InsuranceNewsNet Magazine - February 2014

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Life Annuities Health Financial

February 2014

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FEBRUARY 2014 » VOLUME 7, NUMBER 2

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IN THIS ISSUE

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46

46 I ndexed Annuity Commissions Drop to All-Time Low in Report

INFRONT

8 Bill Signals Congressional Aim to Step Up Advisor Scrutiny

22 The Return of the Health Advisor

By Susan Rupe Health insurance advisors are finding that they are needed more than ever, as the public needs professional expertise to guide them in obtaining health coverage.

By Cyril Tuohy While the number of investment advisors has increased in the past 30 years, SEC examination capabilities haven’t kept up.

12

34 Dearly Departed: How to Help Clients Deal with Grief By Linda Koco Delivering the death benefit can be an awkward situation for both the advisor and the beneficiary. Here is some advice on how to handle it with compassion.

By Cyril Tuohy Carriers are adapting to the online world while holding on to the traditional sales channels in an effort to reach consumers who want to buy insurance their way.

FEATURES

12 B ig Branding for Small Companies

2

HEALTH

LIFE

36 Digital or Analog? Life Insurers Have to Do Both

An interview with Al Ries A brand is the glue that holds the rest of your marketing efforts together. That is one of the lessons taught by Al Ries, who has spent the past 40 years helping companies large and small to refocus their branding. In this interview with InsuranceNewsNet Publisher Paul Feldman, Ries gives you some ideas on how you can be first in your prospect’s mind.

By Linda Koco If commissions continue to drop, at what point will this force agents and distributors out of the business or spur them to adopt new practices that enable them to continue?

ANNUITY

42 A Split Annuity Strategy Can Cut Tax Impact on an IRA

InsuranceNewsNet Magazine » February 2014

By Lloy d Lofton A split annuity strategy can reduce the Roth conversion tax to a more acceptable amount while allowing IRA owners and their heirs to enjoy the many advantages of a Roth IRA.

52 52 S eeing Around the Corner to 5 Trends in Voluntary Benefits By Elizabeth Halkos When you offer employers products that help them to improve employee recruitment and retention, you improve your bottom line as well.

FINANCIAL

56 The 10x Formula to Grow Your 401(k) Business By Charlie Epstein In every dollar of retirement revenue an advisor generates from the 401(k) assets they manage, there is 10 times that amount of revenue available to be generated from ancillary business opportunities.


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ALSO IN THIS ISSUE FEBRUARY 2014 » VOLUME 7, NUMBER 2

61 NAIFA: Living Benefit Riders Open up Possibilities for Your Client By Michael Smith Here’s a sales idea for the long-term care/chronic illness rider.

58

62 L IMRA: The Independent Advisor: One Size Does Not Fit All

BUSINESS

By Donna B. Chaffin and Emily Tracey Understanding the needs of the independent advisor is crucial for carriers that want to place more business through that channel.

58 H ow to Execute Your Business Plan By Todd Colbeck Implementing an effective time management system and getting your staff involved are key to putting your business plan in action successfully.

64 R emembering a Diamond in the Industry

INSIGHTS

By Larry Barton Al Granum developed a client management system that helped tens of thousands of agents bring life insurance to millions of consumers.

60 MDRT: Despite Changing Direction, Take the Compliant High Road By David Goldfarb Make sure your group health clients are notified of the changes being mandated this year as part of health care reform.

EVERY ISSUE 6 Editor’s Letter 20 NewsWires

32 LifeWires 40 AnnuityWires

50 HealthWires 54 FinancialWires

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

REGIONAL ACCOUNT MANAGER Tim Mader (NORTHEAST) REGIONAL ACCOUNT MANAGER Craig Clynes (CENTRAL) REGIONAL ACCOUNT MANAGER Brian Henderson (SOUTHEAST)

REGIONAL ACCOUNT MANAGER Emily Cramer

Copyright 2014 InsuranceNewsNet.com. All rights reserved. Reproduction or use, without permission of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail editor@insurancenewsnet.com, send your letter to 355 North 21st Street, Suite 211, Camp Hill, PA 17011, Fax at 866-3818630, or call 866-707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, Ext. 115 or reprints@insurancenewsnet. com. Editorial Inquiries: You may e-mail editor@insurancenewsnet.com or call 866-707-6786 ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.insurancenewsnetmagazine.com, or call 866-707-6786, Ext. 115 for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 355 N. 21st Street, Suite 211, Camp Hill, PA 17011. Please allow four weeks for completion of changes.

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SALES COORDINATOR Missy Hepfer MARKETING SPECIALIST Christina I. Keith

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


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LETTER FROM THE EDITOR

Repealing Reason

G

etting down to work and focusing on what’s best for clients. That’s always been the honest and most secure route for success in any field of insurance and financial service. This month’s feature from Assistant Editor Susan Rupe repeats that lesson, this time in exploring agents’ experience in dealing with the tumultuous changes in health insurance. No surprise that the agents doing best had prepared early and were in a strong position to deal with the cascade of catastrophe that was the Affordable Care Act (ACA) rollout. While others were fighting and gnashing their teeth, these folks were learning and repositioning their practices. It’s a lesson the National Association of Health Underwriters (NAHU) learned as well. NAHU initially fought implementation of the ACA, arguing that the law endangered the entire health insurance agent profession. The association had a valid point because at first the law seemed to have left out agents and replaced them with navigators. Later, it became clear that agents would be more important than ever – and that they could get paid under the new system. NAHU also was isolated because the health insurance company association, America’s Health Insurance Plans (AHIP), had jumped on the reform wagon early. That was a surprise to many who remembered that AHIP was a major player in defeating Hillary Clinton’s health reform campaign when she was first lady. Remember the devastating “Harry and Louise” commercials? They were produced by Health Insurance Association of America, a forerunner of AHIP. So why did AHIP join up? The association recognized that universal health coverage was coming, so the insurance companies conceded that they would cover everybody regardless of individual factors, including pre-existing conditions. But everybody had to be in the pool to spread the risk, a basic tenet of insurance. Happily, there were plenty of precedents for this. President Richard Nixon proposed an employer mandate in 1974. The conservative Heritage Foundation in 1989 promoted an individual mandate to require personal responsibility for medical liability. That was a major reason that the mandate was an important part of Republican Gov. Mitt 6

Sen. Marco Rubio, R.-Fla., is pushing a bill to overturn an insurance “bailout.”

Romney’s 2006 health insurance reform in Massachusetts, which has been considered successful by many measures. So, you might have expected cheers from conservatives when President Barack Obama and congressional Democrats preserved the role of private insurance in 2010 by including the mandate along with universal coverage in ACA. It might have been especially satisfying because it disappointed many on the left who were pushing for a single-payer system like Medicare. Of course, we know that “hurray” was not the sound that followed the law. As recently as September, radio show host Rush Limbaugh called the individual mandate a “sign of an oppressive, statist, pure socialist government.” More sober-minded conservatives have articulated their opposition less flamboyantly, but it is clear that the war is still on against the mandate and the ACA itself. In fact, the entire enterprise may be entering its most dangerous phase. ACA opponents have their fingers on the thread that could unravel the system and the private health insurance industry. It is the three R’s: risk corridors, risk adjustment and reinsurance. If these sound unfamiliar now, odds are good we will be hearing quite a bit more about them over the next few months. They are part of the ACA meant to help insurance companies through the transition as the law was implemented. After all, it was not difficult to see companies were facing considerable disruption and uncertainty. This is particularly true because of many concessions to compromise, such as the low impact penalty associated with the mandate and extending non-ACA plans for a year. Companies had to price policies without knowing how many young, healthy people would sign up to offset the old, sickly ones. They had to balance stability with competition for lower rates. The three R’s are designed to compensate companies for their losses during the first couple of years to ensure the survival of insurers and the ACA itself. But many are decrying this as a bailout, because, in fact, it is. This is hardly the first time government

InsuranceNewsNet Magazine » February 2014

backstopped the insurance industry. For example, the Terrorism Risk Insurance Act (TRIA) under President George Bush reinsured insurance carriers in cases of terrorism. The United States has a long history of stepping in to help protect an industry in times of uncertainty. So why is this becoming an issue? Because it can defeat Obamacare. People still bent on doing this do not care that this would damage an industry. They don’t mind that Americans would endure another several years of turmoil as a result. They seem OK with a single-payer system being a possible outcome of the ACA’s failure.

Let’s remember what led to the ACA. Let’s remember how the ACA came about. A growing number of people were uninsured and underinsured, basically with worthless coverage. In 2010, 81 million people, 44 percent of adults, were either underinsured or uninsured, up from 61 million in 2003, according to the Commonwealth Fund. The United States is routinely at the top of the list of per capita medical expenses but among the lowest outcomes among developed nations. And even health insurance agents complained about trying to get their clients’ treatment covered in the plans they sold. The system had to change. The answer approved by the three branches of government – Congress, the president and the Supreme Court – was the ACA. It is far from perfect, but the ACA was designed to preserve the private health insurance industry while solving coverage problems. It was a compromise using ideas from across the political spectrum. It seems like a uniquely American solution that preserved the best of this nation. Isn’t that worth keeping? Steven A. Morelli Editor-in-Chief

(Photo: J. Scott Applewhite/AP)

WELCOME


February 2014 Âť InsuranceNewsNet Magazine

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INFRONT

TIMELY ISSUES THAT MATTER TO YOU

Bill Signals Congressional Aim to Step Up Advisor Scrutiny T he GOP does not support the examination legislation. Also, regulatory agencies are looking into retirement funds advice. By Cyril Tuohy

A

bill authorizing the Securities and Exchange Commission (SEC) to increase the number and frequency of exams administered to investment advisors, and to charge advisors a fee to take the tests, received an important endorsement recently but appears to lack support from one key constituency: House Republicans. Introduced in April, the Investment Adviser Examination Improvement Act of 2013 (H.R. 1627), is sponsored by Rep. Maxine Waters, D-Calif., and Rep. John Delaney, D-Md. Five other Democrats have joined as cosponsors. Will the bill die in a legislative committee, beaten back by industry advocates and lawmakers fed up with fees levied on their industry? In 1992 and 1993, the House approved similar fee legislation. Supporters say it is crucial to protecting investors, since the SEC doesn’t have the funds to pay for more examiners to police the 11,000 federally registered investment advisors it oversees. Together, those advisors manage as much as $48 trillion in assets. For all the wealth these advisors control, the typical registered investment advisor (RIA) can expect to be examined only once every 12 to 13 years. The SEC’s annual examination rate of 8 to 10 percent of RIAs a year is not enough, the bill’s proponents say. As many as 40 percent of investment advisors have never been examined. In a 2011 study, the SEC itself noted the importance of administering more investment examinations, and both former SEC Chairwoman Mary Shapiro and current Chairwoman May Jo White have called for more advisor examinations as a way 8

to protect investors. In November, the SEC’s Investor Advisory Committee recommended a user fee. With the growth in the financial services industry paralleling the growth of self-directed retirement in the past 30 years, the number of investment advisors has also increased. SEC examination capabilities simply haven’t kept up. The advisor exam fee bill got a major boost early in December when a powerful coalition of consumer and financial advisor groups also urged Congress to support it. In a letter from the Certified Financial Planner (CFP) Board of Standards to Congress, representatives of financial advisor and consumer protection organizations warned that the inability to administer more frequent exams could lead to more incidents of fraud and abuse, which cost investors hundreds of millions of dollars every year. “We are deeply concerned that the SEC’s current inability to examine investment advisors more frequently increases opportunities for investor fraud and abuse,” the coalition said in the letter circulated in early December. In addition to the CFP Board, the Financial Planning Association, the Investment Adviser Association, the National Association of Personal Financial Advisors, the North American Securities Administrators Association, the Consumer Federation of America and the AARP have come out in support of the bill. With more investment advisors in the marketplace, SEC regulatory actions against “bad apple” advisors have increased as well. The SEC took action against 140 advisors or advisor companies in the

InsuranceNewsNet Magazine » February 2014

Rep. John Delaney, D-Md.

