t believe they have saved enough to get themselves through retirement. Many are changing their plans for retirement or looking at a second job to make up the difference. That’s probably not the ideal retirement many envision for themselves. But it’s when you start to look at the numbers for the costs and likelihood of long-term care that things get really challenging. According to the Genworth Cost of Care Survey, seven out of 10 people over age 65 will require long-term care, and the average national cost of an

InsuranceNewsNet Magazine » November 2023

in-home health aide is $5,148 per month. What’s more, the average monthly cost of an assisted living facility is $4,500, and the cost of a private room in a nursing facility is more than $9,000 per month! Now, I wasn’t a math major in college, but my head is spinning just trying to reconcile this data! Let’s look a little more closely at the numbers. Consider your average American who’s retiring with that average savings we referenced previously ($255,200). Let’s say she retires at age 65 and requires long-term care starting at age 70. If she lived in an assisted living facility, she would run out of money by age 78. Lived at home with an in-home health aide? Runs out by age 76. Nursing home? Runs out by age 73. What’s extra scary about these scenarios? We’re not even factoring in the costs of living, let alone travel and other activities a retiree may want to enjoy. If anything, this paints a rosier picture than the truth! Again, statistics say 70% of our age 65-plus population will need long-term care at some point. Many will face bigger challenges than this — smaller retirement savings, higher costs of care and, again, we’re not even factoring in their costs of living. When you do factor in those additional costs, it starts to look downright

VOLUNTARY BENEFITS EASE LTC CRISIS HEALTH/BENEFITS gloomy. I like to think about retirement as taking people to about age 77, the average life expectancy for an American. For anyone who lives beyond this age or must use their savings for long-term care, there’s clearly a problem. On top of that, advancements in medicine will increase our life spans. That’s a great thing, but it could also mean a need to stretch our retirement savings further or account for even greater stints in long-term care.

How can voluntary benefits help employees?

For starters, voluntary enrollment season is the perfect time to engage with employer clients and their workers to educate them about a number of tools

Stand-alone long-term care insurance policies are harder to find and expensive, although they are still available. Recently, the market has been trending toward hybrid products that offer life insurance protection with care benefits that help cover the costs of care and protect retirement savings. New products on the market are even paying benefits to family members who provide care to a policyholder — a trend that’s understandable given the costs. On top of the more direct protection of long-term care coverage, there’s still a need for financial protection from medical costs. Illnesses and accidents happen in retirement, and those can put a retiree’s finances at risk. This means

Source: Retirable.com

that other voluntary products such as accident, hospital indemnity or critical illness insurance have a role to play in retirement planning. The care crisis is also a retirement crisis — and we should treat it as such. In fact, framing it in that way may be a more effective tactic, as retirement is top of mind with most employees. Whether employees and employers see it as a “care crisis” or a “retirement crisis,” there’s a need to act. It’s possible that by framing it through the lens of retirement, we may be able to help raise awareness for employees and employers about this critical topic. Zach Iovino is a regional sales director at Trustmark Voluntary Benefits, covering West Virginia as well as parts of Pennsylvania and New York. He may be contacted at zach.iovino@innfeedback.com.

November 2023 » InsuranceNewsNet Magazine

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More than 2 in 5 (44% of) Americans age 55 and older anticipate health care will be their largest expense during their retirement years. that, if offered, could positively impact their retirement — and, inevitably, their future care. For some, that might mean helping employees get smarter about participating in the company 401(k). For others, it could mean educating employees on care planning programs. Yet other employees could benefit by getting smarter about general financial wellness. Voluntary enrollment paired with appropriate educational resources isn’t just a chance to sign employees up for benefits — it’s also the perfect opportunity to educate employees on the wide variety of products that can help them protect their retirement and ensure they’re set up well from a care standpoint. There’s no silver bullet for this difficult situation. However, in addition to the enrollment process, voluntary benefits themselves can be a part of the solution for employees in a couple of important ways. The most obvious is through products that address the costs of care directly.

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Financial facts and figures powered by AdvisorNews.com

Low financial literacy may carry a high price tag

Low levels of financial literacy could be costing the average U.S. household over $5,000 every year, according to a recent study. Over a 10-year period, this could amount to $84,458, as compared to households led by people who understand financial basics well. The Allianz study surveyed more than 1,000 people each in the U.S., the U.K., France, Spain, Italy, Germany and Australia and asked them questions designed to test their understanding of financial basics, such as interest rates and inflation, as well as investment risks and returns. Worryingly, the results reveal that 32% of Americans lack the knowledge and skills to make sound financial decisions — what Allianz classifies as “low financial literacy.” Based on the amount of financial assets owned by the average household, Allianz calculates that the income from any kind of investment can quite dramatically differ between people with low, average and high financial literacy. For example, the study said, a person with high financial literacy can expect to earn an extra $5,198 per year. Over the course of 30 years, this adds up to $880,825.

