InsuranceNewsNet Magazine | December 2023 by InsuranceNewsNet

THIS ISSUE: TAXES AND 2023 IN REVIEW Life Insurance • Health/Benefits Annuities • Financial Services DECEMBER 2023

A TAXING PROBLEM

The SECURE Act and its companion, SECURE 2.0, introduced several changes to retirement saving and associated tax implications for 2024. Likewise, the looming presidential election will have major influence on the direction of tax policy. PAGE 10

ALSO INSIDE Setting Corebridge on the path to the ‘one-click consumer’

Investors bullish on AI as a financial advisor tool

PAGE 6

PAGE 32

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

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WELCOME LETTER FROM THE EDITOR

Catching up with the consumer in 2024

hile technology is driving many industries to new levels of innovation and profit, insurers continue to discuss such advancements in the future tense. Recognizing that consumers want instant service and results, many are striving to provide the immediately responsive (mainly online) experience that most consumers have come to expect. Artificial intelligence. Big data. Blockchain. These and other technological advances have made many insurers claim they would bring the industry in line with what consumers have come to expect in speed and convenience. Although this movement is underway, it seems decidedly slower than in other segments of the marketplace. Let’s hope 2024 is the year the insurance industry catches up to the consumer. Here are some key areas (there are many — these are just a few) where we hope to see progress. Digital transformation: As 2023 ends, the phrase “digital transformation” has an almost outdated ring to it. This is something that was all the rage a decade ago. But as we see more companies invest in online sales platforms, customer service automation and data analytics to better understand and serve their customers, let’s hope this is something that can occur on a meaningful scale in 2024. Personalized products: Insurers may increasingly use big data and AI to offer more personalized annuities and life insurance products. This could mean more customized coverage options and pricing based on individual risk profiles and needs. 2

Blockchain and smart contracts: The use of blockchain technology for policy issuance, claims processing and smart contracts could streamline the insurance process, reducing administrative overhead and the risk of fraud. Blockchain was another tech area that was hyped a few years ago, without a lot of concrete results for the industry. Longevity and health data: As advancements in health care continue, insurers may place more emphasis on collecting and analyzing health and longevity data. This could lead to more precise underwriting and pricing for life insurance policies and annuities. John Hancock has led the life insurance market as longevity champion and facilitator for its customers, with MassMutual recently following suit. We may see more companies intertwine health and longevity with their product offerings. Innovative distribution channels: New distribution channels, including insurtech platforms and partnerships with nontraditional players such as tech companies, are likely to continue to emerge and change how insurance products are sold and serviced. Cybersecurity: With an increasing reliance on digital technologies, insurance companies must enhance their cybersecurity measures to protect sensitive customer data and financial information. In addition to technological changes, other areas could see great change in 2024. Hybrid products: As we’ve seen increased availability of hybrid products, such as life insurance/long-term care

InsuranceNewsNet Magazine » December 2023

combinations, insurers might introduce more hybrid products that combine elements of life insurance, annuities and investments. These could offer flexible benefits and potentially higher returns as well as meet the more specific individual needs of consumers. Regulatory changes: Regulatory shifts at the national and international levels can significantly impact the insurance industry. Changes in tax laws, consumer protection regulations and interest rate policies can affect the attractiveness of annuities and life insurance as investments. Rising interest rates: Changes in interest rates and a rocky stock market have influenced the attractiveness of annuities as higher rates result not only in better payouts for policyholders but also provide more confidence in their financial futures. Insurers will need to adapt to changing interest rate environments. Evolving demographics: The U.S. is already in the midst of the baby boom retirement wave. The aging population will certainly continue to impact the demand for annuities and life insurance. Insurers will need to adjust their product offerings and marketing strategies accordingly. Eco-friendly and sustainable options: With growing environmental awareness, some insurers may introduce green or sustainable insurance products. These products could possibly relate to life insurance that supports eco-friendly initiatives or annuities that invest in sustainable funds. Pandemic-related impacts: As we’ve seen with the questions about continuing “excess mortality,” the ongoing effects of the COVID-19 pandemic may lead to changes in how insurers underwrite policies, with more focus on pandemics and health-related risks. There are likely many more areas in which we may see change in 2024. We’ll continue to track progress as the industry continues to modernize and innovate. We hope the coming year will bring positive change on many of these fronts, bringing insurance into line with consumer expectations. John Forcucci Editor-in-chief

IN THIS ISSUE

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DECEMBER 2023 » VOLUME 16, NUMBER 12

FEATURE

A taxing problem By John Hilton

The tax implications of current legislation and the looming presidential election bring fresh attention to where taxes are headed in the future and what clients need to do now.

IN THE FIELD

LIFE

22 Why one size doesn’t fit all in life insurance By Jeff Snyder The industry continues to create new products in response to changing consumer demands.

14 A multifaceted market

By Susan Rupe Iván Watanabe serves a dynamic Latino market and explains why Spanish-speaking clients are not all the same.

IN THE KNOW

18 D espite tech breakthroughs, no revolutionary insurance product — yet

ANNUITY

26 N ot all annuities are equal: Answers to client questions By Rich Lane A Q&A on how you can help clients find the right annuity for their goals.

By Doug Bailey The insurance industry has made significant advances in technology, but there is more to come.

INTERVIEW

ADVISORNEWS

6 P utting Corebridge on the path of the ‘one-click’ consumer

32 Investors bullish on AI as a financial advisor tool

Tim Heslin spent two decades at AIG before taking the helm of the spun-off Corebridge Financial. In this interview with Publisher Paul Feldman, Heslin describes ways his company seeks to attract consumers in the digital age.

By Ayo Mseka Investors believe that artificial intelligence is a game changer and will enable advisors to better serve their clients.

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December 2023 » InsuranceNewsNet Magazine

NEWSWIRES

GDP grew at fastest pace in nearly 2 years The U.S. economy grew at its fastest pace in nearly

two years during the past three months, once again defying predictions for a slowdown as many expected the Federal Reserve’s monetary tightening to constrain the American consumer. The Bureau of Economic Analysis’ advance estimate of third-quarter U.S. gross domestic product showed the economy grew at an annualized pace of 4.9% during the period, faster than consensus forecasts. Economists surveyed by Bloomberg estimated the U.S. economy grew at an annualized pace of 4.5% during the period. The GDP release highlights the resilience of the U.S. consumer despite ongoing concerns about a slowdown. But many economists see this as the high-water mark for economic growth before the credit tightening induced by the Federal Reserve’s interest rate hikes and the recent rise in bond yields grabs hold of business development and consumer spending. The key question for investors will be whether the Fed has already tightened enough to bring the economy down from its hot third quarter, as Federal Reserve Chair Jerome Powell recently noted the central bank will need to see slower economic activity to ensure prices continue to cool.

THE COST OF WORKPLACE HEALTH INSURANCE SOARED IN 2023

Inflation drove the cost of workplace health insurance to a record high in 2023, KFF reported. Premiums for family and individual plans rose by 7% after being nearly flat last year. Annual premiums for employer-sponsored family health coverage reached $23,968 this year, with workers on average paying $6,575 toward the cost of their coverage. The average deductible for covered workers in a plan with a general annual deductible is $1,735 for single coverage. Workers at smaller firms on average contribute $2,445 more toward the cost of family coverage than workers at larger firms. This year’s 7% increase in average premiums is similar to the year-overyear rise in workers’ wages (5.2%) and inflation (5.8%). Over the past five years, DID YOU

KNOW

premiums rose 22%, in line with wages (27%) and inflation (21%), KFF said. Employer-sponsored health insurance is the most common form of coverage in the U.S., with KFF reporting nearly 153 million Americans are covered through a workplace plan.

DESPITE DEBT, CREDIT SCORES HIT ALL-TIME HIGHS

The national average credit score hit a fresh high of 718, according to a new report from FICO. Credit scores improved year over year despite high inflation, which has caused more consumers to fall deeper in debt. Americans’ credit card balances passed $1 trillion for the first time earlier this year, FICO said. But as higher prices weighed on most Americans’ financial standing, consumers have fallen deeper in debt, causing an increase in credit card balances and an uptick in missed payments. And Americans are turning to plastic for purchases more frequently, with average credit card utilization 34% in April, up from 31% a year earlier. The utilization rate, the ratio of debt to total credit,

QUOTABLE

The Fed is too focused on a soft landing and has relegated hitting its target on inflation to a distant ‘eventually.’ — Robert Brusca, chief economist at Fact and Opinion Economics

is one of the factors that can influence a credit score. Credit experts generally advise borrowers to keep revolving debt below 30% of their available credit to limit the effect that high balances can have. A strong labor market and cooling inflation have helped offset high interest rates and consumer prices, FICO found.

OLDER AMERICANS ARE POWERING THE ECONOMY

Call it the “silver spending surge.” Bank of America reports spending is growing fastest among consumers aged 59 and older, and that’s driving the consumer economy. Older Americans are living large, Bank of America says, after analyzing selected data from holders of its credit and debit cards. So far this year, “silver spending,” or money shelled out by older generations on everything from vacations to restaurant meals, is “significantly stronger” compared with that of younger consumers, it said. Spending by seniors aged 59 and older spiked in April and again in September. Many seniors have strong retirement savings despite last year’s downturn on Wall Street, Bank of America said. Older Americans also have pent-up travel and entertainment demand since COVID-19 restrictions eased.

The net worth of the richest one-tenth of U.S. households leaped by $28 trillion — or about one-third — from Q1 2020 to Q2 2023.

InsuranceNewsNet Magazine » December 2023

Source: Federal Reserve

IN CASE YOU MISSED IT • TOP PICKS FROM THE WEB

What’s in the news on InsuranceNewsNet.com Federal regulators are taking another crack at extending a fiduciary rule to annuity sales, and a court ruling dismissing a lawsuit against an ESG rule has been appealed.

[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!]

Biden Labor Department taking direct aim at FIAs in new fiduciary rule by John Hilton Federal regulators are taking yet another crack at extending a fiduciary rule to annuity sales, this time with tighter messaging and full-throated White House backing. Administration officials began sharing details on the long-awaited “Retirement Security Rule: Definition of an Investment Advice Fiduciary.” In doing so, officials are attaching President Joe Biden’s name to the effort and using phrasing like “junk fees” and emphasizing the need to “close loopholes” in the law. In the past, the Securities and Exchange Commission and the Department of Labor were mostly left alone in trying to publish fiduciary rules with arcane financial language. Those efforts ultimately failed to

withstand court scrutiny. “Financial advisors should put savers’ best interests first, and not sell them lower-returning products in order to maximize their own fees,” said Lael Brainard, director of the National Economic Council. “When a retirement saver pays for trusted advice that is actually not in their best interest and comes at a hidden cost to their lifetime savings, that’s a junk fee.” The White House kicked off the rule effort with a blog post by the Council of Economic Advisors (CEA) that takes direct aim at FIAs. While acknowledging that FIAs, which come with zero downside, “may still make sense for certain investors,” the CEA claimed that the capped upside is still costing investors a significant amount of lost savings for retirement.

Read the full story online: https://bit.ly/fiduciary23 Senior Editor John Hilton covered business and other beats over more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.

State attorneys general appeal court decision upholding Biden ESG rule

by John Hilton A group of 26 state attorneys general (AGs) are appealing a federal court decision to uphold the Biden administration’s environmental, social and governance rule. The AGs — all Republicans — filed the one-sentence appeal notice in the U.S. Court of Appeals for the Fifth Circuit. Known for its conservative bent, the Fifth Circuit notably tossed out the Obama administration’s fiduciary rule in 2018. The ESG rule addresses what fiduciaries can consider when making plan investments and notes that they may, but

are not required to, consider ESG factors when evaluating plan investments. In addition to the 26 AGs, the plaintiffs included Liberty Energy Inc., an energy company, and three individuals, while the defendant was then-Department of Labor Secretary Marty Walsh. Plaintiffs say that the department’s ESG rule undermines key protections for retirement savings and oversteps the department’s statutory authority under a 1974 law known as the Employee Retirement Income Security Act (ERISA), which governs a broad range of retirement

and health benefit plans. The lawsuit claims the ESG rule is “arbitrary and capricious” and a violation of both ERISA and the Administrative Procedure Act. U.S. District Judge Matthew Kacsmaryk threw out their lawsuit on Sept. 21. Read the full story online: https://bit.ly/bidenesg23 Senior Editor John Hilton covered business and other beats in more over 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.

December 2023 » InsuranceNewsNet Magazine

INTERVIEW

Setting Corebridge on the path to the ‘ONE-CLICK’ CONSUMER

TIM HESLIN’S two decades at AIG prepared him to take the helm of the recently spun-off Corebridge Financial. An interview with Publisher Paul Feldman

InsuranceNewsNet Magazine » December 2023

SETTING COREBRIDGE ON THE PATH TO THE ‘ONE-CLICK’ CONSUMER — WITH TIM HESLIN INTERVIEW

Tim Heslin began his life insurance career by pricing term life insurance. He’s worked his way up the ladder at AIG over the past 20 years, holding a wide variety of titles that prepared him to become Corebridge Financial’s president of life insurance.

will help us meet these customers where they want to be met and should open opportunities for more people to have access to the financial security that our products provide.

Corebridge Financial was formed as a rebrand of AIG’s life and retirement subsidiary in 2021. AIG took Corebridge public in September 2022, raising $1.7 billion in an initial public offering. As head of product, pricing and underwriting at AIG, Heslin championed noninvasive underwriting approaches and automation to make it easier for people to purchase life insurance. He continues this drive in his present role, emphasizing the need to use the latest technology to make obtaining life insurance quick and easy. Younger consumers, Heslin said, “are used to buying with one click online. They’re not going to wait 30 days.” Corebridge must “meet these customers where they want to be met,” he said. In this interview with Publisher Paul Feldman, Heslin also discusses indexed universal life illustrations, artificial intelligence and meeting the needs of the “oneclick consumer.”