2013 fiscal year, nearly double the 76 actions taken in 2009, according to SEC data. In the five-year period ending in 2012, investor complaints received by the Financial Industry Regulatory Authority (FINRA) dropped to 2,785 from 5,405 in 2008. The number of new disciplinary actions filed rose to 1,541 in 2012 from 1,073 in 2008.

Rep. Maxine Waters, D-Calif.

There were 294 individuals barred in 2012, down from 363 in 2008, but the 549 individuals suspended last year was far higher than the 321 suspended in 2008, FINRA statistics also show. The coalition urging support for the bill cites a 2011 study by the Boston Consulting Group which found broad support


BILL SIGNALS CONGRESSIONAL AIM TO STEP UP ADVISOR SCRUTINY among advisors for a user fee as “the least expensive of the options set forth” in the SEC study. Approximately 81 percent of investment advisors said they preferred SEC oversight rather than FINRA, the BCG survey found. The Investor Adviser Examination Improvement Act would cover the cost of administering exams and inspections. Extra funds would not be considered public funds available for general purposes. The calculation formula would vary ,depending on exam frequency, assets under management, and the number and type of client managed by the advisor. The Comptroller General of the United States would conduct an audit of the fees every two years. In other news on the scrutiny front, the SEC and FINRA have said they will be taking a closer look at advice given when workers roll over their assets from a workplace 401(k) to an individual retirement account. Both agencies said they are looking at agencies practices because, with $5.6 trillion in employer-sponsored

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

INFRONT

“We are deeply concerned that the SEC’s current inability to examine investment advisors more frequently increases opportunities for investor fraud and abuse.”

– From a financial services coalition letter

plans, they are concerned about abuse as people retire. FINRA said brokers should be thinking through several options with the investors, including low-cost funds. They should also be discussing differences in fees. FINRA said a plan participant leaving an employer typically has four options for a 401(k): leave the money in the former employer’s plan, if permitted; roll over the assets to the new employer’s plan, if one is available; roll over to an IRA; or cash out the account value. The participant can

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also combine the options. FINRA focused on retirement funds as its first priority for 2014, issuing a notice reminding agencies of several regulations that included suitability, conflicts of interest and adequate registered representative training. Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@ innfeedback.com.

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February 2014 » InsuranceNewsNet Magazine

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LIFE INSURANCE

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InsuranceNewsNet Magazine Âť February 2014


Introducing PruLife® Founders Plus UL. A flexible, cost-effective alternative to GUL for many of your clients. Along with death benefit protection, Founders Plus offers both an extended no-lapse guarantee and opportunity for growth. And, by adding Prudential’s BenefitAccess Rider*, clients can advance their death benefit if they become chronically or terminally ill, with no restrictions on how the payments are used. To learn more and get your Founders Plus Producer Guide, call 1-800-800-2738 or visit prudential.com/founders

Benefits paid under the BenefitAccess Rider are intended to be treated for federal tax purposes as accelerated life insurance death benefits under IRC §101(g)(1)(b). Tax laws related to the receipt of accelerated death benefits are complex and proceeds may be taxable in certain circumstances. Receipt of benefits may affect eligibility for public assistance programs such as Medicaid. Accelerated benefits paid under the terms of the Terminal Illness portion of the rider are subject to a $150 processing fee ($100 in FL). You should consult your tax and legal advisors prior to initiating any claim. A licensed health care practitioner must certify the chronic or terminal illness to qualify for benefits. Chronic illness claims will require recertification by a licensed health care practitioner. Other terms and conditions may apply. This rider is not long-term care (LTC) insurance and it is not intended to replace LTC. The rider may not cover all of the costs associated with chronic illness. The rider is a life insurance accelerated death benefit product, is generally not subject to health insurance requirements, and may not be available in all states. Accelerating your death benefit will reduce the death benefit on a dollar-for-dollar basis. Full acceleration will eliminate the death benefit and your policy will terminate. All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing company. February 2014 » InsuranceNewsNet Magazine

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InsuranceNewsNet Magazine Âť February 2014


IF

BIG BRANDING FOR SMALL COMPANIES

you think branding is only for big companies, this might surprise you: Big companies don’t brand very well. In fact, individual agents and advisors might serve as better brands for insurance companies than the companies themselves. That’s what one of the top thinkers in branding has to say about the life insurance business. Al Ries has been in the branding business for more than 40 years, first rising to prominence in 1972 with articles in Advertising Age on a new concept called “Positioning” written with his co-author, Jack Trout. Their book, Positioning, took off after it was published in 1981, eventually selling more than a million copies. Since then, they have written Marketing Warfare, Bottom-Up Marketing, Horse Sense and The 22 Immutable Laws of Marketing. Al teamed up with his daughter, Laura, to form Ries & Ries in 1984. Their focus has been branding, with books such as The Origins of Branding. They have helped many of the world’s largest corporations – such as Disney, Ford and H&R Block – to refocus on their branding. In this conversation with InsuranceNewsNet Publisher Paul Feldman, Al reveals how insurance agents and advisors can learn lessons from the branding mistakes big companies make and how they can win against far bigger competitors. FELDMAN: Many of our readers feel that their business is too small to worry about their brand. What goes into a brand and how can that apply to small businesses? RIES: The first thing to know about a brand is that just because it’s wellknown doesn’t necessarily mean it’s powerful. That’s the thing that people miss in marketing. Branding is the glue that holds the broad range of marketing functions together. People think marketing is all about getting famous, when it’s really about owning something in the mind of your clients and prospects. A successful branding campaign program is based on the concept of singularity. It creates in the mind of the prospect the perception that there is no product or service on the market quite like yours. What’s a BMW? It’s the ultimate driving machine. What’s a Chevrolet? A Chevrolet is a large/small, cheap/expensive car or truck – I mean, what is that? It’s nothing. So the first thing an insurance person needs to say to himself

is, what’s my brand? My consulting firm’s brand is focus. We help companies narrow their focus so they can own something in the mind. So, first of all, the person who wants to build a life insurance business has to build a brand. But they go about it trying to think of ways they can get their name out in the community, instead of saying, “What do I stand for? How do I narrow my focus to something?” That’s a very difficult thing for most people to get because, generally speak-

FEATURE

ing, people want to broaden. If they have women as customers, they want to get men. If they have young people, they want to get older people. But, fundamentally, they have to start thinking about what they can focus on. It may be product- or market-oriented, such as “I focus on retired people.” Or maybe it’s an entrepreneurial focus: “I focus on people who are starting businesses and want a way to protect their family in case the business goes south.” Unless you start out with something narrow in mind, you’ll never get yourself famous. FELDMAN: When you’re creating that type of a brand, should it say how you’re serving the market, or should it just say, “Hey, I sell life insurance!”? RIES: There are a lot of issues there. For example, what is life insurance these days? To the average person, what are we talking about? Term? Investment? Burial insurance? We worked with a company that was related to burial insurance. That’s a company called Everest, which is a funeral concierge service. When a subscriber to this service dies, the company handles the details of the funeral, because the worst time of all for a family to plan a funeral is when somebody dies. It’s a very, very emotional, difficult time, so they’re at the mercy of the funeral homes. We picked the name Everest because we used the words “ever rest” as a symbol for dying, and then put them together and used the mountain, Everest, as the symbol for the company, Everest Funeral Concierge Service. Now they have more than 20 million subscribers, mostly

February 2014 » InsuranceNewsNet Magazine

13


FEATURE

BIG BRANDING FOR SMALL COMPANIES

through their life insurance companies. But that’s a very good example of how you can build a very big business by doing what seems to be exactly the opposite of what others in the market are doing, and narrowing the focus on something. You don’t become whatever kind of insurance you want, which is what a lot of insurance agents do. They say, “Whatever you need, I’m your agent.” FELDMAN: Do you think agents can rely on insurance companies to build a brand? RIES: The most important thing about insurance is the agent brand, not the company brand. One of the reasons is that the companies themselves haven’t done a very good job in building their brands. I mean, what’s MetLife? I don’t know. It’s Snoopy, I know that, but aside from that I have no idea what MetLife is. I know what Sun Life is – it’s annuities. That’s one of the few insurance companies that have built a strong brand, so Sun Life did a good job with annuities. And USAA did a good job of saying, “Hey, if you have military experience, we’re the ones for you.” But to the average consumer out there, all the life insurance companies are the same. So as a result, the local agent is still important. Fundamentally, buying life insurance is a personal, one-to-one thing, where the agent sits down with you. And you tend to buy from an agent who you respect and who you think is smart, clever or whatever, so the personality and the name of the agent are important. We have an accounting firm. I’m not exactly sure what their name is. I know the guy we work with – Steinberg – but I mean as far as the name of the company is concerned, he could call himself New York City Accounting Inc. and I wouldn’t know the difference. Steinberg is our guy. FELDMAN: You have said it’s important to be first. First in what? RIES: The first brand in the mind is usually the winner. It’s not necessarily the first brand in the market. Like with Greek yogurt – the first brand that most people know is Chobani. Chobani has made the owner a billionaire, and he started the company six or eight years ago. But, 14

it wasn’t the first Greek yogurt. Fage was the first Greek yogurt, but didn’t get in the mind. It didn’t have a marketing program. Matter of fact, the containers of Fage yogurt didn’t even say Greek yogurt. So that’s the notion of the category – be first in mind. Sun Life wasn’t first in annuities, but it was the first brand of annuity that people knew about. In the same sense that USAA might not have been the first company to market to the military, but it’s the first company that military people knew about. Getting in the mind first is very powerful. Facebook and social media, Google and search, Microsoft and personal computer software. Virtually every big, enormously successful company was first in something. The second rule of marketing is that you become the opposite of the leader. When companies aren’t first, they typically say, “Hey we’re better. We’re better in annuities than Sun Life. We’re better handling you in the military than USAA.” They tend to focus on being better, but that’s very difficult, because people are skeptical. Everybody says they’re better. You can’t walk in a restaurant or a store or anything without the entrepreneur claiming, “Hey, do business with us. We’re better.” FELDMAN: It’s true that saying you’re the best doesn’t have a lot of credibility. How do you distinguish yourself as the opposite? RIES: If you’re the opposite, you can really get rich and famous. For example, Red Bull was the first energy drink, and Red Bull today is certainly successful. It did $11.2 billion last year. It’s an energy drink invented in Austria, based on a recipe out of Thailand. But one of the reasons that Red Bull was successful was that small, 8.3-ounce can. That small can made a big impression. People looked at it like it was a stick of dynamite, and they said, “Wow, this thing must be very, very powerful if it comes in this small can.” Would you believe that there were more than a thousand – a thousand – energy drink brands launched in the American market after the introduction of Red Bull?