Few nonretired wait until 70 to claim Social Security Waiting until age 70 to claim Social Security qualifies you to get the maximum benefits, but only 10%

of nonretired Americans wait that long to tap into it , according to the 2023 Schroders U.S. Retirement

Survey. This includes 17% of nonretired respondents on the verge of retirement. So why are so many nonretired Americans taking their Social Security benefits before they reach 70, when they would qualify for maximum Social Security payments? More than 4 in 10 (44%) said they feared Social Security may run out of money while 36% said they need the money.

1/3 of millionaires fear outliving their savings

Just because you have $1 million or more in the bank doesn’t mean you’re immune from worrying about having enough money. Northwestern Mutual found that one-third of those with $1 million or more in assets believe it’s possible they could outlive their savings. However, the majority of wealthy people (84%) said they have a long-term financial plan 34

InsuranceNewsNet Magazine » November 2023

Paying off pays off

38% of Black and Hispanic Americans list “paying off credit card debt” as one of their top three financial goals, compared with 30% of the total population. Source: Allianz Life

Diverse investors seeking financial advice

Diverse Americans shied away from seeking professional financial advice last year, but they are looking for help in 2023. Allianz Life found that 36% of Black Americans reported having a professional financial advisor in 2023,

up from 24% in 2022. This is a reversal of the previous year, which saw Black usage of professional financial advisors decline from 38% in 2021 to 24% in 2022. Hispanic investors reported similar shifts in working with a professional financial advisor, rising from 35% in 2022 to 42% in 2023, after falling from 44% in 2021. Americans who don’t currently work with a professional financial advisor gave varying reasons. Reason

White Black

Asian

Hispanic

I don’t have enough money

30%

26%

32%

33%

It costs too much

32%

34%

46%

I don’t trust financial advisors

13%

16%

12%

15%

And when those who have a professional financial advisor were asked why they don’t discuss certain important issues with their advisor, diverse investor groups often reported they were using

other resources to find solutions to these issues (38% of Black Americans,

32% of Hispanic Americans and 30% of Asian Americans). that factors for up and down economic cycles. That compares with 52% who say the same among the general population. The study finds 7 out of 10 (70%) wealthy Americans work with a financial advisor, nearly double the share of the general population (37%). More than half (53%) of wealthy people consider advisors to be their most trusted source of financial advice — more than four times any other source.

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ADVISORNEWS

4 tactics for turning client referrals into introductions Helping build client confidence can also help build a practice by increasing client referrals. • Ayo Mseka

hile a recent survey found that 92% of clients expressed some inclination to continue working with their current advisors, that same study also uncovered frequently overlooked opportunities for advisors to build a client’s confidence. Developing an understanding of your client’s needs is paramount and will have many benefits, including increased referrals, according to the experts. Advisors who focus on enhancing client confidence can positively impact traditional metrics and increase client satisfaction. “Client self-confidence is an insidious form of risk because it is tied to satisfaction, loyalty and Net 36

Promoter Score,” according to Julie Littlechild, founder and CEO of Absolute Engagement, which conducted the 2023 investor research survey, which provides insights into the current state of relationships between advisors and their clients and identifies areas advisors can focus on to add value and grow. In addition, the survey noted that 43% of clients cited the greatest benefit of working with an advisor as gaining a clear vision of the life they want in retirement. However, only about half of the clients indicated that their advisor has helped them strategize or plan for nonfinancial goals such as health, fulfillment after leaving the workforce, quality time with family and friends, or new experiences such as travel. Consistent with previous years, the survey indicated a considerable gap between the percentage of clients who are

InsuranceNewsNet Magazine » November 2023

satisfied with their advisor (93%) and those who take the additional steps of referring other consumers to their advisor (35%). Age and financial acumen seemingly play a role in driving referrals, with younger clients and those with a higher level of financial literacy more likely to recommend their advisors, the survey said. Also, clients who are inclined to share their concerns with their advisors tend to make more referrals, underscoring the importance of deepening relationships to reveal client worries, according to the survey. “While 35% is a very high number, the reality is that advisors typically report receiving referrals from fewer than 5% of their clients,” noted Littlechild. “This highlights another gap and an opportunity to translate referrals into introductions.”