Feldman: I know you’ve been working to make investments in improving service and getting policies issued. What would you tell an agent who hasn’t done business with you because they’ve had issues in the past?

Paul Feldman: Tell me a little bit about how you got into the industry. Tim Heslin: I’ve been in the industry for over a couple of decades now. I came to what was known as American General at the time before AIG purchased it, and I was pricing term life insurance. That helped me understand the baseline economics of the business but didn’t give me the commercial side until I moved into product management. There, I got to work closely with our distribution partners to understand the business: how it’s sold, why it’s sold. And it helped me with the passion that I always had for this business, because I think it serves a very noble cause: We help provide financial security to millions of families. I then had the opportunity to run our international businesses to get diversity of perspective and bring that back to the U.S. Feldman: How is the transition from AIG to Corebridge Financial going? Heslin: It’s going great. American General was bought by AIG back in 2001,

and we transitioned to AIG and have been a proud part of AIG for a number of years. There was a decision to IPO AIG’s life and retirement business. It was a great business and had great value to stand on its own. We IPO’d on Sept. 15, 2022, and we’ve been working to separate from AIG over the past year or so. And from a branding perspective, we have already been marketing the new brand since the day that we IPO’d. So that is very much in progress, and we’re running our business today as Corebridge Financial. Feldman: Life insurance is one of the most important things that people can buy, yet there’s a huge coverage gap in the marketplace. How can the industry address that gap? Heslin: Paul, great question. On the coverage gap, it’s two sides of the coin. One side is there are not enough people who have coverage. On the other side, there’s a tremendous opportunity for those of us in the life insurance market to help people obtain more coverage. We must change the process of acquiring insurance. It’s a decades-old process. What’s exciting is that we’re at a point where technology can be used to improve the overall process. It can look much more contemporary; it can be much more streamlined. What excites me is that we are paving new roads for customer acquisition. We have a platform that we call SimpliNow Choice, which is a fully digitized end-toend process that allows you to buy term insurance online. What excites me about that is this reduced time frame to obtain your coverage. What we have seen is that when you reduce that time frame to obtain your coverage, more people will buy. I think one of the newest opportunities there is from the younger generations — Gen Z, the millennials — but we must change the process to acquire insurance. These individuals are used to buying with one click online; they’re not going to wait 30 days. This new technology

Heslin: The one thing I would say is we fully understood what the issues were when they came up. We put a team on that immediately and set up a 30-, 60-, 90-day plan to address those concerns. And what we can see on our end is that the plan is working, the process has improved. And so, we think if someone hasn’t used us or hasn’t looked at us recently, the process has definitely improved. We have some of these new processes on the market, like SimpliNow Choice. And with that combination, I think now is the time to come back to Corebridge Financial and try us. We think you will like the experience. Feldman: What are some of the benefits that Corebridge Financial offers that other companies don’t? Heslin: We have a diverse product set at Corebridge Financial. It ranges all the way from term to indexed universal life insurance. A lot of carriers in the industry offer 10-, 15-, 20- and 30-year terms. Well, what if you don’t need a 10-, 15-, 20- or 30year term? What if you need something in between? Maybe you’re 48 years old and you’re buying life insurance to last until retirement. Twenty-year may not fit. So, we have coverage options that go every year from 15 to 30. And that allows someone to customize their term of insurance to fit the plan exactly as they need. I would say one of the biggest things on our indexed universal life side is we build products that are designed to perform in different economic cycles. What sometimes you can see is a product that might do really well in the current economic cycle, but if you shock it, it doesn’t perform as well. We want to build products that drive the maximum value across different economic scenarios for our customers.

December 2023 » InsuranceNewsNet Magazine

INTERVIEW SETTING COREBRIDGE ON THE PATH TO THE ‘ONE-CLICK’ CONSUMER — WITH TIM HESLIN Feldman: American General was one of the first companies to come out with an IUL, correct? Heslin: Right, we were. The IUL launch predates my tenure with the company. I joined in 1999. We saw IUL as a great product before a lot of other people saw it as a great product. We built the expertise in that line of business, having been in it for more than 25 years. And so, because of that, we think it gives us an edge over some of the other competitors when it comes to designing our products, knowing how they perform historically, and setting appropriate cap and par rates that will be able to stand the test of time. So with that, we’re driving huge value for our customers. And the financial professionals we work with every day see that, as we’re one of the leading companies selling that product in the marketplace. Feldman: IUL has come a long way. It was just a side note for a while and now it’s the No. 1 universal life product. Heslin: Right. It adds tremendous value for the end consumer because the fundamental premise of an IUL is you get the upside participation in the equity markets without the downside risk that you have in a VUL [variable universal life] contract with the floor that’s in there. And that was an extremely attractive product in the economic environment where the stock market has been relatively volatile and historically the interest rates have been low. But fast-forward to today, when interest rates are a little bit higher, the equity markets are still a little bit bumpy, and we’re able to take some of that extra interest rate that we have in the base pricing and create even more value for customers. What you’ve seen is a lot of cool innovations on the IUL side, new indices coming into the market to give individuals choices. That’s why it’s become the premier product in the industry. Feldman: What kind of movements is Corebridge Financial making on the different indices? Are there others that you’re working with? Heslin: We’ve made several index choices over the years. We were a pioneer, and it 8

was just S&P 500 back then. We’ve had multiple index options — they’re called rainbow options — that gave you exposure to worldwide indices. What we’ve moved to today is S&P index options, and then we’ll have cap and par on these options because we want people to have the choice of whatever type of investment style that they have. But something else that’s become very popular in the market today are what’s

be further toward the end of the spectrum toward risk aversion. But then in addition, those who want to take a little bit more risk can go to an IUL with S&P participation and potentially have more upside in a given year. Some people will actually take their entire portfolio and allocate it to one or the other, but we see a lot of people split it. They might allocate, let’s say, half into the S&P 500 account and then the other

Tim (right) standing with colleague Mark Peterson, chief distribution officer, Life Insurance, Corebridge Financial.

called volatility control indices. That allows someone to participate, but maybe without quite the volatility you might get with an S&P option. We tend to see that people might mix and match these options within a contract. Maybe they put half their money into an S&P option and the other half of their money into a volatility control option to create a little bit of a hedge and diversification within the product. That’s where the market has gone, giving people more options inside of their IUL contracts. I think that’s another reason that there has been such a surge in sales for that product line. Feldman: It’s amazing how the products evolved over the years. How important are volatility controls? Heslin: It depends on the individual. If someone is more risk averse, then volatility controls are a great option for an individual because they put a cap on that volatility within the marketplace. And so, with that, you may not get as many of the larger swings, up or down. You can have a more stable return within your IUL contract. Generally speaking, people who are a little bit more risk averse are going into an IUL contract compared to a VUL contract. That can be a great option for those who might even

InsuranceNewsNet Magazine » December 2023

half into the volatility control account. It just depends on the circumstances of the individual. This is where working with a financial professional or agent, particularly on these more complex products, helps, because life insurance can be difficult to understand for the customer. For that reason, working with a financial professional, understanding the insurance, understanding the options, getting some recommendations about the right product for you, is really important as you’re buying that contract. Feldman: How do you see AI affecting product design and underwriting, service, and everything in between? Heslin: We have used AI in actuarial science for several years. It’s what I would call more traditional AI, like regressiontype work and things like that. I’m just amazed about how smart generative AI has become in the period of a year. There is a lot of potential with this, and it’s extremely exciting. I think for our business, underwriting will be the first place generative AI will be used. There’s a lot of data that goes into the underwriting, and you need data to make these models work. So with that, you can build a data set relatively quickly, particularly if you’re issuing a lot of policies like we are at Corebridge Financial.

SETTING COREBRIDGE ON THE PATH TO THE ‘ONE-CLICK’ CONSUMER — WITH TIM HESLIN INTERVIEW You can bring that in and create an engine that will then be able to automatically underwrite your policies. That’s where we are today. We leverage AI. As of March 31 of this year, more than 60% of our policies were auto-decisioned with the help of algorithms. We are a highly regulated industry, and so we need to make sure we do this right. There have been regulations that have come out, most recently from the state

it from an agent’s perspective? Is AI affecting or enhancing the agent’s business? Heslin: From an agent’s perspective, I think AI gets to this speed and technology and process that they can leverage to transform their business. Time today might be spent on paperwork or getting an underwriting approval. That approval could take 30 days, but if we can scale that

Tim making a point on a panel alongside Bryan Pinsky (left), president of individual retirement, Corebridge Financial.

of Colorado, and we’ve built our program with an understanding of where we thought the regulatory bodies were going to go, because we wanted to do it the right way. And so I feel very proud of the way we’ve built our program with a focus on treating customers fairly and that we can feel comfortable with the outcomes that are coming from the model. Feldman: Let’s talk about this Colorado model for AI regulation. Tell me about that. Heslin: OK. So, Colorado — they’ve been talking with industry for quite some time now because they wanted to see regulation around the utilization of AI, in particular focusing on preventing unfair discrimination against protected classes. And so what Colorado did is they have outlined governance and documentation that they want to see in these programs. And companies that are using AI will have to report on their progress in designing compliance with the regulation, indicating how they’re using AI, the governance and controls they have wrapped around it. And they have also proposed a testing component to help evaluate potential unfair discrimination through AI. Feldman: We talked about AI from a carrier perspective. How do you see

down to 30 minutes, agents can transform their practice to more of a selling/ recruiting-type basis to help more people become secure and have the financial security that our products provide. I think that’s what’s going to transform the business from an agent perspective. Feldman: What new areas has Corebridge moved into? Heslin: About five years ago, we got into a senior market segment that focuses on final expense insurance. It’s historically been an underserved marketplace, and it’s relatively new to us, so I think there’s a lot of room for growth compared to some of the more mature channels that we work through. And particularly as more and more Americans are turning 65 every day, that market has become large and ripe for those types of sales, so it’s something that we’re very bullish on. Feldman: Regulation is always a concern in this industry. Recently, there has been a lot of talk about IUL illustrations. What are your thoughts on those? Heslin: IUL has gone through several iterations of illustration changes because there were some designs in the industry that didn’t necessarily fit

well within the current regulation. At Corebridge Financial, our IULs are designed to perform in all markets, so we were not largely impacted by any of the changes in the regulation. We were able to keep our products as is. What we’ve seen, through the iterations of regulation change, is that the marketplace has come back closer to where we’ve always been, because we held steadfast in the value that our products bring to our customer. We see it as an opportunity for us to sell more in the marketplace with the regulation changes. We’ve been very pro-changes. We think it helps consumer understanding of products. And in the end, everyone will be happier if there are no surprises. It’s important to stress-test your illustration because there can be what I would call the baseline assumption that just comes out of the regular system. It’s a good idea to ask your financial professional to run it at an alternate rate. Maybe if it were six, cut it down to four — something that’s materially different so you can understand how the product performs in that different scenario and see if there’s maybe more risk or you’re comfortable with the risk. If it weren’t to perform at that higher level and it performed with something less, what does that do to your product? And is it still meeting the needs that you have? The one thing we know is the exact illustration is not what will happen in reality. Being better prepared under alternate scenarios is what will make sure customers are satisfied in the long run. Feldman: If you could give an agent any advice today, what would you tell them? Heslin: I would say the industry is changing. Technology is coming. Technology will make the process better and easier. Embrace technology. Learn how to use it. It will benefit your agency. And with that, think of all the benefits that it brings to your customer base. You’ll be able to service more customers, which is great. More people will have protection, and that’s what we’re all here to do. It’s about securing families, making sure they’re financially protected if an unfortunate outcome occurs for them.

December 2023 » InsuranceNewsNet Magazine

COVER STORY

A TAXING PROBLEM The SECURE Act and its companion, SECURE 2.0, introduced several changes to retirement saving and associated tax implications for 2024. Likewise, the looming presidential election will have major influence on the direction of tax policy. By John Hilton

InsuranceNewsNet Magazine » December 2023

A TAXING PROBLEM COVER STORY

t’s understandable to assume when entering a high-impact presidential election year that nothing major is happening on the public policy front with, for example, taxes. That would be an incorrect assumption, however. The combination of scheduled escalation changes, recent legislation and upcoming tax deadlines adds up to a whole lot of tax policy changes in 2024. Responsible financial advisors and planners need to account for tax changes that take effect as soon as Jan. 1. Then there’s the bigger picture. The November 2024 election between President Joe Biden, the presumptive Democratic nominee, and his Republican challenger will have a decisive impact on the future of American tax policy. Former President Donald Trump signed the massive $1.5 trillion Tax Cuts and Jobs Act into law on Dec. 22, 2017. It cut corporate taxes permanently and individual taxes temporarily. Those individual tax cuts expire at the end of 2025. “We have been in relatively low tax environments, and individuals will have to prepare themselves to pay on average an estimated 1% to 4% more in income taxes,” said Andrew Flores, a financial professional with Equitable Advisors. “In addition to a likely increase in income tax rates, the standard deduction will be reduced by almost half.”