InsuranceNewsNet Magazine » February 2014

To the average consumer out there, all the life insurance companies are the same. So as a result, the local agent is still important.

What’s the No. 2 brand? It was the first brand that came out in a 16-ounce can. It’s called Monster. Is a 16-ounce can a good idea for an energy drink? Not really. But Monster went out there and did exactly the opposite, and now Monster has 35 percent of the market. Red Bull has 43 percent. Red Bull plus Monster dominate the market. Nobody else has more than 10 percent. Why is the No. 2 brand the literal opposite of No. 1? Because, in general, people either go with the leader or they go with the opposite. It’s like politics. If you’re opposed to the Democratic Party, then you go to the Republican Party. Another principle of marketing is to avoid the mushy middle. If you’re in the middle, you don’t have any identity. Look at politicians. Anybody in the middle gets creamed. You have to be either a strong Democrat or a strong Republican, or you can’t get elected. FELDMAN: Another one of your rules, The Law of Advertising, says that once you get to be a brand leader, it’s important to advertise. RIES: When you get to be the leader, the thing that keeps you in front is advertising that keeps the competitor silent. Too many companies launch their products rather than advertising their leadership. So their advertising tends to


BIG BRANDING FOR SMALL COMPANIES

FEATURE

medicare supplement life insurance long-term care disabilit y income annuities

strong. stable. secure. AFN45245

Insurance products and services are offered by Mutual of Omaha Insurance Company or one of its affiliates. Products not available in all states. Each company is solely responsible for its own contractual and financial obligations. February 2014 Âť InsuranceNewsNet Magazine 15 For producer use only.


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BIG BRANDING FOR SMALL COMPANIES

be a mess. Who knows what Campbell’s Soup is? They have about six different kinds of soup: heart-healthy, condensed, chunky, extra chunky and home style. It’s like Chevrolet. Instead of advertising Chevrolet, they advertise the Volt, their electric Chevrolet. So they tend to think that once they’ve achieved a leadership position – Heinz in ketchup, Hellman’s in mayonnaise, Kleenex in tissue and so forth – that it’s theirs forever, and therefore they spend their money on something new and different. The best thing is to consider advertising as a price of leadership. We say advertising is insurance. You pay a small amount of sales revenue to guarantee that you’re not going to lose your leadership. It’s unlike life insurance, which pays off when you’re dead; this is insurance that keeps you alive. FELDMAN: How does an agent build that brand without a huge marketing budget? RIES: The important thing for an insurance agent is to conduct public relations on a local level. There are a lot of opportunities in local newsletters and magazines. We’ve done business with real estate agents, and they’re building their businesses by producing articles for local audiences on how to buy a house and how to look for a good mortgage. So you can build a name for yourself locally using PR and, if you’re good at it, get onto radio, television, and so forth. My daughter Laura’s been doing a lot of TV for CNN and a couple of other channels, and that’s been helping build our brand. So there are opportunities out there. You have to ask yourself, what is your expertise? And then try to think of how you can use that expertise to build your brand, so people know your name and know what you stand for. FELDMAN: PR seems to be a lost opportunity for many people in this industry. How does an advisor get started in public relations? RIES: PR and advertising are problems for an entrepreneur, because you really need expertise to do a good job of either. Some people are just naturally good at that 16

Al Ries and his daughter Laura Ries founded Ries & Ries in 1994 to serve as focusing consultants.

because they’re extroverts. They know how to get around, how to talk to people and so forth. But most people are not. I would hire a PR person maybe on a monthly basis, even just an hour a month, to help develop a PR strategy or an idea. That could be very good for an insurance agent. Not advertising, yet, because it’s almost impossible for a small entrepreneurial organization to use advertising effectively. The problem with advertising is you have to spend enough or else all of your money is wasted. People laugh at advertising when they see companies spending $4 million on a Super Bowl spot. But I have to tell you, that’s what keeps them alive. McDonald’s is spending $500 million a year in advertising. You can say, “Boy, they don’t need to do that.” Maybe they wouldn’t need to do that this year, but if they stopped, five years from now they’d be in deep trouble. A small, service-oriented life insurance organization should probably not use advertising at all. Oddly enough, that’s probably the only thing they spend money on. They spend money on these little ads in these little newspapers once in a while, when they should be talking to the local PR person. Hopefully, the PR person will help them formulate some strategy. You don’t need to hire a PR company to do massive PR programs, but maybe more a question of just getting advice and counsel

InsuranceNewsNet Magazine » February 2014

once in a while about what things you should do, and what you should focus on, and things of that sort. FELDMAN: You have The Law of Credentials. Does that relate to PR? RIES: That’s the focus of PR. PR builds credentials when people see your name in a newspaper, even a local paper, as an expert in life insurance. Life insurance agents have to get out in the community in some way, maybe even in areas not connected with insurance, so people see that the agents have something to contribute to the community. Communities have many organizations that allow an agent to belong and contribute. You’re building a reputation for yourself on the local level, just the way a politician does it on the national level, so people look at you and say, “Hey, he’s an up-and-comer.” FELDMAN: Let’s talk about some new techniques in brand building. You talk about creating the verbal nail and the visual hammer. What does that mean? RIES: This is important for the insurance business. When you have a product that’s invisible, like life insurance, it can be very helpful to develop a visual associated with the brand. If you run an


BIG BRANDING FOR SMALL COMPANIES automobile ad, you can show a picture of a Mercedes or a Lexus or whatever, and people can “get” it. What visual do I use for a life insurance ad? Some guy in a casket? I don’t think that’s going to work. FELDMAN: It seems like most of the visuals in the life insurance and annuity industry are retired couples walking on the beach. RIES: A retired couple on a beach, OK. But Aflac is a very good example of a brand that has a visual unrelated to the products. Aflac’s brand recognition was 10 percent before they launched the advertising campaign with the duck. Today it’s 92 percent, and their sales have gone up like crazy too. Look at GEICO. GEICO was a very small brand in car insurance, and they did some heavy promotion. But the gecko associated with GEICO has made that brand. When you have a visual that acts as a hammer, it hammers a nail. Take the old-fashioned Coca-Cola bottle. You may have noticed that Coca-Cola in its advertising today is almost 100 percent focused on that old bottle. They don’t sell many glass bottles. Most Coke is sold in cans or plastic bottles. But that’s an iconic image that says to the customer, “This is the real thing.” And that’s the core idea that keeps Coca-Cola in front of everybody else. People relate to symbols in an incredibly emotional way. That gets back to the way the mind works. The left brain is the verbal side of the brain – it handles words. The right side is the visual side of the brain – it handles visuals. You can be driving down the street, for example, and a child darts in front of your car. Guess what? Your foot hits the brake before the left side of the brain thinks about it. In other words, you react to the visual – boom. I used to say that our stoplights had the words “stop,” “go” and “caution,” you’d see the most amazing run of accidents that you can possibly believe. But red, yellow and green, in a sense, communicate faster – bang. As a result, the visuals have power that the words do not, and that’s why visuals like the Coke bottle work. FELDMAN: How does the verbal nail fit in?

FEATURE

The 22 Immutable Laws of Branding 1. The Law of Expansion The power of a brand is inversely proportional to its scope. When you put your brand name on everything, that name loses its power. 2. The Law of Contraction A brand becomes stronger when you narrow its focus. A powerful branding program always starts by contracting the category, not expanding it. 3. The Law of Publicity The birth of a brand is achieved with publicity, not advertising. The best way to generate publicity is by being first – the first brand in a new category. 4. The Law of Advertising Once born, a brand needs advertising to stay healthy. Brand leaders advertise their leadership. Leadership is the single most important motivating factor in customer behavior.

12. The Law of Generic One of the fastest routes to failure is giving a brand a generic name. (National…, General…, Nature’s…) It’s hard to differentiate a genericnamed brand from the competition. 13. The Law of the Company Brands are brands. Companies are companies. There is a difference. 14. The Law of Subbrands What branding builds, subbranding can destroy. 15. The Law of Siblings There is a time and a place to launch a second brand. For example, A&E launched The History Channel.

5. The Law of the Word A brand should strive to own a word in the mind of the consumer. For example, Kleenex = tissue.

16. The Law of Shape A brand’s logo should be designed to fit the eyes – both eyes. Horizontal shape provides maximum impact.

6. The Law of Credentials The crucial ingredient in the success of any brand is its claim to authenticity. Customers are suspicious. For example, Coke: “It’s the real thing.”

17. The Law of Color A brand should use a color that is the opposite of its major competitor’s.

7. The Law of Quality Quality is important, but brands are not built on quality alone. Sometimes expressed through a higher price and accompanying feature that seems to justify the price. For example, Rolex. 8. The Law of the Category A leading brand should promote the category, not the brand. 9. The Law of the Name In the long run, a brand is nothing more than a name. The difference between brands is not in the products, but in the product names – the perception of the names. 10. The Law of Extensions The easiest way to destroy a brand is to put its name on everything. 11. The Law of Fellowship To build the category, a brand should welcome other brands. Healthy competition brings more customers to the category.

18. The Law of Borders There are no barriers to global branding. A brand should know no borders. Crossing a border often adds value to a brand. The perception of where the brand comes from can add or subtract value. 19. The Law of Consistency A brand is not built overnight. Success is measured in decades, not years. 20. The Law of Change Brands can be changed, but only infrequently and only very carefully. 21. The Law of Mortality No brand will live forever. Euthanasia is often the best solution. 22. The Law of Singularity The most important aspect of a brand is its single-mindedness. A brand is a singular idea or concept that you own inside the mind of the prospect. A brand is a proper noun that can be used in place of a common word. SOURCE: Al Ries and Laura Ries, The 22 Immutable Laws of Branding, HarperCollins, 2009.