4 TACTICS FOR TURNING CLIENT REFERRALS INTO INTRODUCTIONS ADVISORNEWS

Transforming client referrals into introductions

So how can advisors transform client referrals into introductions? Bill Cates, president of Referral Coach International, shared the following strategies and tactics designed to help advisors accomplish this important goal. Tactic 1: Be “assumptive” about the introduction. Cates does not believe advisors should assume that a client is willing

Tactic 3: Make this a collaborative process. In an effort to make this process feel comfortable and safe, advisors do not want to lose the chance of it also being effective. In fact, an advisor can even say something like the following to their client: Example: “George, when you think of someone you believe should know about the important work I do, let’s work together to find the best way to make that intro-

“To deepen relationships and improve advice engagement, our industry must prioritize understanding and supporting client needs as the true measure of success,” she explained, adding, “Advisors who prioritize supporting clients’ life goals, not just financial goals, are poised to thrive in the coming decade.” Kathleen Owings is one advisor who knows the importance of deepening client relationships. One way she does this

“To deepen relationships and improve advice engagement, our industry must prioritize understanding and supporting client needs as the true measure of success.” — Julie Littlechild, CEO, Absolute Engagement to give them referrals; that’s too aggressive. However, he said, once a client is open to recommending his agent to one or more people, the agent should assume that an introduction will be created. Example: “George, let’s discuss the best way for you to introduce me to Laura,” or “George, I suspect Laura would prefer to hear from you before she hears from me. I have a very efficient way to do this that I think you’ll find comfortable.” Tactic 2: Make it about protecting the relationship. Probably more than anything else, clients and centers of influence want to protect their relationships, Cates said. They want an introduction that feels safe for all parties concerned. It needs to fit the relationship and the personalities. “Don’t force a particular style on other people,” he said. Example: “George, when you think of someone you believe should know about the important work I do, let’s discuss the best way to make that introduction. I want this process to feel comfortable to everyone involved.”

duction. First, I want this process to feel comfortable to everyone involved. Second, if we’re lucky, we can spark their interest in hearing from me.” Tactic 4: Take your time, do not rush, and learn about your prospect. The more advisors learn about the prospect, the more relevant they can make the client’s introduction as well as their follow-up to it. “If you legitimately run out of time in a meeting, finish up over the phone later that day or the next day,” Cates said. “Slow down. Be confident. Get connected in an effective manner.” Example: “George, before you make this email introduction to Laura, I’d like to learn a few more things about her so we can create a relevant introduction as well as my follow-up to that. I know we’re out of time right now. May we schedule a 10-minute call to finish up this conversation?”

‘Supporting client needs’ most important

“Traditional metrics have been the cornerstone of advisor performance evaluation for decades, but they are based on lagging indicators,” said Littlechild.

is by hosting a weekly video with new content each week, according to Owings, principal and financial advisor with Westbilt Financial Group. The firm has been doing this for several years. “We talk about our business, current events, market commentary or general financial advice,” she said. “It has been a great way to connect with clients each week. We have some clients who watch it consistently and comment back to us. It has been an easy way to stay in touch with our clients on a regular basis.” Absolute Engagement’s proprietary Self-Confidence Index, an integral part of the annual survey, also reveals that 31% of clients currently have low to moderate confidence about their finances, in large part influenced by market performance and concerns about risk. Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com.

November 2023 » InsuranceNewsNet Magazine

BUSINESS

Your success depends on your point of view A “sense of other” can be the single determinant of business success or failure. By Bob Richards

y company has interacted with thousands of life insurance agents. Many are financially successful. We observe that those who lack success also lack a skill that is fundamental to success as an agent. We call it “sense of other.” These agents who lack this skill, as do most people in society, see everything from their point of view. However, financial success in our economy depends on seeing things from the other’s point of view — having a sense of other.

How it determines success

Let me give a general example before I describe how this sense of other determines an agent’s success or lack of success. We hire telemarketers for our business. During the interview process, I ask applicants to tell me about their prior positions and why they’re no longer in those positions. I frequently hear these answers: 38

» I ’m not in that position anymore

because I wasn’t earning enough. »T he company moved, and I did not want to relocate. »T he company had a layoff. » I t wasn’t a good job for me. These people answer the question from their point of view. Few of them realize they have an opportunity to answer this question in a way that will make them more attractive to me as an employer. They could answer as follows:

» I ’m no longer at that company because

I’m looking for more opportunities, which your business seems to provide. » Th e company moved, and I have decided to only pursue remote positions. Your company seems to be a perfect fit for my desires and the value I can provide. »M y company laid off my entire department, even though I was in the top 20% of performers, as I would be at your company. »M y previous position was not good for me, but your company has an environment where I can make a substantial contribution to your goals.

InsuranceNewsNet Magazine » November 2023

In other words, rather than take the opportunity to display a sense of other by explaining why they should be of interest to me as a new employee, they miss the opportunity and explain only from their point of view why they are no longer in their previous position. Now let’s see how this applies to life insurance agents.