“One is that it can push them into a higher tax bracket. It can cause some knock-on tax effects, and so pushing out the date offers some tax-planning opportunities between retirement age, which, say, is mid-60s for many people, until that RMD age.” In another bit of good news, the penalty for missing an RMD has been cut in half. Previously, the penalty was 50% on any amount you should have taken, but that is now 25%. And if you can prove that missing an RMD was a mistake, the IRS might drop the penalty to 10%. But Benz waved off the notion that the IRS has suddenly gone soft. “What I hear from people who focus on tax planning is that they think that the IRS may actually be a little bit more serious about actually levying this penalty on people who do miss their RMDs,” she said in a recent video posted by Morningstar. “So, as always, it’s a date

detailed guidance about this rule during the next two years. For now, the delay is a big win for plan sponsors and participants because it prevents sponsors from having to choose between eliminating catch-up contributions effective Jan. 1, 2024, or trying to implement a rule with so many unknowns. Changes to Roth IRA rules featured prominently in SECURE 2.0. Starting in 2024, up to $35,000 of unused 529 plan assets can be moved to a Roth IRA so long as certain conditions are met, Vanguard noted in a blog post. The 529 plan must have been in existence for 15 years, funds must be in the 529 for five years before they can be moved and they must be transferred to an IRA for the same beneficiary as the 529. Relatedly, Roth 401(k) accounts will no longer be subject to RMD rules during the account holder’s lifetime, effective in 2024.

“The IRS may actually be a little bit more serious about actually levying this penalty on people who do miss their RMDs. So, as always, it’s a date that you don’t want to monkey around with.”

Get those RMDs in

While 2024 is right around the corner, it’s worth noting tax changes for 2023. Specifically, in required minimum distributions, or RMDs. For a long time, the age for RMDs was set at 70.5 years old. But the 2019 SECURE Act and its follow-up, SECURE 2.0, passed in 2022, were responsible for significant changes to RMDs. First, the age for RMDs was hiked to 73 in 2023 and will eventually be set at 75. For now, your first RMD must be taken by April 1 of the year after which you turn 73. The amount you must withdraw depends on the balance in your account and your life expectancy as defined by the IRS. “There are reasons that people really like to delay those RMDs,” said Christine Benz, director of personal finance and retirement planning for Morningstar.

that you don’t want to monkey around with. You need to get that RMD out by Dec. 31 of the tax year.”

Roth catch-up opportunity

In late August, the IRS published a notice that could be of significant help to those saving for retirement. The notice provided initial guidance on and a two-year delay of the SECURE 2.0 Act requirement related to Roth catch-up contributions for high earners. This rule is now delayed until Jan. 1, 2026. There will be a two-year “administrative transition period” with respect to the rule, during which it will not be enforced, and most importantly, participants will continue to be able to make catch-up contributions. The IRS intends to issue further, more

SECURE 2.0 also repealed the 25% limit on retirement plan balances for the tax-free transfer of assets on the purchase of a qualified longevity annuity contract, known as a QLAC. In addition, the maximum dollar amount increased to $200,000, adjusted for inflation each year, boosting the level of funds that may be shielded from RMDs.

Biden’s priorities

Not surprisingly, Biden’s tax priorities are much different from those of his Republican counterparts. A peek into Biden’s fiscal year 2024 budget proposal reveals his long-standing tax priorities.

» Key business tax provisions include

a proposal to increase the U.S. corporate income tax rate from 21% to 28% and

December 2023 » InsuranceNewsNet Magazine

COVER STORY A TAXING PROBLEM proposed reforms of U.S. international tax rules that include raising the tax rate on the foreign earnings of U.S. multinational corporations from 10.5% to 21% and adopting an undertaxed profits rule.

» The budget proposed to increase

from 1% to 4% the corporate stock repurchase excise tax that was enacted as part of the 2022 Inflation Reduction Act. The budget included other tax proposals that would affect corporate and passthrough businesses.

» Key individual tax increase provi-

sions include measures increasing the top individual ordinary income tax rate from 37% to 39.6%, taxing capital gains income for high earners at ordinary rates and imposing a 25% “minimum income tax” on the wealthiest taxpayers.

That deadline will likely force lawmakers to agree on a major tax revamp. “I am concerned that some of these changes may come quicker than we think,” Flores said. “Discussions about tax reform have been going on for years. The upcoming elections could also play a pivotal role in any legislative updates.”

Battle lines being drawn

Senate Democrats are already gearing up for a fight over whether to extend the Trump tax cuts. The caucus frequently refers to a finding by the nonpartisan Congressional Budget Office that extending the Trump tax cuts would add

Estate and gift tax exemption emount: The base estate and gift tax exemption amount was doubled from $5 million to $10 million for 2018 to 2025, adjusted for inflation. The current 2023 estate and gift tax exemption is $12.92 million per person. As of Jan. 1, 2026, the exemption amount will revert to $5 million. “Estate planning techniques such as grantor trusts, family-limited partnerships and charitable planning considerations should be discussed before tax laws sunset,” Flores said. State and local tax (SALT) deduction: For taxpayers claiming itemized deductions, the Tax Cuts and Jobs Act temporarily capped SALT deductions at $10,000 a year, or $5,000 if married and filing separately. The cap on SALT deductions is one of the provisions that will expire in 2026. Mortgage and home equity interest deduction limitation: The deduction for interest on home equity loans was eliminated for 2018 to 2025. Mortgage interest deductions were limited to debt up to $750,000. After the 2025 sunset, mortgage interest will be deductible on debt up to $1 million and home equity interest will be deductible on debt up to $100,000. “The best advice we are giving to our clients is ‘Don’t wait until the last minute,’” Flores said. “Given the uncertainty of where the tax environment may end up, a lot of people have chosen a wait-and-see planning method. We are cautious on this strategy, as it could inadvertently result in missing huge opportunities to reposition assets and take advantage of the current low tax rates and high gift exemption amounts for those with a potential estate tax exposure.”

“Discussions about tax reform have been going on for years. The upcoming elections could also play a pivotal role in any legislative updates.”

Those higher tax plans evaporated in a debt-limit deal Biden reached with congressional Republicans and signed in June. The deal to cap discretionary spending and suspend the debt ceiling contains no tax rate changes to raise revenue; it also slashes new funding Biden had allocated to the hollowed-out Internal Revenue Service. However, Biden consistently pushed his corporate and individual tax hikes from the time he began campaigning for president, so they are certain to return should he be elected to a second term. The agreement gave Republicans a win in their ongoing defense of the debt-boosting 2017 Trump tax cuts, turning back the latest attempt by Biden and Democrats to reverse them for wealthy Americans. Unless Democrats sweep the White House and both chambers of Congress in 2024, which pollsters deem unlikely, major changes to the U.S. tax code are now seen as largely off the table until the end of 2025, when the 2017 individual tax cuts expire, Reuters reported. 12

$3.5 trillion to the deficit through 2033. Here are some of the key tax provisions set to expire at the end of 2025. Income tax rates: Individual income tax rates were temporarily reduced. The top tax rate for individuals is 37%. As of Jan. 1, 2026, the top tax rate for individuals will return to 39.6%. “This will likely reduce take-home pay for people in the workforce, tax deductions will be reduced, tax returns may be more complicated and the tax benefit of Roth IRA conversions will not be as favorable for many taxpayers,” said Rob Burnette, investment advisor representative and professional tax preparer at Outlook Financial Center in Troy, Ohio.

InsuranceNewsNet Magazine » December 2023

Keep up to date on the latest developments. Visit insurancenewsnet.com today and get the tips, tactics and how-tos to take your agency to the next level.

INFLATION DRIVING CHANGES TO PROJECTED 2024 TAX RATES COVER STORY

Inflation driving changes to projected 2024 tax rates For a second year in a row, inflation is expected to negatively impact projected tax rates for 2024. By John Hilton

n September, the consumer price index increased 3.7% from 12 months earlier, the same rate as in August, according to the U.S. Bureau of Labor Statistics. The September rate was the most recently available when this issue went to press. Inflation is not just a persistent annoyance to Americans at the grocery store and the gas pumps; it also impacts federal tax rates. Higher inflation leads to increases in deduction limitations and drives upward adjustments to tax brackets and other key thresholds. Bloomberg Tax & Accounting recently released its 2024 projected U.S. tax rates, which indicate inflation-adjusted amounts in the tax code will increase 5.4% from 2023. While this is a slight decrease from the 7.1% increase in 2023, it is nearly double the 2022 increase of 3%. This year’s report projects that several key deductions for taxpayers will see notable year-over-year increases, with the foreign earned income exclusion increasing from $120,000 to $126,500 and the annual exclusion for gifts increasing from $17,000 to $18,000, thereby allowing taxpayers to increase their gifts without tax implications. “For the second year in a row, high U.S. inflation has contributed to a significant increase in inflation-adjusted amounts in the tax code,” said Heather Rothman, vice president, analysis & content, Bloomberg Tax & Accounting. “Once again, our

Projected 2024 Tax Rate Bracket Income Ranges Single

Head of household

Married filing jointly

10%

$0 – $11,600

$0 – $16,550

$0 – $23,200

12%

$11,600 – $47,150

$16,550 – $63,100

$23,200 – $94,300

22%

$47,150 – $100,525

$63,100 – $100,500

$94,300 – $201,050

24%

$100,525 – $191,950

$100,500 – $191,950

$201,050 – $383,900

32%

$191,950 – $243,725

$191,950 – $243,700

$383,900 – $487,450

35%

$243,725 – $609,350

$243,700 – $609,350

$487,450 – $731,200

37%

Over $609,350

Over $731,200

Standard Deduction Projected 2024 Standard Deduction Married Filing Jointly/Surviving Spouses: $29,900 Heads of Household: $21,900 All Other Taxpayers: $14,600

annual report provides actionable projections for tax professionals and taxpayers to begin planning for the upcoming year ahead of the official IRS announcement.” The report accounts for changes made under the Inflation Reduction Act and the SECURE 2.0 Act that affect tax planning for corporate taxpayers in certain industries, Bloomberg noted in a news release.

Alternative Minimum Tax (AMT) Projected 2024 AMT Exemption Amount Married Filing Jointly/Surviving Spouses: $133,300 Unmarried Individuals: $85,700 Married Filing Separately: $66,650 Estates and Trusts: $29,900

Senior Editor John Hilton covered business and other beats in more than over 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.

December 2023 » InsuranceNewsNet Magazine

the Fıeld A Visit With Agents of Change

InsuranceNewsNet Magazine » December 2023

A MULTIFACETED MARKET — WITH IVÁN WATANABE IN THE FIELD

IVÁN WATANABE serves an array of clients from the Latino market, each of whom has unique financial needs. BY SUSAN RUPE

he Latino population may have common language and culture, but each Latino client has different financial needs and goals. Iván Watanabe knows that not all Spanish-speaking clients are the same. He works with many Latino clients as managing partner of Opus Private Client in Rye Brook, N.Y. Watanabe’s mother is from Venezuela, and his father is a native of Japan. His parents met while attending Bradford College (now known as Northpoint Bible College) in Haverhill, Mass. After getting married, they settled in Haverhill, where Watanabe was born. “I had a wonderful, wonderful childhood in Haverhill,” he recalled. With his Latino and Asian background, Watanabe jokes that he “identifies with whatever ethnic group is most convenient.” “But I’m probably way more Latino,” he said. “I am much more connected with my family in Venezuela. I think that’s probably common for most biracial households, that they follow the mother’s customs. I am much more connected to Venezuelan culture. I speak fluent Spanish. When I was a kid, I used to speak fluent Japanese as well, but then I lost my ability to speak the language after I got out of going to Japanese school on the weekends.” Venezuelans are the 12th-largest population of Hispanic origin living in the United States, accounting for about 1% of the U.S. Hispanic population in 2021, the U.S. Census Bureau reported. But that group has been increasing. From 2000 to 2021, the Venezuelan-origin population increased 592%, growing from 95,000 to 640,000. At the same time, the Venezuelan foreign-born population living in the U.S. grew by 554%, from 75,000 in 2000 to 490,000 in 2021. “Part of the reason for the immigration

is that there has been a tremendous amount of turmoil in Venezuela over the last decade,” Watanabe said. “It has been extremely sad for me to see a lot of my family members have to move to other countries and start life anew. But a lot of Venezuelans who are having to force themselves out of their country are taking root in some wonderful places. I love seeing my family having success in countries like Chile and Spain and here in the U.S., where they have been accepted. They’re super hardworking people, and I think they definitely add to the culture in those places.”

The Great Recession posed a challenge

Watanabe was an intern at BNY Mellon during his senior year at the College of the Holy Cross in Worcester, Mass. His mentor at BNY Mellon, a Latina executive, invited him to attend a networking event. “She said there would be some other Latino professionals there and it would

have investment or retirement planning conversations with. So my natural market, as they call it, was basically nothing. Combine that with the market in 2008. I graduated in May 2008 in the recession, and I was 21 years old. Nobody wants to have a conversation with a 21-year-old in that environment.” Watanabe credits “great mentorship and leadership” that enabled him “to kind of grind it out for the first few years. “Now I’m excited to have a career in this space.” Watanabe’s career hit a turning point when the firm he worked for was acquired by a larger firm. “It was a more successful firm, and the reason why this was a turning point for me was that I saw other successful professionals who were actually succeeding in my business,” he said. “In my first firm, there was a handful of successful advisors. But in the firm that purchased us, everyone was successful. Being around successful people introduced me to what

“I think everybody needs a baseline education on how money works. I think people are not getting the level of education they need or should have around the basics ... just a broad education on the way money really works.” be a good place for me to meet people,” he recalled. “I went to Staples, had some business cards printed that said I was graduating from Holy Cross in 2008, and I went off to the event.” Watanabe gave one of those business cards to a financial advisor he met at the networking event. She gave that card to her supervisor, who offered Watanabe a job. Starting in insurance and financial services during the Great Recession, at age 21 and with no connections, “was extremely challenging,” Watanabe recalled. “Both of my parents are immigrants, and I don’t have a lot of family living here in the States, I don’t have a ton of connections to sell life insurance to, or

was possible. I think, just by osmosis, I was able to acquire their habits and learn how to build a successful business.”