February May 2014 2013 » InsuranceNewsNet Magazine

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FEATURE

BIG BRANDING FOR SMALL COMPANIES

RIES: The flip side of this is that a lot of companies try to use visuals to say something. They use horses and dogs and all sorts of stuff. So it’s not the fact that nobody’s using visuals. But there’s something different about a Marlboro cowboy and a Coca-Cola bottle and that type of visual. Those visuals say something. You have to start with the words. For example, BMW’s advertising before 1975 claimed everything. The headlines said we’re great on gas, we’re easy to drive, we’ve got performance, we’ve got this, we’ve got that. They could have said, “This is the performance machine – the ultimate performance machine.” But you can’t visualize a word like performance. However, you can visualize a word like driving. So what made the BMW brand famous were the commercials showing happy owners driving their BMWs around winding roads, and ending with “the ultimate driving machine.” So the purpose of the visual isn’t just to associate the brand with the visual. It’s to communicate a word, like driving, and associate it with the brand: masculinity with Marlboro, the authentic cola with Coca-Cola and so forth. That’s the trouble with the blimp. I mean everybody looks at the blimp – MetLife blimp or Snoopy – but what does it say? Not much. I mean, are your rates high? Is that why you have the blimp up there in the sky? I don’t know. And yet, I have to say the blimp is a very powerful visual symbol. I would say their association – the blimp and MetLife – is well in the 90 percent range, which is astounding, actually. Yet it doesn’t really say anything. That’s the mistake people make. Look at the flip side. E*TRADE, for example, uses babies. That’s the visual – babies – but you see that the verbal they’re trying to get across is it’s so easy to use that a baby could do it. Well, a baby can’t do it, but symbolically, they’re communicating ease of use with a baby. When you develop a visual symbol, first thing you have to think about is the verbal. What’s the verbal? With Aflac, the problem is that the word, Aflac, is difficult. So somebody figured out that, “Let’s see – how can we get the word Aflac into people’s minds? Well, it 18

With an idea, it should be possible to come up with a verbal, a visual and a good marketing program to establish that idea. sounds like the quack of a duck, so why don’t we use a duck, and the duck says, ‘Aflac,’ and people see the duck, and they think quack, and they think Aflac.” So to get the word in the mind, they picked a duck, and that’s the sort of thinking that you need to do to come up with a good visual. You have to figure out what word it is that you want to own, and then develop a visual that communicates the verbal. You work backwards from the visual and start with the verbal. FELDMAN: How do you create a memorable slogan? RIES: The most important thing about being successful today is having good ideas to start with and then developing marketing programs that exploit the idea. Without a good idea, marketing can’t solve anything. It’s just like a doctor can’t save somebody who’s unsavable, but a good doctor can do a very good job of healing the patient if the conditions are right. So the conditions need to be right. With an idea, it should be possible to come up with a verbal, a visual and a good marketing program to establish that idea. America doesn’t lack ideas. In fact, it’s often too many ideas at once. I have worked with big companies that have a list of 20 products that they’re thinking about introducing. I think all of the ideas are good but they wind up introducing none of them. Or the ones they do introduce, they don’t do a very good job of introducing. The results don’t tend to be very good because big companies in particular are very rigid in that marketing. They have philosophies, such as line extensions. That’s when they say, “We don’t want to introduce new brands. It’s too expensive. Therefore, we’ll use our existing brand.” That keeps them back.

InsuranceNewsNet Magazine » February 2014

This is why I think this is such a great country for entrepreneurs, because the big companies are just stuck in the mud. Look at all the successful Internet brands. Were any of those Internet brands launched by The New York Times, The Wall Street Journal, The Washington Post or Time or ABC, NBC, CBS or any of the big communications companies? You would think that NBC or CBS or The New York Times would be communication experts and that when the Internet came out, they would dominate it. Did they launch brands like Facebook, Twitter, Instagram, Google, Zappos, Amazon and so on? No, of course not. They came out with the NewYorkTimes.com and the WallStreetJournal. com, WashingtonPost.com – line extensions, and none of these things has done extremely well. Meanwhile, look at Twitter. FELDMAN: Twitter has become a phenomenon. Is that a case of going opposite of the leader? RIES: Yes. It is actually a good example of being the opposite of everything else on the Internet. There are something like 250 million blogs out there. People get on the Internet, do the personal blogs that go on and on. Twitter’s just the opposite – instead of an on-and-on-and-on personal blog, this is a blog that’s limited to 140 characters. So the limit is the essence of the brand, and that’s what built the brand. Without that limit, if the messages on Twitter were unlimited, the site would have gone nowhere. But that was the idea that built the brand, and then the bird, and the words “tweet” and “twitter” kind of symbolized the bird, sending very short messages. You listen to a bird, their message is very short – peep, peep, that’s about it.


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Keep in mind that as an acceleration of the death benefit, the payment of long-term care rider benefits will reduce both the death benefit and cash values of the policy. Additionally, loans and withdrawals will also reduce both the cash values and the death benefit. Care should be taken to make sure that your clients’ life insurance needs continue to be met even if the rider pays out in full, or after money is taken from their policies. There is no guarantee that the rider will cover the entire cost for all of the insured’s long-term care, as this may vary with the needs of each insured. Life insurance is issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, Columbus, Ohio. Nationwide, Nationwide Financial, the Nationwide framemark and YourLife CareMatters are service marks of Nationwide Mutual Insurance Company. Let’s Face It Together is a service mark of Nationwide Life Insurance Company. © 2013 Nationwide Life Insurance Company. All rights reserved. NFV-0770AO (10/13) February 2014 » InsuranceNewsNet Magazine

19


NEWSWIRES

2014: the Year to Build Analytic Sales Muscles bitly.com/qrmuscles

TOTAL FIXED ANNUITIES POPPED IN 3Q Rub your eyes and be amazed. Total fixed annuity sales in

third quarter 2013 reached $22.5 billion, up 31 percent over the previous quarter and up by even more, by 35.2 percent,

QUOTABLE

31%

compared to third quarter 2012, according to Beacon Research. “Quarter-over-quarter sales were up among all fixed annuity product types and, for the first time since 2008, in all major distribution channels,” said Jeremy Alexander, Beacon chief executive officer. They were up on a year-to-date basis, too, by 7.4 percent compared with the first nine months of 2012. This happened despite the prolonged low-interest-rate environment of recent times – rates that only started to creep up in the second half. It happened despite the competitive lure of the go-go stock market, especially in the second half (by the way, the Dow finished the entire year up by 26.5 percent, and the S&P 500 up by 29.6 percent). And it happened despite the curtailments of certain fixed annuity features and the capacity-watching eyes of fixed annuity carriers. A year earlier, no one was predicting such a performance. In fact, sales then were in the swamp. (Beacon reported that total fixed annuity sales were down 3.1 percent for third quarter 2012 compared with the previous quarter, and down by – gulp – 12.8 percent for the same period in 2011.) Robert Herrick’s famous words come to mind: “Gather ye rosebuds while ye may.” Who knows what 2014 will bring?

BUY LIFE INSURANCE TO COVER DEBT

“No one wants to think about dying, but there are financial consequences [that] families and heirs would face from the sudden death of a primary borrower,” said Michelle Hall, manager-market research for Securian Financial. “This is true especially when debts exceed assets,” she said, noting that this was the case for 56 percent of 825 primary borrowers and co-signers who answered an online Securian survey last fall.

BT

DE

Only 7 percent of that group said they have plans in place to cover debts if they or their co-signers die unexpectedly, the researchers found. What might

those plans be? According to the majority, the answer was life insurance. Many also said they have wills in place. DID YOU

KNOW

?

20

Most insurance and financial advisors would say that having life insurance and a will is a good starter plan. But they’d also say that it’s disappointing that so few people are following that plan.

GO ON, PRESENT THE ANNUITY

Financial professionals who avoid talking to clients about annuities are missing out on potential sales, according to a Genworth survey. Among qualified non-annuity owners who would consider purchasing an annuity, 40 percent said their financial professional never presented the opportunity to them, the

carrier said. It may be that financial professionals don’t present annuities to clients because they believe the products have a bad reputation among consumers, said Charlie Gipple, national director of indexed products. However, Genworth’s

WHEN CHOOSING BETWEEN MARRIAGE, health, job and personal finance categories, 80 percent of 1,350 people polled online said they typically make the worst decisions when it involves their personal finances. Source: National Foundation for Credit Counseling

InsuranceNewsNet Magazine » February 2014

It seems I’ve been preaching about how valuable these [indexed annuity] products are for 15 years, and people are finally starting to get the memo! — Sheryl J. Moore, president and chief executive officer, Moore Market Intelligence and Wink Inc.

research suggests something different. Sixty-eight percent of non-annuity owners reported having a neutral to positive impression of annuities, according to the company. And of those who already own annuities, 91 percent reported feeling neutral to positive, and the majority reported feeling satisfied with access to their account, fees and asset growth. So maybe, just maybe, an annuity talk will fall on some receptive ears.

GET ON BOARD THE RMD BUS

The elder set may know about RMDs, but a good many older Americans are slow to get on board the RMD bus. RMDs are the required minimum distributions that the Internal Revenue Service requires people to take annually from their tax-qualified retirement plans, such as individual retirement accounts and 401(k)s, after reaching age 70 1/2 (assuming they have such plans). According to Fidelity Investments, nearly half (42 percent) of the firm’s more than 500,000 IRA customers in the RMD category still had not taken their RMDs by Dec. 6. That’s even

though the Dec. 31 deadline was just weeks away, and even though those who fail to comply might face a 50 percent tax penalty on the amount not distributed. RMD activity does tend to increase as the deadline approaches, Fidelity said. But since the RMD deadline coincides with year-end holidays and other priorities, some folks just might forget, thus defeating the tax reduction advantage of IRA investing, said Lauren Brouhard, Fidelity senior vice president-retirement. Advisors might want to turn the


[NEWSWIRES] sluggish RMD activity to productive good. For instance, they could send out RMD reminders and/or help clients sign up for an automatic RMD withdrawal program, if the provider offers one. If the customer does not need the RMD money for living expenses, the advisor could use the RMD discussion to open up consideration of ways the customer could put the money to work (via investments, annuities, long-term care funding, gifting, life insurance, etc.) Apparently, people like getting a nudge. There were 167 percent more people in Fidelity’s auto withdrawal plan in 2013 than the year before, and auto-plan members now represent 47 percent of the total, the company said.

THE OTHER SIDE OF THE PRIVATE EQUITY EQUATION

Several segments of the annuity industry grabbed headlines throughout 2013 about potential problems they foresee coming from private equity acquisition of annuity companies. The topline concern has been the mismatch between the long-term nature of insurance and the short-term nature of private equity business models. But how do private equity companies see things? That side of the discussion has been pretty quiet until recently. After all, the deals were in progress, and the buyers were, well, private. But at year-end 2013, James R. Belardi, chief executive officer of Athene Holding Ltd., the private equity company that bought Aviva USA, gave his own take on the matter. In a letter submitted to state insurance legislators, Belardi contended that private equity investors have “substantial expertise” to offer the acquired companies, including in areas that are

critical for life insurers. What expertise? Risk assessment and management, he wrote. Also, investment strategy, identification and recruiting of executive talent, and management of companies. Finally, there is the touchy matter of access to capital. Private equity investment in the life insurance industry “provides capital that is essential to the industry’s future success,” Belardi maintained, and this money source came into the industry “at a time when

Wanted: Health Insurance Literacy Consumers who enroll in health insurance plans offered through the new health insurance exchanges may be getting bleary-eyed from all the insurance terms they are encountering. According to The Urban Institute, the online marketplaces aim to help a target population of nonelderly adults – specifically those with incomes above the national Medicaid-eligibility cutoff (138 percent of the federal poverty level) who are currently uninsured or are purchasing individual coverage. Here’s the problem: The target market tends to have a poor understanding of basic health insurance terms. In an institute survey of this population, for example, only 39.9 percent reported feeling very confident or somewhat confident of understanding all the insurance terms covered in the institute’s survey. Only 43.8 percent reported feeling confident about five terms related to costs (premiums, copayments, etc.). A year-end report from LIMRA arrived at similar findings. It said that 59 percent of Americans anticipate they will require help finding a cost-effective health insurance plan. And more than half think they will need help understanding the health insurance options, eligibility, plans that meet their needs and how the plans will work. many other sources of capital were unavailable for most life insurers.” As the saying goes, money talks.

WILL AMERICANS PAY FOR ADVICE?