I want prospects for IUL

Life insurance agents approach our company seeking prospects interested in indexed universal life. But this desire to find prospects interested in IUL indicates no sense of other. Let me explain. If we ask a thousand people at random “What is IUL?” maybe two out of the thousand can tell us. In fact, in a nation with 197 million adults over the age of 21, Google reports the following numbers of average monthly searches on its search engine: How to buy IUL — fewer than 100 searches per month. What is indexed universal life — fewer than 100. Where to buy IUL — fewer than 100. My question to these insurance agents is “How can somebody be interested in IUL when they don’t even know what it is?” Agents who have a request for IUL

YOUR SUCCESS DEPENDS ON YOUR POINT OF VIEW BUSINESS prospects see the world only from their point of view and have no sense of how others see it. I assert that this failed sense of other can be the single determinant of financial failure.

A strong sense of other

Here’s an anecdote from a very successful agent who had a strong sense of other. Jack asked us to find him prospects who were interested in 11 different financial products and services. We asked him whether he sells all 11 products and services. He answered, “No, I only offer a couple of those services. But I know that when a consumer responds to an offer for information about a financial product or service, they do not understand that product or service or how it works. Their interest expresses some financial insecurity or concern, and I am happy to speak with anyone interested in alleviating their financial concerns.” So instead of seeking prospects who were “interested in IUL,” this agent sought out prospects who had financial insecurity. As a result, he had a full calendar of appointments and a significant income. Let me provide other examples. An agent is interested in finding new prospects. His email address is joe@annuityadvisors.com. If I navigate to the site annuityadvisors.com, no website exists. It never occurred to this agent that a prospect might see their email address and navigate to that domain to view their website. Not finding the website, the prospect reaches the immediate conclusion that this agent must be a fly-by-night and not a true professional. Agents spend a lot of their time calling prospects. How many have considered the appearance of their caller ID on the prospect’s mobile device? Many do not know the following fact: The information that displays on the prospect’s mobile device is determined by their mobile carrier. The display will be different on an AT&T phone versus a Verizon phone versus a T-Mobile phone. The only way to standardize one’s caller ID display is through services called branded call display. Yet most agents have never considered that their number could show up as “spam caller” or “telemarketer,” and that’s why prospects don’t answer their calls. It’s another example of failing to have a sense of other.

What is a ‘sense of other’?

In a business context, “sense of other” refers to the ability of a salesperson to empathize and understand the perspectives, needs and concerns of their customers or clients. It encompasses the capacity to put oneself in the shoes of the customer, to perceive situations from their point of view and to respond in a way that demonstrates genuine care and consideration. A salesperson with a strong sense of other is attuned to the emotions, preferences and motivations of their clients, allowing them to tailor their approach and offerings to best meet the individual needs of each customer. This trait is essential for building trust, establishing rapport and ultimately driving successful sales outcomes. Developing a sense of other involves active listening, effective communication and a willingness to go beyond surface-level interactions. It requires the ability to pick up on nonverbal cues, such as body language and tone of voice, to gain deeper insights into the customer’s mindset. Additionally, it involves asking probing questions to uncover hidden concerns or desires.

If we extrapolate this agent’s low sense of other to their marketing and sales presentation, we can conclude that this agent will not be very successful. Their communication is from their point of view, which makes it very difficult to sell anything to anyone.

Poor language facility

Closely related to the sense of other is realizing that language helps you make a first and lasting impression on others. We quickly assess one another based on how well we use language — the ability to listen accurately and respond appropriately. The Human Engineering Laboratory at Central Florida University concludes, “If you are not earning enough money, perhaps it’s because you don’t know enough words. More than any other single factor yet known, vocabulary can often predict financial success!” The 30,000 vocabulary tests given each year by the Human Engineering Laboratory prove that big incomes and big vocabularies go together. The Human Engineering Laboratory started in 1922. In its 101 years, it has consistently found the same result in its testing. Here is one such study. A number of college seniors selected

by a large company as executive material were hired to begin work for this company after graduation. Each senior was given a group of vocabulary tests. Five years later, all of those who tested in the top 10% on a vocabulary test had become executives. Not a single person who had tested in the bottom 25% was an executive! The institute’s research does not explain why vocabulary is correlated with success. Is it because those who read extensively have larger vocabularies? Is it because prospects have more respect for and impute credibility to those with large vocabularies? We don’t know. I suspect that much of our communication with prospects is so dependent on using language that those of us who have facility with language and vocabulary are better at interpreting prospects’ desires and expressing how we can be of value. Bob Richards is the vice president of marketing at Senior Leads. He may be contacted at bob.richards@innfeedback.com.