A solid client base

Today, Watanabe lives and works in Westchester County, N.Y., north of New York City, where most of his client base is Latino. “About 70% of my client base is Latino executives in finance, accounting or technology,” he said. “A good portion of my clients are in the medical space. My wife is an anesthesiologist, so I’ve carved out a solid niche in the medical space as well.” No matter what a client’s ethnic background is, everyone needs the same

December 2023 » InsuranceNewsNet Magazine

the Fıeld A Visit With Agents of Change “I think many people don’t even understand the topic of life insurance because they really haven’t been educated about it or they’ve never had a conversation about it,” he said. “Other people tell me that because they have group coverage through their employer, they think they’re all set. I see that when clients get their eyes opened to what the need for life insurance is really like and what opportunities life insurance provides, then we can really dive into their desires, and we see that generational wealth and legacy planning become real objectives for them. Life insurance is one of the best ways for us to make those objectives come true for them. We make life insurance a priority in their planning.”

“In certain communities, there are those who will never have to take care of their parents and the parents actually set their kids up financially. So that is a multifaceted situation we must take care of.” financial foundation, Watanabe said. “The first and foremost tenet of our practice is to educate our clients about how to understand their money,” he said. “I think everybody needs a baseline education on how money works. I think people are not getting the level of education they need or should have around the basics such as how taxes work, what different types of retirement accounts are available, how to use leverage, how to understand investing, how life insurance works — just a broad education on the way money really works. Even though many of my clients understand how corporate finance works, they don’t necessarily know how these things apply to them individually.” Some Latino clients are reluctant to talk about life insurance because of cultural superstitions about discussing death, Watanabe said. 16

Serving the generations

Most of Watanabe’s clients are first-generation or second-generation Americans. “So you’re bringing those cultural biases to the planning process or bringing their household conversations about money into the process,” he said. “One of our most important conversations with clients is how they see wealth. What is their experience with money? What were the finances in their household like? What was the conversation about money in their family? “Some clients come from a scarcity mindset. Some don’t talk about money. Others are very comfortable talking about money, and they talk about it with their friends and family. We see some who invest together with their family members.” Not every Latino client is the same, Watanabe emphasized. There are differences depending on their money experience. “Most of my clients come from the Dominican Republic, Venezuela, Puerto Rico, Mexico and Colombia,” he said. “I find that the money conversations are different among all of them. If you’re talking with someone who recently moved to the U.S., they have a completely

InsuranceNewsNet Magazine » December 2023

different tilt than someone from Mexico who had third-generation wealth and created a business in Mexico and has since come to the States. The differences are not so much country-specific as they are specific to their individual households and their experiences around money during their lives.” Advisors who want to serve Latino clients must understand how money influences their households, Watanabe said. “I often find in the Latino community that there’s a big concern about planning for the sandwich generation — adults in their 40s who plan to take care of their parents while taking care of their young children and accomplishing that while planning for their own retirement,” he said. “That’s a fine balance we have to play within. Because in certain communities, there are those who will never have to take care of their parents and the parents actually set their kids up financially. So that is a multifaceted situation we must take care of. We help people take care of their parents, their children, and themselves, and then we start working on building multigenerational wealth so they can accomplish their goals, set up a legacy for their kids and be the first grandparents to take care of their grandchildren — and maybe provide for two or three generations below that.” Life insurance helps create that multigenerational wealth and provides opportunities, Watanabe said. “That’s why I’m such a big advocate of life insurance,” he said. “It allows us to be able to create generational wealth for clients in so many different ways without having them sacrifice for some of their other goals.” 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.Rupe@innfeedback.com. Follow her on X @INNsusan.

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a Powerful S&P 500 Harnessing Addition to Fixed IQ Index Indexed Annuities ®

he S&P 500, with its proven track record and broad familiarity, is a staple of fixed indexed annuities. In fact, this benchmark index leads in indexed annuity allocation — with nearly 44% of allocations using S&P 500 index crediting options.1 Building on the broad adoption of the S&P 500, Legacy Marketing Group® saw a way to address certain market nuances through the use of a new index to underlie FIAs. The S&P 500, widely regarded as the best single gauge of the U.S. stock market, carries inherent volatility, which may not always seamlessly align with the objectives of FIAs. This is understandable, as the 500™ was not originally designed for use with FIAs. While many indices available via FIAs aim to maximize upside potential while limiting downside risk, Legacy Marketing Group believed there was room for innovation. Seeing an opportunity within this gap, Legacy Marketing Group sought out S&P Dow Jones Indices to create a modified version of the S&P 500 for use with FIAs. Innovative at heart, Legacy was built to offer producers access to diverse products from multiple insurance companies, coupled with gold-standard service, under one roof. Marking its 30th anniversary, Legacy has emerged as a dynamic product development company, working with index providers, carriers and distribution partners to bring new products to market. Legacy’s dedication to innovation shone through as it sought out an index that was optimized for use in FIAs. To tackle this challenge, Legacy partnered with Alan Grissom, CEO of 12 South Capital and formerly S&P Dow Jones Indices’ Global Head of Insurance, due to his extensive knowledge of both indexing and insurance. Grissom’s input helped ensure that the concept fit well within an FIA. As a result, S&P Dow Jones Indices developed the S&P 500 IQ Index2 — an intelligent path to the 500™ for use with FIAs.

Wink’s Sales & Market Report Q2 2023.

The S&P 500 IQ Index uses an intraday methodology that allows potentially greater precision and responsiveness in volatility management. This is an index that is attuned to market dynamics and, when used within an FIA wrapper, could enable a carrier to offer higher caps and participation rates and potentially provide more stable renewal rates. Preston Pitts, President of Legacy Marketing Group, explains that working with S&P DJI was essential. S&P DJI, as a premier index provider, ensures compliance with established guidelines for the

With the introduction of the S&P 500 IQ Index, clients now have an additional allocation choice that draws on the strength of the familiar benchmark index. While the S&P 500 is still widely used within indexed insurance products, its volatility may sometimes constrain caps and participation rates of the FIAs. “This is the exact challenge we wanted S&P DJI to address. The S&P 500 IQ Index has the potential to unlock opportunity, facilitate higher FIA participation rates and caps, and provide renewal rate stability,” Grissom shared.

“The ability to be more responsive to market changes is crucial. The use of intraday data and same-day rebalancing allows for greater precision in targeting the specified 15% volatility level for the Index.” — Preston Pitts, President, Legacy Marketing Group S&P 500 IQ Index, as it does for the S&P 500. S&P DJI’s S&P 500 IQ Index maintains simplicity, transparency and ease of understanding while adhering to the index provider’s rigorous standards. During the process of working with S&P DJI, Legacy gained an appreciation for intraday index rebalancing, which is a key element of the S&P 500 IQ Index. Newly introduced by S&P DJI, this intraday methodology has brought a significant shift in how market dynamics are addressed and has the potential to provide greater precision and responsiveness in volatility management. At its core, the intraday rebalancing aspect of the S&P 500 IQ Index’s methodology helps reduce lag time. “The ability to be more responsive to market changes is crucial. The use of intraday data and same-day rebalancing allows greater precision in targeting the specified 15% volatility level for the Index,” said Pitts. “All of these factors, combined with the simplicity of the Index — which allocates between the S&P 500 and cash — help facilitate more stable renewal rates.”

The S&P 500 IQ Index debuted as a crediting method on Legacy-exclusive FIAs from Americo Financial Life and Annuity Insurance Company on September 18. It will be available as a crediting option within FIAs from additional Legacy carriers in the future. The Index has already garnered overwhelming excitement and interest. A powerful addition to FIAs, the S&P 500 IQ Index stands out with its simple design.

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The “S&P 500 IQ Index” (the “Index”) is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed by Americo Financial Life and Annuity Insurance Company (“Americo”). S&P® and S&P 500® are trademarks of S&P Global, Inc. or its affiliates (“S&P”) and these trademarks have been sublicensed by Americo. Americo’s FIAs based on the Index are not sponsored, endorsed, sold or promoted by SPDJI or its affiliates, and none makes any representation regarding the advisability of investing in such FIAs, nor do they have any liability for any errors, omissions, or interruptions of the Index.

December 2023 » InsuranceNewsNet Magazine

the Know In-depth discussions with industry experts

Despite tech breakthroughs, no revolutionary insurance product — yet As amazing tech advances abound, the insurance industry has made significant strides in the past few years. But there is much more to come, according to industry-leading tech experts. By Doug Bailey

fter a two-decade-plus career in technology management for insurance companies, Garrett Droege says the “wow factor” is gone; he’s no longer awed by advancements in modern systems and glitzy computer programs. “I’m not seeing anything that I would call a revolutionary product,” says Droege, a senior vice president and director of innovation and digital risk practice leader at IMA Financial Group, a Denver-based company specializing in global insurance and risk and wealth management. Yet, in the same conversation, Droege ticks off a list of technological Droege breakthroughs: artificial intelligence algorithms, computer-enhanced optimization features and digital asset blockchain systems — that 18

would cause the less inured among us to shake our heads in disbelief. He sees a world where “smart insurance contracts” can: •A utomatically pay out claims without policyholders having to go through the trouble of filing. • Let high-tech autos independently assess accident damage, instantly assign blame and submit claims. • Use an AI interface that can work behind the scenes and log in to the insurance carrier that writes the applicable policy, and then log in to the agency management system that shares the data — all with a single human voice command. “You won’t need another username or login,” he said. “You won’t need to go

InsuranceNewsNet Magazine » December 2023

through another six-week tutorial period on how to use this thing. It will just work. And so that’s actually what I think AI is going to be really good at doing.” Talks with insurance executives, consultants and industry engineers about what’s currently hot in technology all eventually lead to AI, or generative AI, which is indeed poised to revolutionize the practice. Inherent though in these discussions is the obvious evidence the entire insurance industry — with the reputation as a stodgy paper-and-pencil business not known for welcoming modernization or computerized solutions — is undergoing an enormous transformation brought on by advances in technology.

Pandemic drove major change

Driving this change, of course, is the invasion of insurtech upstarts as well as the need to become more competitive, cut expenses and be more consumer friendly. But most responsible for the sudden embrace of high tech was the pandemic.

DESPITE TECH BREAKTHROUGHS, NO REVOLUTIONARY INSURANCE PRODUCT — YET IN THE KNOW

“Technology has advanced quite a bit over the last three years, and a lot of that has been driven by COVID,” said Bryan Davis, executive vice president and head of VIU by HUB, a Chicago-based digital insurance platform. “I mean, the industry went digital overnight. So, whether it’s cloud computing or how much data that I can process in an easy manner, it literally grew exponentially because of COVID-19.” This forced migration to Davis the cloud and the digital world has given rise to enormous innovation in how agents work with their carriers, customers interact with their companies, and businesses partner with insurers. Davis says the migration is nearly complete, but it has created a “people problem.” “Phase 1 of getting from ‘on-prem’ [on premises legacy computer systems] to the cloud has happened,” he said. “Now we’re in this ‘phase 2,’ in which you have human capital with new capabilities who you don’t know what to do with, right? You got the same people that before could look at 30 accounts a day and now can do 300. You don’t need all those Johnson people. That’s where the industry is now.” VIU by Hub specializes in “embedded insurance,” providing insurance solutions for banks, mortgage companies and others that can offer policies to customers without the consumers ever having to interface with a traditional insurance company. “A lot of what we’re doing in embedded insurance wasn’t able to be done three years ago because the technology wasn’t there — the latency connections, all of that stuff would have been really subpar,” said Davis. “So that’s why three to five years ago, embedded insurance didn’t take off like people thought it would. Now it’s enabled a lot more with the advancements in digital technology.” “The COVID-19 pandemic resulted in investors steering more than $12 billion into HR tech-related software and platforms in 2021, with much of the investment growth being in core HR and

employee benefits functionality and integrated platforms for midsize organizations,” said Dan Johnson, chief technology officer at Guardian Life Insurance. “As of 2021, 8 in 10 employers reported that their HR and benefits processes were more digital than paper-based, and many have experienced efficiency gains and improved user experiences.”

AI plays a leading role

AI has already revolutionized the insurance industry by expediting legacy business processes such as claims processing and customer service. And more is on the way. “From an industry perspective, API [application programming interface] integration has catapulted the industry further, especially when it comes to HR and benefits technology,” said Johnson. “While AI has enormous potential for improving the consumer experience and making our business and teams more efficient, APIs are significantly advancing the HR and benefits processes into more digital experiences and positively impacting consumer satisfaction.” Johnson says if companies want to stay relevant and competitive, they must adopt APIs in their operations. “The next frontier in consumer experience is omnichannel — making real-time, fragmented interactions seamless,” he said. Technology is offering companies the chance to reduce turnaround, improve customer satisfaction and enhance operational efficiency. “Generative AI, especially in HR and billing, has gained traction due to its ability to automate tasks like document generation and data entry,” said Vince Cole, CEO of Ontellus, the nation’s largest procurer of claims-related data services. “It offers the promise of streamlining back-office processes, ultimately cutting costs and increasing productivity.” Cole and others, though, say the systems aren’t fully up to their potential and humans are still needed to validate AI-generated output, which can be prone to what the programmers call

“hallucinations,” or simply made-up data. “Relying solely on AI in critical processes without proper checks can lead to costly errors and compliance issues,” he said. And while transforming the industry, sometimes technological advances are doing so in ways many had not predicted. “Investments in chatbots and AI-first experiences haven’t been as lucrative as expected because, at the end of the day, people still want to talk to a human agent,” said Megan Dixon, vice president of data science at Assurance IQ, a Prudential Financial subsidiary. “We see this firsthand. The vast majority of our customers still opt to speak with an agent before buying all types of insurance, from health insurance to life insurance and homeowners insurance. Chatbots simply can’t provide the context, confidence and empathy that human agents can.” But that may be because the technology is still in its infancy. Other executives mention beta tests they’ve seen of conversations with AI systems that are indistinguishable from human interaction.