%s! 25 Say ye

Some producers say they’re interested in developing an advice-based practice, but they have doubts about how many customers actually will write a check for the advice they receive. Researchers at Cerulli have been looking into this, and they have found that nearly 25 percent of U.S. households with adults aged 50-59 said they would pay for advice. In Cerulli lingo,

these are “advice opportunity” households, or homes where people have expressed a need for more financial and investment advice and a willingness to pay for advice services. Some people may overestimate their willingness to pay for advice, conceded Cerulli director Scott Smith, but “there is DID YOU

KNOW

?

QUOTABLE The number of pre-retirees that are unprepared for retirement is staggering. More than 75 percent of [401(k) plan] participants between the age of 55 and 59 indicated they are either not prepared for retirement or they are unsure if they are prepared. — Kevin Chisholm, associate director, Cerulli

clearly demand among these investors for a more formal approach to ongoing advice.” That’s probably encouraging news to advice-minded experts in the field. But how do they go about identifying those households – and reaching them? Let’s hope the data analytics professionals are working on that question right now.

FORTY-FOUR PERCENT OF FINANCIAL ADVISORS are predicting their annuity sales will increase in 2014 while 50 percent expect their volumes to remain the same. Source: Insured Retirement Institute

February 2014 » InsuranceNewsNet Magazine

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A short time ago, in a capital not so far away ... The complications surrounding the Affordable Care Act rollout have reinforced the need for clients to do business with a trained expert. BY SUSAN RUPE

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InsuranceNewsNet Magazine Âť February 2014


February 2014 Âť InsuranceNewsNet Magazine

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FEATURE

T

THE RETURN OF THE HEALTH ADVISOR

he Affordable Care Act changed Kelly Fristoe’s health insurance business dramatically, just as everyone predicted. But it didn’t change in the way many prognosticators expected: After a rocky start, he’s making more money than ever. When the health exchanges opened on Oct. 1, the pundits were paying attention to the many stumbles of the national website, but Fristoe was busy in Wichita Falls, Texas. Although the website was down for the better part of two months, Fristoe and his staff persisted in signing up scores of people, just as he had been training to do in the three years since ACA became law. While other people were fretting, he was preparing. “I’ve been taking the necessary time to focus on the intricacies of learning about health insurance,” Fristoe said. “I’ve done everything possible to educate myself about ACA, and now that it’s here I’ve used it to my advantage. This open enrollment season is our harvest season.” Fristoe said he enrolled 150 individuals in health care between Oct. 1 and Dec. 31, which is the same amount of individual business he typically would write in an entire year as the health insurance specialist at Financial Partners. This was despite problems with the federal website. “Most of our early applicants were people who were signing up for coverage off the exchange,” he said. “We went to the Kaiser Family Foundation website to try to figure out their subsidy because we had problems getting that information off the federal exchange. Many of my clients told me, ‘We don’t care about the subsidy. We just need to sign up for coverage in time for Jan. 1 and we’ll figure out the subsidy later.’” Fristoe and his staff also processed applications on paper while waiting for the federal website to become functional. This is in addition to his group health insurance business. And he is making good money on them, something else that might surprise many skeptics. “These new plans under ACA have premiums that are $2,500 a year higher than before, but we were able to get 24

“The future of the agent is bright, but the agent has to work really hard.” – Kelly Fristoe, Wichita Falls, Texas

subsidies for many of our clients,” he explained regarding his increase in business. “We get paid commissions on the subsidies as well as on the premiums.” He is expecting an even larger volume as the March 31 enrollment deadline arrives. Of course, Fristoe’s story is not every agent’s experience, but Thomas Harte, the president of the National Association of Health Underwriters (NAHU), said Fristoe is more the norm than the general public might imagine. Even Harte was anxious about the future of his industry and his agency, Landmark Benefits in Hampstead, N.H. “Prior to the launch of ACA, a number of us were concerned about the health insurance agent’s demise. But what we have experienced since ACA went live proves that having a trusted consultant and advocate for the client is a system that actually works.” As in Fristoe’s case, preparation and a shift in perspective made all the difference for agents in general and Harte’s business in particular. Harte’s company has 14 employees and has clients throughout New England. He has been

InsuranceNewsNet Magazine » February 2014

in the business since 1989 and noted a shift in the agent’s role during the past five years. “In the past, we presented our clients with plans and they selected them. Over the past five years, we have become more involved with compliance. Our role as an advocate has been bolstered.” That initial concern spread to NAHU itself as it grappled with the implications of ACA. In fact, the association’s legislative priority had been to overhaul ACA. But as it became clear the law was being upheld and would be implemented, the association began offering programs for its members to make the most of the new reality. Instead of its demise, the opposite is happening for NAHU. Membership grew 8 percent last year, with more people turning to the association for direction. “I think that ACA has definitely improved the dedication of our members,” said Kathryn Gaglione, NAHU’s senior manager of public relations. “We have seen the importance of educating our members and preparing them


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FEATURE

THE RETURN OF THE HEALTH ADVISOR

Diana Johnson, Easton, Md., predicts more health advisors will diversify their practices or partner with other specialists. to deal with ACA. We have had more members taking our classes, more of our members are talking with the media and interacting with legislators. We have taken a proactive approach to ACA, and we have started addressing issues surrounding it with our members before those issues hit the news.”

Another agent association that is focusing on helping its members succeed in the wake of ACA is the National Association of Insurance and Financial Advisors (NAIFA), which counts a number of health insurance practitioners among its members. NAIFA had spent much effort lobbying in fa-

vor of preserving the role of the agent in the ACA environment. The association now sees the ACA rollout as an opportunity to better serve a membership segment that previously had not received much attention. “Because of ACA, we are strategically doing more to serve that segment of our membership because they had been asking for it,” said Sheila Owens, NAIFA vice president, communications and marketing. Over the summer, NAIFA launched a website filled with educational and advocacy resources related to ACA, including links to training that is required by the Center for Medicare and Medicaid Services (CMS) for agents seeking to do business with the exchanges. A series of webinars educating members on ACA and its implications was a sellout. NAIFA’s president, John Nichols, predicted that instead of heading for extinction, advisors will have a place in the post-ACA world. “There will continue to be a role for advisors in all of this due to the sheer complexity of the

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InsuranceNewsNet Magazine » February 2014


THE RETURN OF THE HEALTH ADVISOR and they will need a place where they can get answers.” NAIFA worked with CMS in helping to train its members for the ACA rollout, and that relationship has helped to boost the role of the agent, according to Diane Boyle, NAIFA’s vice president of governmental relations. “I think CMS has a greater appreciation for what agents do and the role that NAHU President Thomas the agent plays in ACA,” Harte sees the health advisor she said. Training is a key becoming more of a to success. Another one is consultant and an educator. recalibrating the practice. Some agencies are adding other products and serproduct and the fact that not everyone vices. Diana Johnson, a health insurwill go to the exchange for coverage,” ance agent in Easton, Md., said she is said Nichols, who is also president of seeing fellow agents diversifying their Disability Resource Group in Chica- practice into related areas such as volgo. “People will always have questions untary benefits and wellness programs. or concerns about health insurance, “I also see real growth opportunities

FEATURE

in partnering with payroll companies that can get data that can be used to help your group clients with reporting their required information to the government” in order to comply with ACA mandates, she said. But Johnson herself is doing the same thing as Fristoe, getting into the nitty-gritty of the ACA and guiding clients. In fact, she wishes there were more hours in the day to answer all her group health insurance clients’ questions since ACA took effect. “Everything has changed, all the plans, all the rates. It’s like learning a whole new business,” she said, also referring the widely reported confusion over canceled plans. “There were more than 100 new plans issued in January alone, and the old ones were taken away.” NAHU President Harte and Fristoe, the busy agent in Texas, both said focus and thorough education were keys to their success. “I believe that brokers who get credentialed in health care reform, are

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FEATURE

THE RETURN OF THE HEALTH ADVISOR

community,” he added. That point is not lost on Russ Childers, who has taken a hit in his business in Americus, Ga. Childers is looking at making adjustments to his practice to make up for losses in the health insurance part of his practice. “We haven’t stopped doing health insurance, but we’re looking at how we can generate more revenue over the next six months in other areas of our practice,” “People will need such as life insurance, someone who can answer disability income intheir questions about surance and long-term care insurance, he said. health insurance.” In particular, he said he – NAIFA President John Nichols is seeking out more life insurance clients than previously in order to active in a trade association, invest in keep his income level up. technology and devise compliance reChilders said a major problem for sources for their clients are the ones him was that Georgia has only one inwho will be successful,” Harte said. dividual plan approved in the state exFristoe said he believes “the days of an change, and it is paying a commission agent doing all the disciplines of insur- of only $17 per month. “That makes ance – life, disability and the like – and it pretty tough to break even on that doing all of them very well are over.” with all the service involved in getting “The agent who focuses on health in- someone enrolled,” Childers said, addsurance, and devotes their practice to that, ing that he has had a reduction of up to will be recognized as the expert in their 30 percent of his income because of reduced health insurance commissions. As with Childers, in addition to the website woes, advisors’ experiences vary by state. Some states have a number of carriers offering plans on the exchanges, while others may have only one or two plans available. This also has an effect on an advisor’s commission. Russ Childers, Americus, Ga., said Childers said the he’s staying in health insurance exchange has hurt his but looking at developing his other business, but others lines of business. say the complexity and confusion have driven business their way. 28

InsuranceNewsNet Magazine » February 2014

Kathy Marrazzo of Health Advisors Group in Harrisburg, Pa., said ACA has been “employment insurance” for many agents. “I think we will always be needed and we’ll still be around, unless something in the law changes and the whole thing gets washed out,” Marrazzo said. “We advisors know all the plans and changes, and we are the ones who are keeping up with everything on a daily basis. People need us to answer their questions.”

Opting Out

Not all agents will stick with it through ACA’s disruption. Agents nearing their golden years might think retirement looks a whole lot better than reinvention. Another segment having a harder time is comprised of agents who specialize in the small group market – agents who work employers with fewer than 10 full-time workers. Many of those employers may eventually opt to shed their health insurance and send their workers to the exchange for coverage. That is an opportunity to help those clients make that transition, but, again, many agents might be reluctant to make their own transition. For many that’s the beauty of the private marketplace, where people can step up and make their success by helping others. NAHU’s President Harte said that the key to his members’ success. “Health insurance is not like buying milk or bread at the grocery store. It’s an overwhelmingly complicated purchase. The broker’s value in the marketplace is exceedingly greater than ever,” Harte said. “The successful health advisors of the future will be those who educate themselves and are there when their clients need them.” Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Susan may be reached at srupe@insurancenewsnet.com.


February 2014 Âť InsuranceNewsNet Magazine

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LIFEWIRES

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Gen Y to Insurers: Cut Through the Mush

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So you want to reach Generation Y? Don’t annoy them with sappy and morbid messages. Instead, give them a message about something they can relate to – such as paying off their student loans. That’s the word from LIMRA, which brought together focus groups of Gen X and Gen Y consumers to find out what companies can do to remove barriers and improve the buying experience. In the LIMRA report “Seeking the Ideal Experience: How Gen X and Y Want to Buy Life Insurance,” Gen X and Gen Y respondents said the ideal life insurance buying experience would include educating them and giving them time to decide, building trust, making buying more convenient, providing different options for receiving information, and creating a better message.