November 2023 » InsuranceNewsNet Magazine

the Know In-depth discussions with industry experts

All eyes on the DOL fiduciary rewrite As the industry prepares for another fiduciary rule, it’s worth reviewing the exemptions that are likely to change how business is conducted. By John Hilton

he Department of Labor is determined to extend fiduciary obligations to annuity sales made with the trillions of retirement plan dollars. Efforts to do so have been at least a decade in the making. All of the history to this point makes the DOL’s latest attempt at a fiduciary rule feel like its end game. Regulators sent the long-awaited fiduciary rule rewrite to the White House Office of Management and Budget on Sept. 9. The OMB has 90 days to review a rule before its contents are unveiled for public comment. That process continued as this issue went to press. The rule is almost certain to end up in court again. Industry trade groups led lawsuit efforts that ended with the first fiduciary rule, published by the Obama administration in 2016, being tossed out two 40

years later by the 5th U.S. Circuit Court of Appeals. Emboldened lobbyists show no signs of backing down from the latest DOL proposal. “DOL is plowing ahead with its latest damaging proposal despite the fact that federal courts have repeatedly rejected their efforts to expand the fiduciary rule in recent years, as well as the extensive body of research showing that this type of proposal will significantly harm lower- and middle-income workers and exacerbate the wealth gap for Black and Latino families,” said Wayne Chopus, president and CEO of the Insured Retirement Institute.

Crucial exemption

Potent i a l ch a nge s to Proh ibite d Transaction Exemption 84-24 is going to attract the most attention in the new rule. Created in 1977 and amended several times

InsuranceNewsNet Magazine » November 2023

over the years, PTE 84-24 allows producers to receive commissions when retirement plans and IRAs purchase insurance and annuity contracts. Fred Reish, a partner at Faegre Drinker Biddle & Reath, has long expected the DOL to target PTE 84-24 in any fiduciary rule rewrite. “I think that [PTE 84-24] will be amended to include more-demanding conditions, such as requiring a best interest process, disclosures of conflicts of interest, and a fiduciary acknowledgement,” he said this week. A spokesman for the DOL’s Employee Benefits Security Administration declined comment on the rule. As far back as July 2021, Reish wrote that signs indicated that the DOL aimed to strengthen PTE 84-24 and was going about it in a roundabout way. At that point, the Trump administration DOL

ALL EYES ON THE DOL FIDUCIARY REWRITE IN THE KNOW

had created PTE 2020-02, which was allowed to take effect by the incoming Biden administration. Under PTE 2020-02, if an “investment professional” gives fiduciary advice to a retirement investor, the “financial institution” is also considered a fiduciary. There are strict requirements with this exemption. In accordance with them, the producer must adhere to “Impartial Conduct Standards.” They include: • Give advice that is in the best interest of the participant. • The insurance company and the agent receive no more than reasonable compensation. • Make no materially misleading statements.

compensation and how often it’s received, for instance, and an acknowledgement that there can’t be any material conflict of interest.”

Not everyone opposed

Not everyone in the insurance world is opposed to strong regulation. Michelle Richter-Gordon of MRG Advisors said the rule could help the insurance industry gain equal footing with their investment [40 Act] advisor counterparts who give financial and planning advice, while also managing assets and making investments for clients. “There’s no reason why we should not receive equal treatment for our expertise with that of investment advisors,” she said. “We insurance people should also get to sell both products and services. We are not a subclass.” Insurance professionals are saddled

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I think that [PTE 84-24] will be amended to include more-demanding conditions, such as requiring a best interest process, disclosures of conflicts of interest, and a fiduciary acknowledgement. — Fred Reish, a partner at Faegre Drinker Biddle & Reath

“A significant issue under PTE 2020-02 for insurance companies that work with independent agents is how the insurance company can know if the agent is acting as a fiduciary,” Reish wrote. As a result, many insurance companies and their producers continued to use PTE 84-24. But Reish warned then that changes were coming: “It is possible — perhaps even likely — that new and more demanding conditions will be added to 84-24,” he wrote. The 84-24 exemption is one area Chuck DiVencenzo, president and CEO of the National Association for Fixed Annuities, will be watching. “84-24 probably looks more like the old Obama-era rule,” he said. “They’ll talk about specific disclosures, a person’s

with a poor reputation that comes from “bad actors” and the selling mindset, said Richter-Gordon, who co-founded fee-only RIA Annuity Research & Consulting in January. “We deserve parity with financial professionals,” she said. “We deserve ‘insurance advisement’ as an additional regulatory frame that could be used, just as financial professionals may hold both a brokerage and advisement affiliation.” InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.

November 2023 » InsuranceNewsNet Magazine

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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.