Some of the areas seeing change

Many aspects of the insurance business are being impacted by AI and other innovative technologies. Underwriting: Digital shifts have allowed the industry to transition from the cumbersome world of paperwork to offering instant policies, ensuring that insurance becomes more user-friendly and accessible than ever before. “These technologies have supercharged the underwriting processes, making it possible to transition from weeks-long waiting periods to near-instantaneous decisions,” said Gregg Barrett, CEO of Waterstreet Company. “Automated systems are now equipped to swiftly analyze, provide critical fraud detection mechanisms, and guarantee that payouts are both timely and just.” Many carriers are using AI and predictive models to offer online quotes or even quotes and binding through an app. Claims: Automation is making a big impact on the claims process. “Many carriers are investing in creating a claims system that will make automatic determinations on liability and injury payments and even alert adjusters to coverage questions,” said Nathan Weller, who analyzes the insurance industry for

December 2023 » InsuranceNewsNet Magazine

the Know In-depth discussions with industry experts FitSmallBusiness.com. “I worked bodily injury claims at two different carriers and was able to see firsthand the technology improve in a matter of years from being a place to track your work to entering the information about the claim and the system generating a ranged amount to offer for injury settlements.” Migration to the cloud: “Cloud infrastructure provides the foundation for digital agility and scalability,” said Luca Russignan, head of insurance at Capgemini Research Institute for Financial Services. “Transitioning core functions to the cloud is increasing steadily across the industry. While data security concerns remain, the benefits of flexibility, resilience and cost reduction outweigh the risks.”

exciting yet complex frontier for insurtech is the rise of wearables and drones. “These tools promise a world where real-time data can be harnessed to offer highly personalized and precise insurance premiums,” said Barrett. Digital twin technology takes this a step further by creating virtual replicas of insured assets. “This empowers insurers to simulate scenarios and continuously monitor risks, leading to superior underwriting and claims management,” he said. “Though [the technology is] nascent, early adopters are already achieving substantial gains.” Droege mentions a client that sells blockchain, or “smart insurance contracts,” to farmers; the technology

“The vast majority of our customers still opt to speak with an agent before buying all types of insurance, from health insurance to life insurance and homeowners insurance. Chatbots simply can’t provide the context, confidence and empathy that human agents can.” — Megan Dixon, vice president of data science at Assurance IQ

Fraud and risk assessment and prevention: The industry is using AI and the network of connected devices (the internet of things, IoT) for risk prevention. “Two key factors driving this shift are the availability of real-time data and artificial intelligence tools,” said Shanal Aggarwal, cheif compliance officer at TechAhead, a mobile app development and digital transformation service company based in India. “The use of IoT sensors and AI allows insurers to predict and prevent adverse events in real time. For example, connected buildings can self-report risks and request repairs based on data received from IoT sensors and AI analysis.” Such systems are also being used to anticipate and manage issues like wildfires, floods and climate change. Another 20

monitors sophisticated weather and climate conditions and automatically pays out claims for weather-related damages. “All we need is a weather-monitoring station — we’ve got the GPS coordinates of the farm, and we have a verified third-party trusted data source that will tell us what amount of rain fell in a 24-hour period,” he said. “If the numbers fall within the policy’s amount, it pays automatically — there’s no need to file a claim or go through an adjuster.” Telematics: Usage-based data from cars and smartphones is changing both underwriting and claims. Companies can pull data from a smartphone to determine exactly where the vehicle was and even = the date and time of an accident down to the second. “I’ve handled claims where coverage came down to the time stamp in the app related to the loss,” said Weller. “At

InsuranceNewsNet Magazine » December 2023

the same time, newer cars with sensors and 360-degree cameras, like Tesla, have completely changed claims investigations, as they can provide data on speed [and] location and even a visual of the entire loss.” Telemedicine: Insurance companies are building or adopting telemedicine solutions to enhance access to health care services and improve medical care efficiency. With features such as live video consultations, secure messaging, e-prescriptions and health record integration, the systems offer an efficient and convenient alternative to traditional in-person medical care. “[With] the COVID-19 pandemic, telemedicine has experienced unprecedented growth, transforming health care delivery worldwide,” said Aggarwal. With AI features, more higher-risk applicants looking for life insurance now have the ability to apply without having to submit to a medical examination and having their medical records reviewed. “While this type of underwriting method has been available for years to those in good to perfect health, people with chronic illnesses like diabetes are seeing certain life insurance carriers offer this type of application process,” said Matt Schmidt, CEO of Diabetes Life Solutions. “Insurance companies are using background reports such as the [Medical Information Bureau} and Milliman IntelliScript, credit reports to gather enough information that they can make approvals for certain applicants.” “The day in the life of someone working in insurance is filled with tasks that could be — and slowly are being — automated,” said Weller. “Looking into the future, the trend continues to move toward automation and generative AI having a greater role in assisting the adjuster and in risk assessment and underwriting. I know it sounds like fiction and not fact, but the most interesting trend to focus on will be claims where AI is determining liability for an accident involving self-driving cars. In the long term — and maybe not that far out — that will be the future of insurance.” Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@ innfeedback.com.

LIFEWIRES

Insurers remain concerned over continued ‘excess mortality’ Despite some signs that excess mortality rates are declining, life insurance exec-

utives and actuaries believe the numbers are alarming and could continue to drag earnings and surge death claims for years to come. Excess mortality is the difference between the total number of deaths for a specific time period and the number that would have been expected. The numbers were naturally forecasted to climb during the pandemic, but some industry and Younger adult mortality rates are up more health authorities are concerned the rates havthan 20% in 2023. Cause of death data show increased cardiac mortality in all en’t greatly diminished as COVID-19 infection ages. COVID-19-related deaths declined in 2022, but deaths from stroke, diabetes, rates have declined. and kidney and liver diseases rose. Life insurers paid record levels of claims in Source: Centers for Disease Control 2021 as the pandemic drove mortality higher, and the issue was widely cited in earnings reports as the drag on profits. In 2021, the most recent year for which data is available, the industry distributed a record $100.28 billion in total death benefits, according to BestLink. The higher-than-normal payouts began in 2020, the first year of the pandemic, when insurers saw death benefits rise 15.4% — the biggest one-year increase since the 1918 Spanish Flu epidemic. The 2021 increase was 10.8%, but fell during the first nine months of 2022 from $74.27 billion in the same period in 2021. But that’s still higher than the $59.18 billion paid out during the same period in 2019, according to BestLink.

MASSMUTUAL EMBRACES BEHAVIORAL INSURANCE

MassMutual is the latest life insurance company to embrace behavioral insurance to help improve the health and longevity of its policyholders and reduce premature death claims. The new initiative, dubbed MassMutual Health and Wellness Program, is aimed to give eligible policyholders a deeper understanding of their health, enabling them to make informed decisions to lead longer and healthier lives. The program has a range of tools, offerings, and research to provide insights into potential health risks and encourage healthy behaviors and lifestyles. One of the standout features of the Mass Mutual program is a research DID YOU

KNOW

collaboration with Genomics PLC. In a test of the plan, eligible policyholders were provided with a genetic risk assessment service, offering information on their likelihood of developing common ailments like diabetes, heart disease and certain cancers. Interestingly, one in five policyholders discovered they may be at higher risk for preventable diseases.

LIFE INSURANCE APPLICATION ACTIVITY IN SHARP DECLINE AMONG THE 50+ AGE BRACKET

The latest life insurance application data shows a sharp decline among a demographic that should be a reliable source of sales: Americans ages 50+. Overall, life insurance application activity finished the third quarter up 2.8% compared to the year-ago period, reported MIB Group. Application activity is up 5.1% compared to pre-COVID-19 numbers from Q3 2019. However, September 2023 activity was down 2.6% compared to September 2022, and activity during Q3

QUOTABLE

Wholesaling as a discipline is still very much male dominated. — Chris Callahan, member relations director, LIMRA and LOMA

2022 finished flat at -0.4% compared to activity during Q3 2022, MIB reported. A peek inside the numbers shows more distressing news: Ages 0-50 saw flat year-over-year activity, ages 51+ saw declines in September and ages 61-70 saw declines in the double digits. On a quarterly basis, Q3 2023 saw year-over-year and year-to-date growth compared to Q3 2022 for ages 0-50 and declines for ages 51+, representing the third consecutive quarter that ages 0-50 lead in year-over-year growth.

LIFE INSURANCE EXECS FOCUS ON PROFITABLE GROWTH

A new study reveals profitable growth is the most important challenge on the minds of C-suite executives in the life insurance industry, followed closely by talent management. The study, conducted by LIMRA and Boston Consulting Group, surveyed C-suite life insurance executives to identify their greatest challenges and the biggest external forces affecting their business. When the same study was conducted in 2019, change in management was what kept executives up at night. By 2021, as companies were forced to meet customers’ changing needs, executives’ focus shifted to technology. A third of executives (33%) said profitable growth was their company’s greatest internal challenge, which has been in the top three for the past three studies. Technology is also an important challenge, and less than a third of executives (27%) consider their companies well equipped to meet that challenge.

66% of C-suite life insurance executives said investments in artificial intelligence for customer service will be a priority in the coming year. Source: LIMRA

December 2023 » InsuranceNewsNet Magazine

LIFE

Why one size doesn’t fit all in life insurance As consumer needs have changed, the life insurance industry responded by creating new products. By Jeff Snyder

here is no single best life insurance product for everybody and every situation, despite what some financial planners, agents, brokers, so-called experts and media pundits may say. And to suggest that there is only one best product is silly, misleading and potentially reckless, presumably good intentions notwithstanding. Temporary or “term” insurance is designed to pay a death benefit if the policyholder dies during a specified term. It is a good product that can address several needs, but it is not always the best life insurance solution. There are simply too many variables that too many people, unfortunately, seem to ignore. This truth represents a tremendous opportunity for those financial services professionals looking to be more than order takers. As the insurance industry has evolved, 22

new products have been created to meet the demands of the marketplace. Put another way, as the world changed, the life insurance industry followed, creating new products to continue to meet the life insurance planning needs of the market. In the beginning of the life insurance industry, centuries ago, there was only one product, and it was called life insurance. As I understand it, this product walked, talked, smelled and looked a lot like what we refer to today as temporary

or term insurance. At that time, the word “term” as a life insurance product name did not exist, nor did products such as 5-, 10-, 15-, 20- or 30-year level term. Back then, you bought your life insurance and, if you did not die, you paid more for the same coverage the next year because you were now actually one year closer to dying and a future claim. Even back then, people understood that dying was inevitable and if you didn’t die now, you would die later. Basically,

A couple hundred years ago, the one life insurance plan available was close to the equivalent of today’s term products. Times have changed.

InsuranceNewsNet Magazine » December 2023

WHY ONE SIZE DOESN’T FIT ALL IN LIFE INSURANCE LIFE this was what we refer to today as yearly renewable or annually Consider the following: In the investment world there are renewable term insurance. That was it for some time; pay more literally tens of thousands of individual stocks, bonds, mutueach year for your life insurance because you were one year clos- al funds, etc., that are available through various exchanges er to an eventual claim. But after a while, people noticed that around the globe. Should every investment professional sell their life insurance was becoming very expensive as they con- only one stock to every client who wants to hold equities? tinued to age while getting closer to dying. Apple, for example, has been a good stock in recent years, so This race with death was a problem. Eventually, people who should we all buy only Apple for our stock portfolio? And what still wanted to keep their life insurance were forced to drop it about fixed income? Should everyone own only IBM corporate because the cost became prohibitive. People didn’t like having bonds? I hear that Growth Fund of America is a good mututo drop their coverage because it had become unaffordable. So al fund, so we should only buy and own that, right? Silly, of they complained, the life insurance industry listened and a new course, and bordering on the ridiculous! product was created to solve the When I was young, the increasing premium problem. common man’s luxury car In response to market outthat everyone aspired to was cry, and not because the life the Cadillac (yes, I just dated insurance industry was bad and myself). So, given my bias, evThere are other makes and greedy as some have suggested, erybody should buy and drive models available to serve the the world of life insurance deCadillacs, of course. No matter needs of someone looking signed a second product that that there are other makes and for benefits and features not was priced to remain level for models available to serve the available with a Cadillac. an entire lifetime and in force needs of someone looking for for the policyholder’s “whole” benefits and features not availlife so that it would pay a claim able with a Cadillac. To suggest whey they died. Basically, the that a Cadillac can do what insurer charged more than what a four-wheel-drive Jeep does was needed upfront to cover would be misleading. the current mortality risk and Finally, hardware stores sell saved or “reserved” the excess more than screwdrivers to fix premium so that they could offthings, and clothing stores alset cost-of-mortality increases ways carry more than one size. in the future. The increasing Even the ice cream shop ownreserve decreased the amount er knows to carry more than at risk, allowing for the premivanilla in case your taste buds um to remain level. Permanent prefer chocolate. In this case, insurance was born, and people suggesting, ‘You will have vawould no longer have only one nilla and like it!’ would just be To suggest that a Cadillac life insurance option. wrong, and everyone knows can do what a four-wheel Whether people at that time that a screwdriver is a poor subdrive Jeep does would be realized it or not, this is the stitute for a wrench. misleading. point where the opportunity to I could go on, but you undersell and buy life insurance bestand the point. Despite what came dynamic. Gone were the some may say, embrace the fact days when everyone bought the that because of market demand same thing every time. With only one product, it really was driving product creation and design, many life insurance opone size fits all. But with more than one option, those who sold tions are available today. Seize the opportunity — given the life insurance now had to better understand the interested number of variables in each individual situation, your opportuparty to determine which product best suited the needs of the nity lies in the fact that different products serve different needs. customer. That’s right, what now mattered most was what was Knowing what is important to your client means you can and most important to the client, because there was more than should design and recommend something more than a oneone option. Would the client prefer life insurance that pays if size-fits-all term insurance solution every time. Doing anything they die or insurance that pays when they die? less would be reckless. This still holds true today. One could argue that, given the number of products and riders today (as a result of market de- Jeff Snyder is executive vice president of mand), it has never been more critical to truly know your clients business development and insurance with Gateway Financial Advisors. He may be and what is most important to them so that your life insurance contacted at jeff.snyder@innfeedback.com. recommendation can be uniquely designed with the right product to solve their problem. Again, the idea that only one product fits every situation is silly, misleading and potentially reckless. December 2023 » InsuranceNewsNet Magazine