As one respondent put it, “I am the customer. I should be able to get service any way I want it.” Another respondent from the ranks of Gen Y appealed for a more relevant message. “I think most young people don’t think that they need life insurance until they have a kid, but I don’t think that should be the case. I have student loans that somebody will have to take care of. … There should be some kind of option that is super simple for people who don’t need huge life insurance plans.”

2014 REVENUE GROWTH OUTLOOK AT 2.9%

Rising interest rates and higher sales of basic life insurance are two factors leading to an estimated 2.9 percent growth in median operating revenue for a group of 14 life carriers in 2014. Financial analysts at Keefe, Bruyette & Woods attributed the outlook to stock market performance, rising interest rates, and higher sales of fixed annuities and basic life insurance. Estimated median operating revenue growth in 2014 is down slightly from revised estimated median operating revenue growth of 3.6 percent in 2013. Median operating revenue growth is expected at 3.9 percent in 2015, the ana-

lysts said in a research note to investors. Higher interest rates “should create less of a drag on investment income compared to recent years,” they said. Analysts DID YOU

KNOW

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also cited the “discipline” the industry has exhibited around retooling its life and annuities products. Such products are seen as higher quality than similar products issued in the past, the analysts said. The analysts wrote that life insurers with the highest revenue growth estimates in 2014 are Ameriprise Financial, Primerica and Principal Financial Group. Life carriers with the lowest revenue growth estimates are Unum Group, Genworth Financial and Aflac.

METLIFE TARGETS MALAYSIA IN DISTRIBUTION AGREEMENT

MetLife is looking across the Pacific for its next deal. The company announced it is seeking the OK for majority and minority stakes in two life insurance subsidiaries of a Malaysian bank holding company as part of an agreement that includes a long-term distribution deal to sell life insurance through hundreds of banks.

ATLANTIC AMERICAN CORP. IS ACQUIRING DIRECT LIFE INSURANCE CO. (DLIC). In connection with the acquisition, DLIC’s name is being changed to Bankers Fidelity Assurance Co. Source: Atlantic American Corp.

InsuranceNewsNet Magazine » February 2014

QUOTABLE Buying term and investing the difference fails to capture the reality of life. — Rebecca Novin-Cannon, a Ridgewood, N.J.-based financial representative of Guardian

Under the terms of the proposed transaction, valued at $250 million, MetLife will own more than 50 percent of AmLife Insurance Berhad, with the re-

maining stake belonging to AMMB Holding Bhd. MetLife will also own less than 50 percent of AmTakaful, with the remaining stake held by AMMB. In addition, AmLife and AmTakaful will enter into a 20-year agreement to sell life insurance and family Takaful, or Islamic insurance, products through AMMB’s banking subsidiaries AmBank Berhad and AmIslamic Bank Berhad. Takaful insurance and investment products conform to Islamic law. Approximately 60 percent of Malaysia’s 30 million people are Muslim. Banking and finance precepts under Sharia law, where all forms of interest are forbidden, operate on the basis of partnership and risk-sharing.

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real estate investments. The properties include 100 William St., New York City, a 21-story office building in the heart of the Financial District, purchased for $166.5 million; 200 S. Wacker Drive, Chicago, a 40-story office building in that city’s central business district, purchased for $214.5 million, and Wellesley Office Park in Wellesley, Mass., purchased for $237 million.


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LIFE

Dearly Departed: How to Help Clients Deal with Grief F ocus on the beneficiary’s needs first, and not the money, when it’s time to deliver the death benefit. By Linda Koco

A

my Florian was having dinner one evening at the home of an advisor. During the course of conversation, the advisor mentioned that he didn’t always know what to say to clients who had just suffered the loss of a loved one. He felt awkward and wanted her to coach him. 34

This triggered a sequence of events that ultimately led to Florian creating a business that, among other things, helps insurance and financial services professionals know what to say and do when working with the bereaved. “When delivering a life insurance check to a client, insurance agents often think about the money first,” said Florian, who is chief executive officer of Corgenius, a grief consulting and training firm and grief resource based in Hoffman Estates, Ill. “Many agents don’t go to the funeral

InsuranceNewsNet Magazine » February 2014

service at all, or if they do, they attend only briefly. From then on, it’s all business,” she said in an interview. “It’s all business” means the agents bring the check, express condolences and then launch into discussing what will happen next and suggesting ways the survivor can invest or use the money. “I hear that in grief support groups all the time,” Florian said. “Survivors say, ‘The agent doesn’t understand what I am going through’ or ‘The agent is trying to get me to buy something, like an annuity.’ ” These complaints come from widowers


DEARLY DEPARTED: HOW TO HELP CLIENTS DEAL WITH GRIEF as well as widows, she noted, but added that the U.S. Census Bureau says that there are five times as many widows as widowers. For that reason, she often speaks of the bereaved as widows.

Strive to understand

Florian’s work with agents and advisors, which began at that dinner party several years ago, puts understanding the client at the forefront. When an advisor is contacting new widows and widowers, “understand” is what the advisor needs to do. “Seventy percent of widows switch advisors after their husband’s death,” she noted, citing a commonly repeated statistic in financial circles. When asked why they make the change to someone else, “many wives, now widows, say the advisor didn’t build a relationship with them then, or when their husband was still alive,” Florian said. To help the client, and to preserve the account, advisors need to establish and build relationships with survivors, she said. That means being “relationship-centric, client-centric and people-centric.” Here are a few of her suggestions for doing that: » Find out about the person. Ask, “What about you? What are you doing for yourself? What’s on your bucket list?” » Build a good relationship with the couple before a death occurs. Then, when the first death occurs, there is a foundation upon which to build. » See things from the survivor’s perspective. “Some agents are so happy to bring the check, that they think the client should now feel better because they have some money,” Florian said. “But agents need to address the person’s grief first, not the money. They need to realize that many grieving people can’t think or make decisions for several weeks or months or even a year. They will be in the ‘fog of grief’ for a while.” » Suggest putting the money in the checking account for now. Many life insurance companies make such an account available, so “go ahead and recommend using it,” she said. “Let the client

LIFE

know that ‘you can leave it there while you put the pieces of your life back together again.’” » Encourage the person not to make any big decisions for a while. That includes honoring requests for monetary gifts, even from the children. “Encourage the person to wait until he or she can make the right decisions later on – decisions that will maintain the legacy of the loved one.” » Remember that people who are in grief recover at their own pace. The average recovery period is five to eight months, but much of that is based on circumstances, she said. » When it’s time to make financial decisions, ask about close loved ones. Ask the survivor if he or she would like these loved ones to be included in the meetings. Florian said she speaks from experience. She began her own grief journey 30 years ago as a young widow with a 7-month-old son. As she learned more about death and grief, she began helping other survivors who were attending grief support groups offered at health care and faith-based organizations. That led to seminars, articles, lectures, additional education (she has a master’s degree and is a fellow in thanatology, or grief studies) and later her business. She has been working with agent and advisor groups since 2008. It is true that the insurance business is becoming more relationship-centric than it was a decade ago, Florian allowed. That’s good, she said, because today, most people can go online to get all or most of the factual information that, in pre-Internet days, agents would provide when a loved one died. What grieving widows and widowers want and need – and can’t get online – is access to a person who understands what they are going through. “Those are the advisors who get the business,” she said, referring to financial investments made with policy proceeds and other assets. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@ innfeedback.com.

February 2014 » InsuranceNewsNet Magazine

35

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LIFE

Digital or Analog? Life Insurers Have to Do Both W hether online or “old school,” life carriers and advisors need to develop strategies to reach consumers who want to buy insurance their way. By Cyril Tuohy

J

ust when U.S. life and annuity carriers overcame challenges such as reducing risk exposures, repricing products and rebuilding their capital base to position themselves for success in 2014, another challenge comes along: marketplace bifurcation. Younger buyers are attracted to – even weaned on – alternative distribution channels. These young buyers require carriers and their distributors to be online, whether through robust websites or social media. Indeed, for large swaths of Gen Y, there is no other way to do business. Today’s 20-somethings, many of whom know how to communicate only through mobile devices, have never sat down with an insurance agent, let alone had insurance coverage at all. They are a mobile breed to whom carriers must adapt. Not only do they represent billions of dollars in future income for carriers and advisors, but Gen Yers have more choices than any previous generation. They also are able to take their business elsewhere – and quickly – if they are dissatisfied. At the other end of the spectrum, older buyers – many of whom have spouses, children and more complex financial needs – prefer and even require the traditional face-to-face contact with retail advisors. Long-term financial planning demands sitting down – if only through FaceTime – with advisors and talking through long-term plans, distant needs and medium-term desires. Baby boomers and pre-retirees represent a more attractive demographic for financial advisors. The accumulated assets 36

and higher net worth of people in their 50s and 60s are worthwhile for an advisor to protect and manage. Welcome to the age of the dual-track distribution system, an era when carriers and their distributors have to be in both places at once: in the digital-mobile world and in the real-life, face-to-face “analog” world. These two worlds com-

InsuranceNewsNet Magazine » February 2014

pete for carriers’ budgetary priorities and management attention. “Digital technology also challenges traditional distribution channels – the ways customers engage with insurers,” wrote Doug French, an insurance analyst with Ernst & Young (EY) and co-author of a 2014 outlook report covering life and annuity insurers. “Nevertheless, EY insurance


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LIFE

DIGITAL OR ANALOG? LIFE INSURERS HAVE TO DO BOTH

consumer surveys show that personal interaction is still highly regarded.” For the moment, there’s no chance that digital distribution channels will supplant the traditional face-to-face contact, according to French, a principal with EY’s Financial Services and Insurance and Actuarial Advisory Services unit. The nature of insurance and annuities is too complex, and the need for advice “indicates that personal interaction will remain important to an overall channel strategy,” French noted. Advisors need to be in the business of planning their clients’ long-term financial strategy. That means treating clients holistically, suggesting core protection and wealth accumulation products that complement a family’s financial situation. Insurers, therefore, need to work with distributors to boost advisors’ financial planning knowledge and advisory skills. What does an advisor most at ease in a dual-track world look like? He, or she, is the one in the blue button-down shirt and khakis, effortlessly mapping out a complete financial plan on a tablet computer in front of a client, with both of them sipping the morning brew at the corner coffee shop. Blending both worlds isn’t as easy as it sounds, not with life carriers’ bias toward conservative, tried-and-true methods of doing business. In truth, however, carriers don’t have a choice. They need to evolve, like everyone else. Robert A. Kerzner, president and chief executive officer of LIMRA and LOMA, re-emphasized exactly that point. In the face of ferocious competition, those who stand still face extinction. “There is also growing competition for consumers’ attention and where to spend their money, which is why it is vital that we offer products and services that resonate with consumers, helping them focus on protecting against risk and saving for retirement,” he said in a speech to executives gathered in New York for LIMRA’s annual conference. Winds of change are blowing at insurers’ backs. With a surge in the number of Americans in preretirement or retirement phases showing interest in income-generating products, the time has come for carriers to go on the offensive, French wrote. 38

Carriers need customer-centric, not product-centric, business models and they need to forge ahead with relentless efficiencies that technology provides, he noted. Meanwhile, some confusion and discord exist on the meaning of “digital” in the insurance industry. The terms “digital” and “digital strategy” are beginning to appear more frequently in print, online and on the airwaves. In some cases, those terms appear even in lengthy life and annuity technology and market outlook reports. In fact, the terms are flirting dangerously close to overuse, and are sure to send some industry veterans longing for the days of the analog world when agents sat down at a customer’s kitchen table. That “kitchen table” world has almost disappeared as insurance companies increasingly work with customers virtually. They have had to make dramatic changes and adapt to rapidly changing conditions, most notably the speed and manner in which consumers are accessing information. The Ernst & Young outlook report mentioned earlier talks about the importance of having a digital strategy, launching digital initiatives, locking down digital capabilities and investing in digital technology. Yet a survey by the consulting firm Novarica does not clarify what that strategy should look like. Is it a mobile strategy, an Internet strategy, a social media strategy, one of the above, all of the above, none of the above? And what is a digital strategy in the context of the life and annuities industry? Does a financial advisor with a Twitter feed and a Facebook page qualify as having a digital strategy? Is using a smartphone to look up the term “indexed annuities” or even peeking at your annuity portfolio using Google Chrome’s mobile browser a signal that you’ve “gone digital”? If an insurance agent with Sin City Financial Advisors in Las Vegas closes a deal on a 30-year term life insurance contract with a policyholder living in Denver, and if that long-term contract is underwritten by an Iowa-headquartered life insurer, and if the deal is made possible with the help of websites hosted by servers whirring away in South Carolina, has the policy been sold using a digital strategy?