Helping consumers understand long-term care insurance Linked benefit or hybrid life policies can be valuable tools in helping clients prepare for future long-term care needs. By Karen Terry

he U.S. population aged 65 or older is expected to grow by more than 8.3 million from 2022 to 2027, Oxford Economics reports. A study by the U.S. Department of Health and Human Services reveals that about 70% of Americans who reach age 65 will need some long-term care during their remaining years. With this aging population, it’s critical that clients understand what longterm care insurance is and how it works. Many consumers mistakenly think their health insurance or Medicaid will cover various aspects of LTC services when that might not be the case. Medicaid coverages, for instance, are limited to certain services and times, vary state to state, and may require consumers to limit their assets to qualify. Such misconceptions could cost consumers who have not adequately prepared for long-term care. November is National Long-Term Care Awareness Month, a national conversation on long-term planning in the event that individuals need support with daily living. Long-term care involves services, both medical and nonmedical, provided to people who cannot perform basic activities of daily living such as dressing or bathing. People receive long-term support and services at home, in the community or in a facility.

Market trends in the LTC solutions market

A decade ago, traditional long-term care policies were the predominant product in the market, making up 75% of the longterm care solutions sold. These products work much like policies for auto or home insurance: Consumers pay premiums, 42

As the population ages, consumers will need long-term care services. Financial professionals and insurance companies can play a role in helping them plan for the funding.

usually for as long as the policy is in effect, and make claims if they ever need the covered services. Although traditional stand-alone longterm care insurance products are an option, there are few companies still selling stand-alone LTCi. As a result, sales have dropped precipitously, going from $4.86 million in 2012 to $4.6 million in 2017. LIMRA estimates that approximately 4.26 million individual LTCi policies were in force at the end of 2022, a decline of 2% compared with 2021. The majority of long-term care policies sold today combine coverage for longterm care with another benefit, usually life insurance. These are known as hybrid or linked-benefit policies. Products that combine life insurance with long-term care or chronic illness coverage are offered by more companies and have seen stronger growth in recent years than stand-alone LTCi. In 2022, LIMRA research showed these products represented 20% of life insurance sales based on total premium. Linked benefit or hybrid life/long-term care products provide the most robust long-term care coverage. These products are true hybrids where the long-term care coverage is included in the base life coverage as opposed to an acceleration rider. They offer acceleration of the full death benefit for long-term care and extension riders that will double the payout.

InsuranceNewsNet Magazine » November 2023

Earlier LIMRA research shows consumers considering combination products were attracted to the product’s affordability and the fact that regardless of whether they needed long-term care services or not, they or their family would benefit from the policy. Other options include life products with long-term care or chronic illness riders. Both riders accelerate at least a portion of the death benefit when the insured is unable to perform at least two of six activities of daily living, or ADLs, or is diagnosed with a chronic illness. Today, products with these riders make up 86% of LTCi products sold. Long-term care planning can reduce a lot of financial stress for seniors and their families. As the population ages, consumers will need long-term care services. Financial professionals and insurance companies can play a role in helping them plan for the funding. This month, let’s raise awareness about the significant risk of needing long-term care in retirement and help Americans develop a holistic financial plan that includes a strategy to address the potential costs of long-term care services. Karen Terry is assistant vice president, insurance product research, LIMRA. She may be contacted at karen.terry@ innfeedback.com.

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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.

Don’t let clients panic over long-term care needs With a well-thought-out plan for extended care, financial professionals can minimize client and family stress and help provide a sense of security. By Carroll Golden

f we haven’t considered clients’ longterm care planning needs, we have left an important risk uncovered. In fact, it is important for every financial and insurance professional to consider that extended and long-term care planning is not just a value-added service; it is an essential component that helps ensure financial security and peace of mind. November is Long-Term Care Planning Month, making it an ideal time to start a conversation about planning for extended care. Americans are getting older. According to the U.S. Census Bureau, in 2020 about 16.5% of the U.S. population was 65 and older. By 2030, it is projected that this demographic group will rise to 20% of the population, and by 2060 it will reach nearly 24%. Not coincidentally, retirement planning has received a lot of press in recent years, and more and more people understand the need to provide a source of income for their post-work life. Many, however, still do not factor extended care needs into the equation. As clients age, more and more will experience the need for financial, physical and psychological support. We all acknowledge that the cost of care comes with a hefty price tag. Many people want to age in place and avoid institutional care. According to the 2020 Genworth Cost of Care Survey, the average increase in year-over-year costs solidifies the necessity for LTC planning. Costs vary significantly by location and are expected to continue to increase. For clients who expect to age in place, relocate or retire to a less-expensive area, examining how that affects their budget is a