ANNUITYWIRES

Annuity sales soar even higher in third quarter

Through three quarters of 2023, total annuity sales rose 21% to $270.6 billion. Third-quarter annuity sales increased 11% year over year to $89.4 billion, according to preliminary results from Q3 2022 Q3 2023 LIMRA’s U.S. Individual Annuity Sales Survey. LIMRA analysts credit Registered indexed-linked $10.6 $12.6 continued favorable economic condiFixed-rate deferred $30 $34.4 tions for the annuity sales burst. Indexed $21.5 $23.3 2022 total annuity sales hit $313 billion, which set a record that is sure to Traditional variable $14.1 $13.1 be smashed by the end of December. (in billions) Source: LIMRA Highlights included registered indexed-linked annuities, which set a new quarterly record, totaling $12.6 billion, up 19% from the prior year. Through the third quarter of 2023, RILA sales were $34.4 billion, 11% higher than the same period in 2022. LIMRA is predicting RILA sales will have another record-breaking year in 2023, likely increasing at least 10%. Fixed indexed annuity sales were $23.3 billion in the third quarter, up 9% from the prior year’s results. Year to date, FIA sales increased 25% to $71.7 billion. most serious — wire fraud, mail fraud and conspiracy to commit wire and mail fraud — all carry maximum sentences of 20 years.

‘ANNUITY KING’ PLEADS GUILTY TO TAX CHARGE

Phillip Roy Wasserman, also known in Florida circles as the “Annuity King,” pleaded guilty to a tax charge and will avoid a second trial in his $6.3 million fraud case. Wasserman agreed to plead guilty to a single count of evasion of payment of income taxes. Wasserman said he took the plea deal in order to focus on overturning his fraud conviction. In its indictment, the government claimed that Wasserman avoided taxes in the years 2004, 2005, 2007 and 2009. After years of collection efforts, the Internal Revenue Service wrote off more than $800,000 in uncollected taxes, the indictment said. Wasserman faces a maximum of five years in prison and a $100,000 fine on the tax charge. Wasserman was convicted May 15 on nine felony counts. The three DID YOU

KNOW

CALIFORNIA LOOKS TO FIAS AS IT CONSIDERS ANNUITY RULES

California lawmakers are looking to pass updated annuity rules that could cast a wider net than first assumed. The bill being considered was stalled in the Assembly Appropriations Committee as this issue went to press, and five trade groups want it to stay there unless revisions are made. Those groups are concerned that the bill excludes cash and noncash compensation as a conflict of interest that advisors and brokers would have to disclose to their clients. However, the committee has called out Section 989J of the federal DoddFrank Wall Street Reform and Consumer Protection Act, which gives a state authority to regulate the sale of fixed and fixed indexed annuities under two specific circumstances. The first is when the state in which the contract is issued or in which the provider

QUOTABLE Income annuities will hit record levels in 2023, with sales in this category expected to exceed $16 billion for the year. — Todd Giesing, assistant vice president, LIMRA Annuity Research

is based has “adopted requirements that substantially meet or exceed the minimum requirements established by the 2010 version of the National Association of Insurance Commissioners” model. The second — and the focus of the committee — is when that state “adopts rules that substantially meet or exceed the minimum requirements of any successor modifications to the model regulation within five years of the adoption by the NAIC.”

LAWSUIT OVER SECURITY BENEFIT INDEX ANNUITY REMAINS ALIVE

A federal appeals court has denied Security Benefit’s request for a full court review of a lawsuit claiming the insurer misrepresented how much investors stood to gain on certain fixed annuities. The Court of Appeals for the 10th Circuit rejected Security Benefit’s request for an en banc review. An en banc review is heard by all the judges of a particular court and is generally reserved for complex or important issues. The decision to deny the en banc review means the 10th Circuit’s reversal of the district court’s order and remand to the lower court for further proceedings stand. In March, a three-judge 10th Circuit panel ruled 2-1 to revive the proposed class action alleging Security Benefit Life Insurance Co. engaged in fraud and racketeering by misleading investors in its Secure Income Annuity and Total Value Annuity products.

More than 60% of advisor respondents reported an increase in their firm revenue after adding annuities.

InsuranceNewsNet Magazine » December 2023

Source: DPL Financial Partners

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ANNUITY

Not all annuities are equal: Answers to client questions Helping clients find the annuity that best meets their needs. By Rich Lane

ow can you help a client choose an annuity? Who’s the right fit for an annuity with an enhanced death benefit rider? Here I provide InsuranceNewsNet with answers to some frequently asked questions about annuities. Q: Why are annuities particularly attractive to discuss with clients now? A: The recent rise in interest rates has helped on two fronts. With fixed indexed annuities, rates are as high as they’ve been in 10-plus years. So it’s a great opportunity to lock in those rates. People can protect some of the recent gains they’ve made in their portfolios and reduce their exposure to potential downsides. They have a measured opportunity for growth by way of a fixed indexed annuity. At the same time, higher interest rates have led to improvements in what insurance companies are offering. When interest rates were squeezed, a lot of insurance companies cut back on the features and benefits they included in their annuities. Now, with interest rates coming back, companies can price products more competitively. And you’re seeing better features, such as enhanced death benefit riders and stronger guaranteed minimum accumulation benefits. Q: Consumers have many choices when it comes to saving for the future. How can advisors help their clients manage their retirement risks? A: I recommend a simple strategy to help clients manage risk — encourage them to focus on diversification. Help them create a portfolio of products that provides principal protection, some measure of upside potential, and a way to protect their wealth and transfer it to their loved ones. 26

For principal protection, one of the safest moves is to choose an insurance product such as a fixed annuity or a fixed indexed annuity. Fixed annuities guarantee principal protection, and they’re a good alternative to bonds. Fixed indexed annuities may provide more upside growth potential than fixed annuities. They offer some market participation, while at the same time providing protection from market losses. A fixed indexed annuity with an enhanced death benefit rider can help clients maximize their growth potential while also giving them the option to leave a lasting legacy. Q: What’s happening in the macro environment that makes annuities a more integral part of a client’s portfolio? A: People tend to become more conservative as they get older. That’s why fixed annuities can play a larger part in

company that issues the annuity. Another important factor is to consider riders that can adapt to a person’s changing needs over time. Explore income and death benefit riders for clients looking to meet income or wealth transfer goals. Q: What can a death benefit-focused annuity do for your clients’ retirement savings? Who is the right client for this benefit? A: A death benefit rider in an annuity can help clients maximize what they pass along to their heirs. It’s precisely for that person who wants to accumulate and transfer wealth to beneficiaries. We think of an annuity as a “live-on” benefit. We think of life insurance as a “leave-on” benefit. An annuity with a death benefit rider is for those who want to start viewing their live-on assets as leave-on assets. The purpose behind the

Living and death benefit riders are optional add-ons to an annuity contract that clients may buy for an extra fee. A living benefit rider guarantees a payout while the annuitant is still alive. A death benefit rider protects beneficiaries against a decline in the annuity’s value. a client’s portfolio. A massive number of baby boomers is looking for that protection. Pure population demographics are driving the demand for annuities. They’re shifting their money from equities to products with more protection. The demand has been there for the past few years, but we expect 2023 to be the biggest year ever for sales of fixed indexed annuities. Q: What are the most important factors to consider when helping a client select an annuity? A: There are many factors, but here are the ones I think are important to explore: risk tolerance, liquidity, longevity and the financial strength of the insurance

InsuranceNewsNet Magazine » December 2023

product matters, particularly if the product qualifies as a legacy asset. The reality is that not everyone can qualify for life insurance. Or they may qualify but hesitate to go through the process of obtaining it. An annuity with a death benefit rider allows people to set aside funds that will grow and serve that legacy purpose. Q: What is the process for determining the death benefit amount in a fixed indexed annuity with a death benefit rider? A: A typical fixed indexed annuity uses the account value as the death benefit. Enhanced death benefit riders offer beneficiaries a death benefit greater than

NOT ALL ANNUITIES ARE EQUAL: ANSWERS TO CLIENT QUESTIONS ANNUITY what’s included in the base annuity policy. Most death benefit riders provide growth by applying a set percentage, referred to as a rollup rate, or by applying some type of growth factor to the performance of the underlying indices. Recently, providers have been combining these two strategies. This offers opportunities for guaranteed growth in declining markets and performance-based growth in positive markets, further maximizing the growth potential of the death benefit. Q: How does the death benefit rider impact the overall growth potential and surrender value of the fixed annuity? A: Annuity issuers may charge a fee for a death benefit rider, which results in a reduction of the account value. But it’s important to remember that in exchange for this fee, annuity owners receive valuable benefits that may accumulate over time. Q: Are death benefits flexible when it comes to payout options or beneficiary designations?

A: A death benefit should be payable in a way that serves the beneficiary’s needs or satisfies the annuity owner’s intention. Again, it comes down to the annuity owner’s legacy goal, whether the designated beneficiary is a loved one, a church or a favorite charity. And the best-case scenario is a death benefit that offers flexible payout options, such as a lump-sum payout option with no reduction in value. This is important because some death benefits require a payout over a specified period, like five years, or a reduced payout if the beneficiary chooses a lump-sum option. Q: Are there any age or health restrictions that affect a person’s eligibility to add or benefit from a death benefit rider? How does the rider handle issues such as preexisting conditions or changes in health status? A: There is usually no medical underwriting involved when you select a death benefit rider. Compared with a life

insurance policy, buying an annuity with a death benefit rider is a less invasive way to secure a legacy for your beneficiaries. Annuity issuers usually have issue age requirements. The maximum issue age for death benefit riders is generally 75 to 80. Q: How can advisors discuss annuity rider fees with their clients? A: The first step is to identify the primary purpose of a client’s intent to buy an annuity. Is it for protection, growth, income or legacy? After you determine the intent, you can better assess the trade-off between the fee and the benefit. Fees are only an issue in the absence of value. And an annuity with an enhanced death benefit rider offers great value. Rich Lane is the vice president of individual annuities sales and marketing at The Standard. Contact him at rich. lane@innfeedback.com.

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No required fees. If your clients are looking for guaranteed income, accumulation potential or to leave a legacy, look to American Equity for a solution. Annuities and Rider issued under form series IncomeShield Series: ICC22 BASE-IDX-B, ICC22 IDX-11-10, ICC22 IDX-10-7, ICC20 E-PTP-C, ICC20 E-PTP-PR, ICC20 E-MPTP-C, ICC16 R-MVA, ICC20 R-LIBR-FCP, ICC20 R-LIBR-FSP, ICC20 R-LIBR-W-FSP, ICC20 R-LIBR-W-FCP, EstateShield 10: ICC21 BASE-IDX-MSP, ICC20 MSP-10, 21 MSP-10, ICC20 E-MPTP-C, ICC20 E-PTP-C, ICC20 E-PTP-PR, ICC16 R-MVA, ICC21 R-LIBR-W-BAV, ICC20 R-EBR, AssetShield Series: ICC22 BASE-IDX, ICC22 IDX-10-10, ICC22 IDX-10-7, ICC22 IDX-10-5, ICC20 R-ERR, 21 R-ERR, ICC18 E-MPTP-A (Patent Pending), ICC20 E-MPTP-C, ICC20 E-PTP-C, ICC20 E-PTP-PR, ICC18 R-WSC, ICC20 R-EBR, ICC16 R-MVA, FlexShield 10: ICC21 BASE-IDX-SP, ICC21 IDX-12-10, ICC21 E-SC, ICC20 R-EBR and state variations thereof. Availability may vary by state. LIBR with Wellbeing Benefit not available in California. Guarantees are based on the financial strength and claims paying ability of American Equity and are not guaranteed by any bank or insured by the FDIC. Other retirement solutions may also support similar goals. Each client has specific needs that should be discussed with a qualified legal or tax advisor. American Equity Investment Life Insurance Company® does not offer legal, investment or tax advice.

01AD-INN-MAG1223 11.27.23 For Agent use only. Not for use in solicitation or advertising to the public.

American Equity Investment Life Insurance Company® 6000 Westown Pkwy, West Des Moines, IA 50266 December 2023 » InsuranceNewsNet Magazine 27 ©2023 American Equity. All Rights Reserved. www.american-equity.com ● Call us at 888-221-1234

HEALTH/BENEFITSWIRES

Are employees using their workplace wellness benefits? Employers are offering financial well-be-

ing benefits to their workers, but employers and workers are not always on the same page when it comes to offering and using those benefits, the Employee Benefit Research Institute reported. Most benefit decision-makers and workSource: EBRI ers agree that their company has a responsibility to ensure their employees are mentally, physically and financially well. EBRI’s recent workplace benefits survey showed 96% of those surveyed said their company is responsible for keeping their workers mentally healthy and emotionally well. That was followed by 95% who said their company is responsible for ensuring workers’ physical health and wellness. Ninety-two percent said their company is responsible for keeping workers financially secure. However, employees are not necessarily engaged with their financial wellness benefits, the survey showed. The main reason is a lack of understanding of how those benefits work. Other top reasons include the cost of those benefits to the employee and employee reluctance to disclose their financial issues to their employer. But the timing and shape of final legislation this year may depend on the need for revenue in an end-of-year package.