InsuranceNewsNet Magazine » February 2014

If the terms of a long-term care or critical illness insurance policy appear as embedded data on a microchip inserted under the skin, does that make the policyholder digital? The life insurance industry isn’t clear on what the term digital strategy means – and don’t bother trying to herd carriers into a consensus around its meaning. There is no agreement to speak of. A majority of insurers, for example, “definitely” consider agent/broker e-business, policyholder e-business, and corporate sites and online marketing as “digital” or part of a “digital strategy,” according to the survey of 95 insurance chief information officers by Novarica. Fewer than 50 percent of insurers surveyed, however, “definitely” consider “digitizing and optimizing internal business processes,” analytics and enterprise data management part of a digital strategy, the survey also found. “‘Digital’ and ‘digital strategy’ are confusing buzzwords to many in the insurance industry,” Novarica managing director Matthew Josefowicz said in a report on industry “hot topics.” That is to say that the industry can’t seem to agree on the definition of the term “digital.” “Other areas that are often considered to be part of ‘digital strategy’ like digitizing and optimizing internal business processes and enterprise data management had even less unanimity,” Josefowicz said. Does a digital strategy – whatever that is – have any value to insurance carriers? If there’s no consensus on what it means to be or to go digital, how are carriers going to figure out if such a strategy has any value? A digital strategy, however carriers define it, is one “more discussed than understood,” the report said. Only 7 percent of insurer CIOs surveyed said they had a well-understood and widely deployed digital strategy, 28 percent said a digital strategy was being deployed in some areas and 22 percent said they were still trying to understand the value of such a strategy. Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@ innfeedback.com.


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ANNUITYWIRES

Hybrid Annuities Gain Traction With Key Senator The combination annuity and long-term care policy that has been mentioned as part of the solution to pay for longterm care insurance has piqued the interest of a moderate Sen. Susan Collins Republican senator who favors market-based solutions to solving the challenges of long-term care. Sen. Susan Collins, R-Maine, said that efforts at long-term care reform should

include annuity long-term care hybrid products as a way to help fund long-term care at a time when there’s little or no support in Congress for expanding public

spending programs. Speaking at a hearing of the Senate Special Committee on Aging, Collins said she was “very intrigued” by annuity hybrids as a way for the private sector to fund long-term care insurance. Medicare doesn’t cover long-term care, and private long-term care insurance is generally too expensive. “We need to do a better job to make private long-term care more available to people,” Collins said. The question is how. Hybrid annuity long-term care products, also known as “life care annuity” products, represent a new form of insurance. Long-term care insurance experts have suggested changes in tax law that would allow for investment and distribution through tax-advantaged retirement accounts to spur demand for the policies.

INDUSTRY REPORT SEES OPPORTUNITIES IN 2014

Annuity sales stabilized during the past year, and with continued product innovation and ongoing consumer demand, the industry is poised to grow in 2014. That’s the word from the Insured Retirement Institute (IRI) in its “state of the industry” report. IRI’s survey of financial professionals shows that 44 percent of advisors anticipate growing their annuity business in the months ahead, while half expect to

maintain their current level of business. A key for the industry’s growth in 2014 will be its ability to continue innovating its product offerings to meet consumer needs. The industry has had recent success with the advent of deferred income annuities. Sales of these products, which totaled $1 billion a year ago, are expected to exceed $2 billion in 2013. Other new products that are beginning to take hold in the market include “growth oriented” variable annuities – variable annuities that do not offer living benefits but typically have lower fees and more investment 40

options – as well as structured variable annuities, which have caps and buffers to provide upside growth potential with downside protection.

HARBINGER GROUP MAKES ANOTHER ANNUITY MOVE

Harbinger Group has made still another foray into the annuity business. The publicly held company’s latest deal is an annuity reinsurance treaty closed with Bankers Life. According to the treaty, Bankers Life

will cede approximately $160 million of its annuity business to Front Street Re (Cayman), a Harbinger subsidiary that

focuses on life and fixed annuity reinsurance products. Bankers Life sells single premium deferred annuities, single premium immediate annuities and guaranteed fixed-rate annuities. Harbinger already owns Fidelity & Guaranty Life (FGL), a Baltimore, Md.based carrier that sells fixed annuities and principally indexed annuities as well as life insurance through independent agents. Harbinger bought FGL (then called Old Mutual) in 2011. The name change came shortly thereafter.

InsuranceNewsNet Magazine » February 2014

QUOTABLE Many financial professionals simply don’t present annuities to their clients, perhaps believing that these products have a bad reputation among consumers. Our research shows that this is not universally true. — Charlie Gipple, national director of indexed products at Genworth

ADVISORS UNDERESTIMATE APPEAL OF ANNUITIES AMONG CONSUMERS

Consumers perceive annuities more positively than financial professionals give them credit for, according to The Future of Retirement Income, a new study released by Genworth. The study, a culmination of in-depth interviews, focus groups and quantitative surveys with financial professionals and owners and non-owners of annuities, revealed that 68 percent of non-owners have a neutral to positive impression of annuities. For annu-

ity owners, it’s even higher: 91 percent neutral to positive. In addition, the majority of annuity owners are satisfied with access to their account, fees and asset growth. The findings also suggest that financial professionals who avoid talking to clients about annuities are missing out on potential sales. According to the survey, 40 percent of qualified non-owners who would consider purchasing an annuity have never been presented with the opportunity by their financial professional.

Go to AnnuityNews.com for exclusive sales ideas and more!

Society of Actuaries Releases Report on Retirement Risks While many pre-retirees plan to work longer, they may underestimate life expectancy and don’t have a financial plan in place.

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FOR PRODUCER USE•ONLY3.00% -•NOT 3.00% INTENDED FOR SOLICITINGCommission OR Commission ADVERTISING TO THE PUBLIC. THE OXFORD LIFE INCOME ANNUITY FORM ICC12-IP200 AND STATE-SPECIFIC VARIATIONS 18-75 18-75 ( 2.00% (PROTECTOR 2.00% 76-80 76-80 ) (CONTRACT ) WHERE APPLICABLE) IS ISSUED BY OXFORD LIFE INSURANCE COMPANY PRODUCT NOT AVAILABLE IN ALL STATES. 1.) INTEREST RATE EFFECTIVE 1-1-14 AND SUBJECT TO CHANGE. CALL FOR CURRENT RATES. Call Call Financial Financial forfor your sales kit kit today today 2.) CLIENT HAS 30Fairlane DAYSFairlane AFTER THE EXPIRATION DATE OF EACH GUARANTEE PERIODyour TO MAKE Asales SURRENDER/WITHDRAWAL UNDER1.800.327.1460 THE1.800.327.1460 POLICY WITHOUT INCURRING A SURRENDER/WITHDRAWAL CHARGE ORFORMARKET VALUEUSEADJUSTMENT. 3.- NOT ) DURING THE FOR FIRSTSOLICITING POLICY YEAR, INTEREST CANPUBLIC. BE WITHDRAWN PENALTY-FREE; BEGINNING IN THEANNUITY SECOND(CONTRACT POLICY YEAR, UP TO AND 10%STATE-SPECIFIC OFANDTHESTATE-SPECIFIC ACCUMULATED ANNUITY PRODUCER FOR PRODUCER ONLY USE- ONLY NOT INTENDED INTENDED FOR SOLICITING OR ADVERTISING OR ADVERTISING TO THE TO THE PUBLIC. THE OXFORD THE OXFORD LIFE INCOME LIFE INCOME PROTECTOR PROTECTOR ANNUITY (CONTRACT FORM ICC12-IP200 FORM ICC12-IP200 VARIATIONS VARIATIONS WHEREWHERE APPLICABLE) APPLICABLE) IS ISSUED IS ISSUED BY OXFORD BY OXFORD LIFE INSURANCE LIFE INSURANCE COMPANY COMPANY PRODUCT PRODUCT NOT AVAILABLE NOT AVAILABLE IN ALL IN STATES. ALL STATES. 1.) INTEREST 1.) INTEREST RATE EFFECTIVE RATE EFFECTIVE 1-1-14 AND 1-1-14SUBJECT AND SUBJECT TO CHANGE. TO CHANGE. CALL FOR CALL CURRENT FOR CURRENT RATES. RATES. VALUE CAN2.)BECLIENT WITHDRAWN PENALTY-FREE. 2.) CLIENT HAS 30HAS DAYS30AFTER DAYS THE AFTER EXPIRATION THE EXPIRATION DATE OFDATE EACHOFGUARANTEE EACH GUARANTEE PERIODPERIOD TO MAKE TOAMAKE SURRENDER/WITHDRAWAL A SURRENDER/WITHDRAWAL UNDER UNDER THE POLICY THE POLICY WITHOUT WITHOUT INCURRING INCURRING A SURRENDER/WITHDRAWAL A SURRENDER/WITHDRAWAL CHARGECHARGE OR MARKET OR MARKET VALUE ADJUSTMENT. VALUE ADJUSTMENT. 3.) DURING 3.) DURING THE FIRST THEPOLICY FIRST POLICY YEAR, INTEREST YEAR, INTEREST CAN BECAN WITHDRAWN BE WITHDRAWN PENALTY-FREE; PENALTY-FREE; BEGINNING BEGINNING IN THE IN SECOND THE SECOND POLICYPOLICY YEAR, UP YEAR, TO 10% UP TOOF10% THEOF ACCUMULATED THE ACCUMULATED ANNUITY ANNUITY VALUE CAN VALUEBECAN WITHDRAWN BE WITHDRAWN PENALTY-FREE. PENALTY-FREE.