good place to start the conversation about extended care planning. Clients without plans that cover care-related expenses may find their retirement planning, college funding, legacy planning or other individual financial goals derailed. Beyond the financial aspects, extended care planning helps alleviate the potential physical and psychological toll on both the individual and their family. With a well-thought-out plan, financial professionals can minimize client and family stress and help provide a sense of security. Caring for someone is a noble and loving endeavor. Apparently, many clients may already be doing so and are now participants in the “shadow caregiving economy.” According to the AARP Public Policy Institute’s “Valuing the Invaluable: 2015 Update,” the value of informal caregiver services had steadily increased from an estimated $375 billion in 2007 to $470 billion in 2017. In the latest report, “Valuing the Invaluable 2023 Update: Strengthening Supports for Family Caregivers,” the estimated economic value of family caregivers’ unpaid contributions was approximately $600 billion, based on about 38 million caregivers providing an average of 18 hours of care per week, for a total of 36 billion hours of care, at an average value of $16.59 per hour. This conservative estimate does not consider the financial cost of care (out-ofpocket costs and lost wages) or account for the complexity of care provided (i.e., medical/nursing tasks). The financial, physical and emotional strain on these caregivers can be immense, often leading to them compromising their own financial well-being and quality of life. Insurance and financial advisors have a variety of tools they can turn to when helping clients address long-term care needs. Different clients have different financial needs and resources, so it is important to consider solutions on a

case-by-case basis. Some important planning tools include:

»T raditional long-term care insurance. »W orkplace/group LTC. » L ife insurance with LTC riders. »A nnuities with LTC riders and

single-premium immediate annuities.

»T erm insurance with LTC endorsement.

»W hole and universal life insurance (cash funding).

»H ome equity conversion mortgages (reverse mortgages).

» L ife settlements.

NAIFA’s Limited and Extended Care Planning Center (lecp.naifa.org) offers agents and financial professionals several opportunities to connect with leading experts on the full variety of care solutions. The center also provides research, industry trends articles, a blog, virtual and recorded webinars, a speaker’s bureau, and an extended and long-term care calendar of events. The interactive Legislative Working Subgroup provides guest presenters and updates on important federal and state legislation (especially the publicly funded state LTC programs, task forces and study groups) and regulatory issues. I challenge every advisor to elevate limited, extended and long-term care to the top of their consciousness and, more importantly, raise awareness among their clients. During Long-Term Care Planning Month, and every month, it is a topic none of us can afford to ignore. Carroll Golden, CLU, ChFC, LTCP, CASL, FLMI, CLTC, LACP, is executive director of NAIFA’s Limited and Extended Care Planning Center. She is the author of How Not to Tear Your Family Apart: A Practical Guide to Caregiving and Financial Stability. She may be contacted at carroll.golden@ innfeedback.com.

November 2023 » InsuranceNewsNet Magazine

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Finseca is the home of the top financial security professionals. This member-driven community serves as a credible source for the profession and provides exclusive access to the brightest minds in it.

The financial security profession can lead us through LTC challenges State-run programs to address the costs of long-term care don’t go far enough in serving an individual’s needs.

By Melissa Bova

f I told you that seven out of 10 Americans age 65 and older will require long-term care support at some point, would it worry you? Unfortunately, this isn’t a hypothetical situation. According to joint research from the Urban Institute and the U.S. Department of Health and Human Services, that’s exactly what our nation is facing in the coming years. Couple this with Medicaid spending already surpassing more than $750 billion, and clearly the U.S. has an enormous challenge on its hands. The good news is our profession — as it does for so many other financial conundrums — can help lead us through this looming crisis. By now, especially given the scope of the problem, it’s no surprise that states such as Washington, California and Minnesota are actively seeking solutions to address funding options for long-term care. But the problem with proposals such as the Washington state model is that the $36,500 public benefit falls well short of being able to adequately serve an individual’s long-term care needs. Plus, the Nov. 1, 2021, cut-off date for an exemption significantly hindered private-sector solutions to the problem. The good news is, despite the model’s shortcomings, Washington state’s actions have laid the foundation for other states to start thinking about this issue and exploring potential solutions of their own. For example, the California legislature created a task force to explore potential long-term care solutions in the Golden State. That task force has made progress, having submitted its preliminary report on Jan. 1. And other states, such as Minnesota, are following suit. 44

Private-market product innovations that combine life insurance with long-term care coverage offer attractive, affordable and portable benefits to consumers.