INFLATION FORCES AMERICANS TO DELAY MEDICAL CARE SOME HEALTH CARE LEGISLATION COULD STILL PASS CONGRESS

The leadership turmoil in the U.S. House of Representatives ate up a lot of the congressional calendar and clouded the outlook for passing health care legislation this year. However, there’s also a lot of momentum in Congress behind the health policy work that already has been done, so some health care reforms “have a chance of hitching a ride on a big catch-all bill at the end of the year. And legislation that doesn’t cross the finish line this year will carry over to next year.” That was the word from Geoff Manville, partner at Mercer, during a recent webinar that provided an update on health care law and policy. Drug pricing reform legislation has bipartisan support in Congress and backing from employers, Manville said. DID YOU

KNOW

Stubborn inflation and rising health care costs are causing many Americans to lose confidence in their ability to pay for care and maintain their well-being in retirement, Nationwide Retirement Institute reported. More than half of respondents (59%) lack confidence in their ability to pay for health care costs as they age, and 57% worry about their ability to pay for caregiving for their partner or spouse.

Of adults, 60% said they chose or would choose a health insurance policy with a lower premium but higher deductible. Source: Nationwide Retirement Institute

In addition, Americans are making tough decisions about their health care, and those decisions are fueled by financial uncertainty. Nearly 1 in 5 adults (18%) have

QUOTABLE

It’s particularly concerning to think of older adults not having health insurance. — Nathalie Huguet, Oregon Health & Sciences University

postponed health care actions such as a medical procedure, physical exam or renewing prescriptions in the past 12 months to save money. To find additional savings, 10% of Americans — including 19% of Generation Z, 11% of millenials and 14% of Generation X — say they are considering downgrading their health insurance plan because of high inflation.

1 IN 4 OLDER, LOW-INCOME AMERICANS WITHOUT COVERAGE

Roughly a quarter of low-income adults over age 65 have no medical insurance, a report from Oregon Health & Sciences University revealed. The study found that it was more common for Hispanic Americans to lose insurance coverage at 65. Medicare requires participants to be U.S. citizens or permanent legal residents. Undocumented immigrants are unable to receive this health coverage. In addition, patients with low incomes may be unable to afford Medicare premiums. The study also revealed that patients are often diagnosed with new chronic health conditions like diabetes or high blood pressure after they become eligible for Medicare. In all, about 86% of patients studied had two or more chronic health conditions after they turned 65 — compared to 77% of patients younger than 65. Patients who had been uninsured and then obtained Medicare were diagnosed with more new chronic conditions than patients who had insurance before enrolling in Medicare, the study’s authors said.

20% of employers that offer health insurance and have 200 to 999 workers provide on-site or near-site clinics.

InsuranceNewsNet Magazine » December 2023

Source: KFF

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December 2023 » InsuranceNewsNet Magazine

Financial facts and figures powered by AdvisorNews.com

Money trumps marriage for young adults What is financial First comes love, then comes marriage? Not so fast! Today’s young adults are more likely to believe that financial stability is a stronger determinant of personal happiness than their spouse, according to the latest Consumer Spending & Saving Index from MassMutual. Despite younger people’s conviction that financial stability is essential to their personal happiness, the survey reveals that many are not practicing what they preach.

freedom?

• Living debt-free: 54.2% • Living comfortably but not necessarily being rich: 50% • The ability to regularly meet all their financial obligations and still have some money left over each month: 49.3% • Never having to worry about money: 46.2%

Source: Achieve Nearly half of Generation Z (45%) say they are not saving enough to retire at their ideal age, while 53% of millennials and Generation X said the same thing. More than a third of those with student loan debt used

funds earmarked to pay down their debt to purchase consumer goods during the federal student loan payment pause. Nearly one-third of millennials (31%) and Gen Z (32%) said they have followed financial advice from social media in the past three months. The most common sources of social media advice are Instagram (56%), YouTube (54%), Facebook (49%) and TikTok (46%).

Many Americans feel financially defeated Faced with a wide range of financial challenges including high inflation, high credit card debt and the repayment of student loans, it’s not surprising to learn that many Americans are feeling financially defeated. According to a survey by Achieve, a personal financial organization, only 1 in 10 surveyed said they are living their definition of financial freedom. Why are so many feeling defeated? The high costs of goods and services, record high interest rates, credit card debt surpassing $1 trillion and student loan debt repayment are stretching Americans’ wallets, said Andrew Housser, Achieve’s co-founder and co-CEO.

More people raiding their retirement funds

More Americans are taking money out of their 401(k) accounts to pay for emergencies, Fidelity Investments reported. Hardship withdrawals from Fidelity Investments 401(k) accounts have tripled in five years, the investment

firm said recently. The share of plan participants withdrawing funds rose from 2.1% in 2018 to 6.9% in 2023. 30

InsuranceNewsNet Magazine » December 2023

Americans unsure about managing retirement funds

It’s bad enough that Americans feel they will have insufficient funds for retirement. Many current and future retirees also believe they don’t know how to manage the retirement investments they already have.

Western & Southern Financial Group, along with LIMRA, conducted a study that showed nearly half (47%) of retirees and pre-retirees are either only slightly (30.5%) or not at all (16.7%) confident they can manage their own investments throughout retirement. Regarding the top concerns in retirement, retiree and pre-retiree survey respondents cited the same top four but ranked them differently. For retirees, their foremost worries are Social Security cuts (61%), inflation (60%), running out of money (54%) and health care costs (46%). For pre-retirees, their great-

est fears are running out of money (70%), health care costs (57%), inflation (54%) and Social Security cuts (49%).

The more things change ... Both pre-retirees and retirees rely on the same information sources for financial decisions: general financial websites (55%), financial professionals (52%) and spouse/partner/ family/friends (43%). Source: Western & Southern, LIMRA

Vanguard reported that hardship withdrawals doubled in a four-year span, from a monthly rate of 2.1 transactions per 1,000 participants in 2018 to 4.3 in 2022. Housing and medical costs are the leading reasons for hardship withdrawals, according to Vanguard data. In 2022, 36% of withdrawals went toward avoiding foreclosure or eviction, and 32% covered medical expenses.

AIG posted a strong third quarter based in part on strong annuity sales

Indexed annuity products power sales surge through Q2, set records

Your # Source for INSURANCE NEWS Annuities: Maximizing retirement income in 2023 and beyond

Allstate Corp. rebounded from a challenging Q2 to post a profit that beat Wall Street expectations.

Advisor says SEC has no authority to regulate his insurance sales

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ADVISORNEWS

Investors bullish on AI as a financial advisor tool Financial advisors believe that generative AI — as it develops and matures — could be a game changer. • Ayo Mseka

he majority of investors surveyed believe that artificial intelligence is a game changer and will enable them to better serve their clients. Seven out of 10 of investors believe that AI is a game changer for investors and traders, and nearly three out of four (74%) believe it will help financial advisors better serve their clients, according to a recent Morgan Stanley Wealth Management individual investor pulse survey. In addition, over three out of five (63%) would be interested in working with an advisor who leverages it. But AI will not take the place of human 32

guidance, the survey said. Over four out of five investors (82%) believe that it will never replace human guidance, and nearly nine out of ten (88%) agree that the human-to-human advisor relationship is extremely important.

Young investors most enthusiastic about AI

And, perhaps not surprising, enthusiasm for AI is the most pronounced among younger investors. In particular, 35-to44-year-old investors are more enthusiastic than the general population in their views that: • AI will be a game changer (87% vs. 72%). • It will help advisors better serve clients (89% vs. 74%).

InsuranceNewsNet Magazine » December 2023

• An advisor who uses AI will be desired (85% vs. 63%). • A I will not replace the advisor/client relationship (84% vs. 82%). “While AI is clearly groundbreaking and we are just scratching the surface of its potential impact within financial services, this data aligns with an insight we’ve known for some time: The clients who are most engaged with their financial advisors are also the most satisfied,” said Jeff McMillan, head of analytics, data and innovation for Morgan Stanley Wealth Management. “Within this context, AI should be viewed not as a replacement of human guidance but as a powerful tool to help turbocharge a financial advisor’s

INVESTORS BULLISH ON AI AS A FINANCIAL ADVISOR TOOL ADVISORNEWS

practice management and client interaction capabilities.” “Our goal is to arm our financial advisors with innovative technology that can help them be more efficient in their practices, giving them more time to do what they do best—serve their clients,” added Vince Lumia, head of field management for Morgan Stanley Wealth Management. “It’s encouraging to see excitement for artificial intelligence tools, not just within the financial advisor ranks but among investors as well.”

Improved information retrieval cited

When asked what possible implications AI might have for advisors, a Morgan Stanley spokesperson said that the company’s use case, AI @ Morgan Stanley Assistant, is a resource to efficiently source and retrieve internal information, and Morgan Stanley’s proprietary research and analysis in response to its advisors’ questions. In addition, the spokesperson said that “a stream of interactions and feedback have helped us understand and refine how we can best leverage the technology we have deployed in getting advisors the insights they need, in the format they need, near instantaneously ... all to help more deeply enrich the relationships they have with their clients.” And how can advisors use AI to better serve their clients? The Morgan Stanley spokesperson said that as noted above, in the third quarter of this year the company rolled out its AI @ Morgan Stanley Assistant.

This is an internal-facing service that leverages OpenAI technology and Morgan Stanley’s vast intellectual capital to deliver relevant content and insights into the hands of financial advisors in seconds, helping drive efficiency and scale. Advisors can use AI @ Morgan Stanley Assistant to synthesize and organize insights and knowledge, which will free up valuable time for them so that they can serve their clients better.

Advisor’s role is still critical

Another survey, this one by the CFP Board, backs up what the Morgan Stanley survey found — AI will not take the place of human guidance. The “CFP Board Consumer Sentiment Survey — Trust, but Verify,” found that only 1 in 3 investors (31%) feel comfortable implementing financial planning advice from a generative AI-powered tool without verifying it with another source. Once financial planning advice from a generative AI tool has been verified by a financial planner, 52% of all investors are comfortable in acting on that advice. And when it comes to implementing that advice, investors of all ages are cautious. Only about 1 in 10 under the age of 45 (8%) say they would be very comfortable in implementing advice solely from a generative AI tool, while 15% of older investors concurred. In addition, the survey noted that men are more optimistic about the potential impact new technologies will

have on the financial planning profession in the near term. Nearly one-third of men surveyed (31%) describe themselves as “hopeful” about the impact AI could have on financial planning, compared with 19% of women. Additionally, women are more likely to describe themselves as “skeptical” (37%) than men (29%). However, both men and women report feeling more comfortable with the financial advice received from generative AI than from other new sources and agree that verification with an advisor is key. Most men (57%) and women (47%) say they would be at least “somewhat comfortable” in implementing financial advice from a generative AI tool such as ChatGPT or Bard if verified by an advisor. Both men and women also believe that generative AI — as it develops and matures — could be a helpful tool for financial advisors. More than half of respondents (52%) believe that generative AI tools and social media will supplement financial planning advice from advisors in the next three to five years. 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.

Only 1 in 3 investors (31%) feel comfortable implementing financial planning advice from a generative AI-powered tool without verifying it with another source.

December 2023 » InsuranceNewsNet Magazine

INSIGHTS

71% More than 850 financial services companies in70% more than 70 countries turn to LIMRA first to 67% 62% 61% 61% help them build their businesses and improve their 57% performance.

68%

Advisors play critical role in retirement planning 37%

31%

62%

58%

53%

48%

45%

37%

36% 25%

23%

21%

15%

Determ ined Calculated the Determ ined Determ ined Estim ated how Determ ined Developed a No what my am ount of what my Social what my ma ny years healthcare specific plan or income will be assets and Security expenses will my a ssets and coverage strategy for in retirem ent investments I benefits would be in investments (including generating will have be at different retire ment will last in Me dicare income from available to retire ment retire ment options and/or my retiremen t spend in ages private savings retire ment insurance) in retire ment

Research indicates that working with a financial advisor correlates with more positive retirement experiences.

71%

70% 61%

37%

61%

31%

62% 57%

53%

25%

No plan

45% 36%

By Jonah Morales

58% 48%

Informal plan 62%

37% 23%

IMRA’s 2023 Retirement Investors Survey shows that ongoing guidance from financial advisors remains essential as Americans approach and enter retirement. Changes in the way retirees generate income suggest an even more important role for financial advisors in the years to come. Although most current retirees rely primarily on guaranteed sources like Social Security and pensions for income, the survey highlights room for improvements that advisors are uniquely positioned to address. Around a quarter of retirees surveyed this year do not receive sufficient guaranteed lifetime income to cover basic living costs without tapping into their savings. Although this proportion has remained similar for more than a decade, the long-term trend away from traditional defined benefit pensions suggests that future retirees will have greater challenges in generating guaranteed income. Current pre-retirees agree, as less than half believe they will have sufficient guaranteed income sources in retirement. For the sizable minority of retirees who report shortfalls between guaranteed income and basic costs, withdrawals from savings are a common approach. However, this approach risks depleting assets before death, due to unknown life spans. Advisors can demonstrate more sustainable drawdown techniques or guaranteed income substitutes to preserve peace of mind in retirement. Although annuities present an appealing strategy for addressing income gaps, fewer than 1 in 5 retirees receive annuity income. Among those receiving distributions from qualified accounts, only a small minority do so through guaranteed

Formal written plan

68%

67%

21%

33%

15% 2%

Determ ined Calculated ined Determ ined Estim atedhow how Determined Determ ined Determined Calculated the Determ Determined Determined Estimated health Developed Developed aa None Noneofofthese these what my my the what my many care coverage specific specificplan planor what amamount ount of whatwhat mymy Social what my ma nyyears years healthcare income will will be assets and Social Security expenses expenseswill my myaassets Medicare strategy or strategyfor for income be of assets and Security ssetsand and (including coverage retirement investments I benefits benefits would will investments options and/or generating ininretirem ent investments would bebeinin investments (including generating Iwill will have have be at at different retirement will last private insurance) income income from be different retire ment will lastinin Me dicare from available retirement ages retirement in retirement my retirement t available to retire ment retire ment options and/or my retiremen tospend spend in in savings ages private savings retirement retire ment insurance) in retire ment in household investable assets. Based on 2,831 retirees and 1,669 non-retired workers aged 40 to 75, with at least $100,000

Multiple (except for “None ofplan these”) allowed. Formalresponses written plan Informal No plan

lifetime payments. Advisors are well positioned to expand appropriate annuity use by explaining how different annuity options can enhance financial resilience in retirement, especially as an increasing number of defined contribution plans begin to offer them. The research also indicates that working with a financial advisor correlates with more positive retirement experiences. About 60% of investors report they typically consult with an advisor on financial decisions, with higher percentages reported among investors who have more wealth. Advisors play a key role in creating a comprehensive, formal written plan for managing income, assets and expenses throughout retirement. Among investors who have these plans and are working with advisors, 94% of plans were created with an advisor’s help, suggesting that most investors are not willing or able to develop a truly comprehensive plan on their own. Having a formal written plan is associated with completing key retirement planning activities, as opposed to having informal plans or no plan for retirement. When advisors develop formal written retirement plans for clients, retirees tend to rely on more varied, balanced sources of income as well as strategies such as annuitization that provide reassurance and stability in retirement. The ongoing value of advice is clear as personal responsibility for finances grows.

InsuranceNewsNet Magazine » December 2023

Planning for retirement timing is another crucial step that advisors can assist with. On average, current retirees report retiring around age 62, with the most common ages being 65 and 62. Younger retirements are aligned with benefit eligibility, while others retire as soon as they feel financially secure. Pre-retiree workers also signal an ongoing need for advice. Although most plan to retire by age 65, more than one-quarter envision working part time after age 65, which could be an unrealistic assumption given that few current retirees report earnings. Advisors can help clients determine whether projected resources truly support their desired retirement timelines based on individual circumstances. As guaranteed income sources evolve and both retirees and workers transition to self-directed retirement models, advisor guidance on optimizing Social Security, annuitizing balances, managing nonqualified and qualified savings, and developing individualized income strategies becomes more imperative. Ongoing retirement education and support will remain important for clients of all stages, given the changing needs highlighted in LIMRA research. Jonah Morales is a research analyst, insurance and annuity research, LIMRA. Contact him at jonah.morales@innfeedback.com.

INSIGHTS

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

Financial security challenges require united efforts The merger of NAIFA, the Society of Financial Service Professionals and Life Happens is one way of addressing the financial challenges American consumers face. By Diane Boyle

n intersection of crises threatens the financial well-being of millions of American families and carries stark implications for the U.S. economy. In short, Americans are not prepared to face inevitable financial setbacks, they are woefully underprepared for retirement and they lack the professional help they need to navigate these challenges. Americans traditionally relied on a combination of Social Security, employer-provided pension plans and personal savings to provide financial security in retirement. Yet each of these pillars of support is under strain or fading away entirely. Social Security, by design, would replace only about 40% of an average retiree’s pre-retirement income. But Social Security benefits aren’t what they used to be. Since 2000, cost-of-living adjustments have failed to keep pace with inflation, meaning that the Social Security supplement has lost approximately 34% of its buying power. Defined benefit pension plans, meanwhile, are going the way of the dodo. In 1980, nearly 40% of private employers offered pension plans to employees. Today the percentage has fallen to less than 15%. In place of defined benefit plans, defined contribution plans such as 401(k) accounts, have shifted the burden of financial planning to employees. This is not necessarily a bad thing, but unfortunately the average American is a terrible financial planner. The typical working-age household has a meager $3,000 in a defined contribution plan, according to the National Institute for

Retirement Security, and nearly 40 million households have no retirement savings. Legislation such as the SECURE Act and SECURE 2.0 will help, but they still rely on workers to make good retirement planning decisions. Meanwhile, personal savings are not making up the shortfall. The Federal Reserve reports that the average household has $41,600 in savings. When we look at the median, that total falls precipitously to $5,300. According to the Employee Benefit Research Institute, a staggering 47% of households are at risk of not having enough money to cover basic expenses in retirement. Help is available, but not everyone is taking advantage of it. Only about 35% of Americans work with a financial advisor while nearly two-thirds say that their financial planning is inadequate, a Northwestern Mutual study revealed. Those who receive professional assistance have much greater confidence in their personal financial security. They are much more likely to say they are comfortable with their ability to achieve long-term financial security, plan for retirement and weather unexpected financial emergencies. That’s why it is vital that NAIFA opposes policy proposals such as the Department of Labor’s efforts to revive its fiduciary-only service model for advisors, which would limit the ability of financial professionals to serve consumers. We also face a looming shortage of financial professionals. The average financial advisor is 55 years old, and about 20% of the profession is 65 or older. More than a third of financial professionals plan to retire within 10 years. Attrition is taking a toll, and not enough young professionals or career changers are filling the ranks.

How do we confront these challenges?

For more than 130 years, NAIFA has been the advocacy voice of insurance and financial professionals on Capitol Hill and in

every state capital and has long served as the advocacy arm of the Society of Financial Service Professionals and Life Happens. With a professional lobbying team and highly engaged grassroots membership, NAIFA has been influential on all manner of legislation and regulations to promote an environment in which advisors are able to effectively serve the American public. Successful advocacy is another crucial means of building the strength of the industry, ensuring that Americans’ financial needs are met and spreading consumer awareness. The leadership and membership of these three organizations have made a historic decision to come together in a merger that will bolster the finest attributes of each. Their combined resources, membership and talent will create synergies in the areas of political advocacy, advisor recruitment and retention, and consumer education. The merged NAIFA, FSP and Life Happens will be more effective at addressing many of the challenges facing both the American public and the insurance and financial services industry. Coming together and working as one creates energy and awareness. It will attack looming financial crises from both the advisor side and consumer side and strengthen our advocacy influence with policymakers who can help solve these problems. Diane Boyle is the senior vice president for government relations at NAIFA. Contact her at diane. boyle@innfeedback.com.

December 2023 » InsuranceNewsNet Magazine

INSIGHTS

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.

Financial security for all, not some There are serious concerns about the rise of the regulatory state and the impact it will have on an already challenging compliance burden. By Marc Cadin

e have a $12 trillion protection gap, and there are tens of millions of Americans who have little to no retirement savings. Finseca is about delivering financial security to all, but achieving that is only possible if we all work together toward that goal. We need policymakers and regulators to come alongside financial security professionals so their work can reach more people, not fewer. But we have serious concerns about the rise of the regulatory state and the impact it will have on an already challenging compliance burden. For example, if the Securities and Exchange Commission wins its ongoing legal challenge in SEC v. Cutter, more compliance and greater regulatory burdens may be coming your way. Finseca formally opposes the SEC’s actions, and you can read our legal brief at finseca.org. Similarly, we’re very troubled by the news that the Department of Labor has submitted the final version of its independent contractor rule, which could deprive advisors of the right to do business as independent contractors, as well as their efforts to resurrect a new fiduciary rule. We took enormous strides forward earlier this year when we got SECURE 2.0 signed into law with overwhelming bipartisan support. But if the SEC and/ or the DOL successfully move these misguided efforts forward, they would unquestionably harm consumers and monumentally set back our movement. These initiatives, put simply, would enhance the regulatory burden on the very men and women working to help people find peace of mind. Fewer Americans will 36

have access to the advice and products needed to achieve financial security. Finseca believes in appropriate levels of regulation to ensure consumers are protected. Still, excessive compliance and regulatory burdens lead to fewer Americans being financially secure. President Joe Biden knows the struggle so many are facing. Last July, he reminded us, “People around the country wake

through things such as annuities are in a significantly better position to absorb the challenges that life throws their way. We need to encourage more Americans to pursue holistic financial plans. We need to connect more Americans with financial security professionals. We need to exponentially grow the financial security profession and make their jobs easier, not harder. We must remember that our work will only be done when every American can put their head comfortably on their pillow at night, knowing they have a plan in place and they will be OK. Finally, although this Department of Labor fiduciary rule effort is likely well intentioned, it is a solution in search of a problem that has already been addressed. Since the DOL’s last attempt to do this,

We need to encourage more Americans to pursue holistic financial plans. We need to connect more Americans with financial security professionals.

up every day wondering whether they’ve saved enough to provide for themselves and their families before they stop working.” He asked us, “Think of all the people saying, ‘Am I going to be all right? Is my family going to be all right? Is my wife or my husband or my child, are they going to be OK?’” Financial security professionals put an end to those worries. And as a recent Ernst & Young study shows, 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 with life insurance, investments and guaranteed streams of lifetime income

InsuranceNewsNet Magazine » December 2023

there are now 40 states (representing more than 70% of U.S. consumers) that have adopted the best interest enhancements to the National Association of Insurance Commissioners Suitability in Annuity Transactions Model Regulation and the SEC’s adoption of Reg Best Interest, which greatly enhanced the standards financial professionals must follow. Financial security for all is only possible by expanding access and choice — not limiting them. Marc Cadin is the CEO of Finseca. Contact him at marc.cadin@ innfeedback.com.

INSIGHTS

FSP is a multidisciplinary organization where financial professionals can build their professional network, enhance their knowledge base and grow their practice.

Changing exemptions for life insurance sales in qualified plans What two prohibited transaction exemptions will mean to advisors and clients. By Ernest Guerriero

ife insurance in qualified retirement plans is a useful strategy to provide a pre-retirement death benefit to participants and their beneficiaries. This can possibly self-complete a retirement plan for survivors as well as use a noncorrelated asset in overall portfolio diversification. But regulatory change that could tighten up the rules governing these sales is in the works. Since 2010, much attention has been focused on protecting individuals from conflicted retirement plan advice. A fiduciary rule published in the Federal Register on April 8, 2016, would have phased in the rule that would take effect Jan. 1, 2018. Eight industry trade groups challenged the new rule and back-and-forth guidance with changing administrations. Fast-forward to Jan. 1, 2018 — the fiduciary rule went into effect. As of the writing of this article in early October, the Department of Labor sent the latest revision of the fiduciary rule to the Office of Management and Budget for review. It is hard to determine what is in this latest version; public view was planned for some time in October. Some industry speculation has a view that transfers and rollovers from qualified retirement plans to individual retirement accounts and fixed products (life insurance and annuities) will be subject to more stringent conditions. What this means to advisors establishing qualified retirement plans is that you are likely a fiduciary and must comply with “impartial conduct standards.” Generally, you must (i) provide advice that is in the best interest of the individual, (ii) charge no more than reasonable compensation and (iii) make no misleading statements.

There are many dealings with a qualified retirement plan that are prohibited, and unless there is a prohibited transaction exemption, the advisor, acting in a fiduciary capacity, and any other plan fiduciary are prohibited from certain actions with the plan. For purposes of this article, common prohibited transactions including receiving compensation from the plan or buying and selling life insurance or annuities to or from the plan. However, there are two PTEs — specifically PTE 2020-02 and PTE 84-24 — that allow such actions.

A full discussion of both PTEs is beyond the scope of this article. The two PTEs mentioned previously deal with variable market-driven investments and fixed insurance company investments. Under PTE 2020-02, if the advisor is considered a fiduciary, then they must comply with the PTE and: 1. Acknowledge their fiduciary status in writing. 2. Disclose their services and material conflicts of interest. 3. Adhere to “impartial conduct standards,” essentially that the advice is in the best interest of the individual. 4. The insurance company and the advisor receive no more than reasonable compensation. 5. Make no materially misleading statements. When adding fixed life insurance company products to the asset lineup (life

insurance and/or fixed annuities), the advisor would need to rely on PTE 84-24, which applies to insurance sales. It also applies to the receipt of commissions. Under PTE 84-24, the sale of insurance products and the receipt of commissions require that: 1. The transaction must be affected by the insurance company or agent in the ordinary course of its business. 2. The transaction must be on terms at least as favorable to the participant as an arm’s-length transaction with an unrelated party would be. 3. The combined total of all fees, commissions and other consideration received by the insurance company or agent must be “reasonable.” 4. The advisor must make certain disclosures to an independent fiduciary of the plan (generally, the plan sponsor or committee), including any affiliation between the agent and the insurance company whose policy is being recommended, the sales commission payable in connection with the recommended transaction, and any other costs associated with the purchase, holding, exchange, termination or sale of the recommended contract. 5. The independent fiduciary must approve the transaction in writing. Depending on what happens with the drafting of this latest revision, it would appear PTE 84-24 would be more aligned with PTE 2020-02. Stay tuned. Ernest J. Guerriero, CLU, ChFC, CEBS, CPCU, CPC, CMS, AIF, RICP, CPFA, is the past national president of the Society of Financial Service Professionals. He is the director of qualified plans, business markets for Consolidated Planning. Contact him at ernest.guerriero@innfeedback.com.

December 2023 » InsuranceNewsNet Magazine

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