At Finseca, our mission is in our name, Financial Security for All. Our members work to pave the path to financial security for millions of individuals and families through holistic financial planning. The reason why is captured by a recent Ernst & Young study, which exhaustively analyzed how life insurance — especially permanent policies, investments and deferred income annuities — outperforms investment-only or investment-plus-other-products approaches in every combination. Individuals and families who have life insurance, investments and guaranteed streams of lifetime income through things such as annuities are in a significantly better position to absorb the challenges that life throws their way. Addressing and planning for long-term care is part of that financial security. It goes without saying that private longterm care solutions must be included in this discussion. Private-market product innovations that combine life insurance with long-term care coverage offer attractive, affordable and portable benefits to consumers. These innovative solutions can bridge the gap between the limited public offerings and the growing need for

InsuranceNewsNet Magazine » November 2023

comprehensive long-term care support. They provide individuals and families with the flexibility to tailor their coverage to their unique needs and circumstances — a win for everyone. It’s obvious that long-term care is a problem we must solve as a nation. But at the same time, it’s just as obvious that the financial security profession has a critical role to play in addressing this challenge. Financial service professionals have the tools and expertise to guide individuals and families toward solutions that provide the financial security and peace of mind they deserve. By promoting private market innovations and working alongside state initiatives, we can ensure that all Americans have access to the long-term care support they need while preserving their financial well-being. It’s a challenging road ahead, but together, we can navigate it and secure a brighter future for all. Melissa Bova is vice president for state affairs at Finseca. She may be contacted at melissa.bova@ innfeedback.com.

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

Skyrocket your practice with generative AI Generative AI is perfect for busy financial advisors who remain dedicated to providing their clients with the best service while showcasing their commitment to growth. By Jonathan Kestle

he COVID-19 pandemic has been a catalyst for technological advancements across industries, leading professionals to take stock of their digital capabilities and push them to the next level. For advisors, it’s especially important to stay up to date on trends — especially ones that will have benefits for clients and employees alike, such as generative artificial intelligence. Generative artificial intelligence is not the new hot topic, but it can produce various types of content including text, imagery, audio and synthetic data that are relevant for our industry. Leveraging this key tool can streamline internal processes so you have more time to focus on the tasks that only you can do.

Getting to know you

Working with generative AI can be a bit rocky at the very beginning because the program must get a sense of who you are and how you work. When you’re starting to tap into AI, try viewing the program as an employee who can help with mundane or clerical tasks, instead of as an all-knowing entity. Although AI does have access to a lot of information, you will still need to “onboard” the AI to align with you and your practice. To get the best possible output, load your professional information into the program before sending your request. For example, include details like the number of years you’ve been practicing, the type of clients you serve and practice you run, your expertise, your ideal client profile, your niche, your company values,

your educational background and previous projects, etc. This helps the AI get a sense of your voice, how you operate and how it can provide results that align with your practice. When sharing information, though, be sure you don’t share personal details, such as phone numbers, addresses or Social Security numbers, in case of potential data breaches in the AI program.

Tapping into tech

The prompt you enter into your generative AI program is what will separate your results from generic answers. Asking detailed, creative questions is key. Let’s say you want to create a large project, such as a budget planning guide to share with all your clients. Start by asking the AI to create a table of contents based on the overarching message for the project. This will create a skeleton of the guide, allowing you to make necessary tweaks before it develops the full guide. Keep in mind that programs can only handle so many tasks at once, so be sure not to procrastinate in case there are too many users when you try to log in to the program. Once the full guide has been created, review the content and ensure it is factual, grammatically correct and cohesive. Since the AI is pulling information from various resources, it’s important to make sure everything is accurate and flows well before sharing the outputs with clients. Leveraging AI to create a guide like this can help you lead clients toward continuous growth — without taking an extensive amount of time out of your workday.

A little goes a long way

Taking an extra five minutes for client appreciation goes a long way when it comes to retention and building longterm relationships, which is why leveraging AI to help show your appreciation will be mutually beneficial. Clients love receiving small gestures such as post-meeting emails or weekly email check-ins, but the time it takes to produce those can be

more than what advisors with a larger client base can handle. That’s where generative AI comes into play — small, meaningful tasks that can take 40 hours a month when done manually can be completed almost immediately. For example, if you’re sending clients recap emails after meetings, you can simply upload the notes you took during the meeting to the generative AI program that has your profile and your voice stored, then ask the AI to create a post-meeting summary to share with clients. This will help you streamline a process down from 30-45 minutes per client to five minutes, while improving your relationships with clients. Generative AI is perfect for busy financial advisors who remain dedicated to providing their clients with best-in-class services and showcasing their commitment to growth. Whether you leverage the tool to draft long-form content or a short and sweet holiday greeting, your clients and employees will appreciate your new focus on tasks that only you can complete. Taking full advantage of generative AI’s capabilities can help your practice reach new heights. Jonathan Kestle, CLU, a nine-year MDRT member, is a financial planner and entrepreneur based in Ingersoll, Ontario, Canada. Kestle is the president of Ian C. Moyer Insurance Agency, and he is also co-founder of Cascades Financial Solutions, a new fintech venture focused on the design and optimization of retirement income withdrawal strategies. He may be contacted at jonathan.kestle@innfeedback.com.

November 2023 » InsuranceNewsNet Magazine

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