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ANNUITY

A Split Annuity Strategy Can Cut Tax Impact on an IRA A split annuity Roth conversion strategy can help your clients increase their spendable retirement income while reducing the conversion tax to a more manageable amount. By Lloyd Lofton

T

he money in your client’s retirement account has grown substantially thanks to the dual benefits of tax-deductible contributions and tax-deferred growth. Congress provided your clients with these advantages as a way to encourage them to save for retirement. However, as is often the case with tax legislation, the advantages that seemingly save your clients from paying taxes will be offset one day by taxes that they ultimately will be required to pay. By taking advantage of the tax breaks provided through your client’s individual retirement account (IRA), 401(k), tax-sheltered annuity (TSA), 403(b) or other tax-qualified retirement plan, your clients accomplished two things: [1] They accumulated a great deal of money. [2] They also accumulated a fairly large future tax liability. The Internal Revenue Service (IRS) will not allow your clients to defer paying taxes on this money forever. That is why it strictly enforces the minimum distribution requirements that force your clients to start making taxable withdrawals at age 70½. Some people are in the fortunate position of not needing income from their IRAs or other retirement plans to support their retirement lifestyle. Many of these people would just as soon not touch this money. They would prefer to leave it in the IRA and not pay the taxes. But they can’t! They must start taking at least the minimum distribution amount at the required time. 42

Consider how much the IRA or other plan could have grown if they had not been required to take any distributions. These IRS-forced minimum distributions might erode the IRA’s principal down to 50 percent or more over their projected life expectancy. And every penny they were forced to withdraw will be subject to income taxes.

InsuranceNewsNet Magazine » February 2014

Any remaining balance will one day be passed on to their heirs, but the tax burden is passed on to their heirs as well. The beneficiaries might defer these remaining taxes by stretching out minimum IRA distributions over their lifetimes (often referred to as a stretch IRA). However, even when stretching the inherited IRA results in the balance growing over future


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(12-13) February 2014 » InsuranceNewsNet Magazine

43


ANNUITY

A SPLIT ANNUITY STRATEGY CAN CUT TAX IMPACT ON AN IRA

years, the ultimate tax burden grows as well – a burden that one day could present a tax nightmare for the heirs. These are problems faced by people who have enough other assets that they don’t need income from their IRAs. What about those who are counting on their IRAs to provide the supplemental income they know they will need throughout their retirement? Their income needs might force them to withdraw amounts greater than the IRSforced minimum distributions and thus increase the amount subject to current taxes. Over the years, many of these retirees will see their IRA balances decline significantly because they will need to increase withdrawals by an amount necessary to pay the taxes. If only there was a plan that: » Didn’t require your clients to take minimum distributions – unless that was their choice. » Allowed your clients to receive any distributions they choose to take – 100 percent tax free (under Sec. 408a(d)(1) and if the Roth IRA account has been established for five years and the owner is at least age 59½). » Passed any remaining balance on to your clients’ heirs – 100 percent tax free. Fortunately, there is: the Roth IRA. Many already are familiar with the advantages of the Roth IRA. They already know that the Roth IRA allows wealth to accumulate and ultimately be distributed entirely free from income taxes. Those with adjusted gross incomes less than $110,000 also know that they can convert all or a portion of their traditional IRA to a Roth IRA. Yet many have chosen not to convert to a Roth IRA. The main reason is that current income taxes must be paid on the amount converted. For many people, this “conversion tax” can seem to offset the tax advantages of converting to a Roth IRA. This is precisely why the split annuity Roth conversion strategy may be suitable for your client. The use of this strategy effectively can reduce the conversion tax down to a more acceptable amount, and still allow the IRA owner and his or her heirs to enjoy the many advantages of a Roth IRA. 44

To illustrate this concept, let’s consider a hypothetical IRA owner who is age 65. He has an adjusted gross income of less than $110,000 annually, so he qualifies for a Roth IRA conversion. He pays tax at the rate of 28 percent, and has a total of $100,000 in his IRA. Currently, he doesn’t need any additional income. However, starting at age 70½, he plans to begin taking withdrawals from his IRA. While future income is important to him, he would also like to know that there might be some money left in his IRA so that it could be passed on to his heirs. At first, he decides against converting when he learns that a tax of $28,000 will be due if he converts his entire $100,000 IRA to a Roth IRA. In his mind, this is simply too much of a price to pay to gain the advantages of the Roth IRA. Fortunately, you have done a full fact-finding and educated him on the split annuity Roth conversion strategy. He discovers how he can use this strategy so that the conversion tax becomes a much more acceptable amount of $10,149. Here is how he does it. He splits the $100,000 that is in his IRA into two parts. He places a total of $63,755 into one annuity. The remainder of $36,245 is placed into a second annuity. Instead of the $28,000 tax owed in his 28 percent tax bracket, he would pay a much more affordable $10,149. (We will assume that the money to pay this tax would be borrowed or paid from sources other than from the money in the original IRA.) The next step in this strategy (after the Roth conversion) would be to place the $36,245 that is in the new Roth fund into an indexed annuity (IA). Instead of crediting a company-declared interest rate of say 3, 4 or 5 percent, the gains are linked or indexed directly to the performance of a leading market index. As with other fixed annuities, your client has a 100 percent guarantee of principal plus interest. He cannot lose a penny, as long as he stays in the contract for the full contract term. Unlike other fixed annuities, however, he also has the potential to make money if the index goes up. It is planned that no withdrawals would be made from this Roth IRA (IA) fund for a period of 15 years (from age 65, when he first utilized the split annuity Roth conversion strategy, to age 80).

InsuranceNewsNet Magazine » February 2014

All the withdrawals received by the owner during this period would come from the single premium deferred annuity (SPDA) that was in the first traditional IRA annuity. Not taking distributions from the Roth IRA (IA) fund for 15 years menas the balance would be allowed to benefit from compound growth. Assuming a hypothetical growth rate of 7 percent, the Roth/IA bucket would have a balance of $100,000 by the end of 15 years (again, when the man in our example reaches age 80). So, he started with an IRA that had a balance of $100,000. He used the split annuity Roth conversion strategy and divided this $100,000, placing one part into the SPDA annuity (which stayed in the original IRA) and the second part into a Roth IRA (IA) annuity. After 15 years, the entire amount of the traditional IRA bucket was distributed to him (a total of $93,120), and now (15 years later at age 80) the Roth IRA (IA) bucket has grown to $100,000. Instead of $100,000 in a traditional IRA (with its IRS-forced minimum distribution requirements and 100 percent taxation), now he has $100,000 that is 100 percent income tax free in a Roth IRA. In addition, this Roth IRA has no distribution requirements. The owner may take any amount of distributions that he wants or he may choose never to take a distribution at all. It is entirely up to him. Not a penny of income taxes will be paid on any amount he might take out. And, at his death, any amount remaining in his Roth IRA bucket will go to his beneficiaries income tax free. The split annuity Roth conversion strategy allowed him to escape the IRSforced minimum distributions and allowed him – and his heirs – to receive all further distributions 100 percent free from income taxes. Plus, it reduced his conversion tax to an amount that he could afford much more comfortably. So, this strategy provides the right clients with an alternative while offering other important benefits, including safety and peace of mind. Lloyd Lofton, CSA, LUTCF, is the chief operating officer of American Eagle Financial Services Inc., Smyrna, Ga. Lloyd may be reached at lloyd.lofton@innfeedback.com.


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45


ANNUITY

Indexed Annuity Commissions Drop to All-Time Low in Report C ommission cut is part of scaling back that includes crediting rates, policy features and marketing plans. All eyes are on interest rates to reverse the trend.

average commission paid to the indexed annuity sales agent, according to the report. The average weighted commission paid to the agent in the quarter ranged from 0.03 percent to 8.69 percent of premium.

By Linda Koco

What’s Behind It?

I

ndexed annuities hit more than one quarterly record in third quarter. The record that’s been getting all the industry attention is the sales high of slightly more than $10 billion. But commissions paid to indexed annuity agents also hit a record – a record low, that is. The indexed annuity commission received by the agent averaged 5.66 percent of premium for the quarter, according to Wink’s “Sales & Market Report, Third Quarter 2013.” That is down by 5.5 percent from second-quarter average agent commission of 6 percent. It is also the lowest-ever 46

There is some history behind the decline. According to data from Wink, average agent commissions dropped into the 6 percent zone in second quarter of 2009. After that, they hovered in the 6.8 percent to 6.7 percent range for quite a while, but then started declining until third quarter 2013, when the average dropped into the 5 percent zone. Agent commissions for these products ranged from 8 percent to 7 percent between 2003 and early 2009. The financial pressure on capital stemming from the Great Recession and the long period of low interest rates that fol-

InsuranceNewsNet Magazine » February 2014

lowed forced many carriers to scale back not only on crediting rates, policy features and marketing plans but also, finally, on commissions. It remains to be seen whether the record low for third-quarter commissions is a signal that the whittling strategy can be expected to continue for a while longer, or if it is perhaps a sign that a bottom is forming. Both trends could be happening simultaneously, with some carriers holding the line a bit longer while others take a pause as they prepare for a rebound later in 2014. The upturn in interest rates will factor into this. Rates are not yet at levels that would nudge carriers to unleash aggressive sales campaigns with enticing commissions. Today’s rates have not even reached early 2009 levels. However, some insurance executives have said the upward creep in rates over the past several months has already made life easier, so competitiveness may set in.


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INDEXED ANNUITY COMMISSIONS DROP TO ALL-TIME LOW ANNUITY

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package. We want to give you 2 of our own Best-Selling Books, Celebrity Branding You! and our latest Best-Seller, StorySelling, which Jack Canfield, author of the Chicken Soup For The Soul Series says, “I love working with Nick and his team. They can absolutely help you get to the next level. Nick does everything he promises and then some!”

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February 2014 » InsuranceNewsNet Magazine

47


ANNUITY

INDEXED ANNUITY COMMISSIONS DROP TO ALL-TIME LOW IN REPORT

The Surrender Charge Factor with product manufacture. Second, the decline in surrender periWink’s third-quarter report contains The surrender charge periods also merit some other data that bears on the com- attention. In third quarter, 81 percent od may be contributing to or allied with mission picture in the indexed annuity of policies sold had a surrender charge the decline in commissions. In general, period of 10 years or less. That’s an indexed products with longer surrender business. For one thing, the market share of the increase over the third quarters of both periods tend to pay higher commissions various distribution channels saw some 2012 and 2011, when the 10-year-or-less than those with shorter surrender periinteresting changes. The bank, bro- category totaled 77.9 percent in each year. ods: If fewer of the long-surrender prodIn particular, products with surrender ucts are sold, the average commission ker-dealer and career channels increased their indexed annuity market share at the charges of six years or less increased their numbers will fall in response. In sum, third quarter had quite an inexpense of the independent agency chan- share to 7.5 percent of total sales from 4.9 dexed annuity story to tell. nel, according to the Wink It was a time when indexed researchers. annuity sales broke all preIndependent agents still vious quarterly sales records took the biggest share of to reach a new high, while the business, though. They 8.4% high in 3Q05 average indexed annuity produced about eight out commissions fell to their of every 10 indexed annu8.1% lowest point ever. ities sold in the quarter. Annuity specialists who But the third quarters of focus only on (or mainly on) both 2011 and 2012, indeindexed annuity sales may pendent agents sold nine have suffered a financial setof every 10 indexed annuback of sorts if they or their ities, according to Wink’s products were caught up in earlier reports. So the balthe commission squeeze. ance of power shifted a bit But if they made it up on in the recent quarter, as volume – which could have competitors nipped at the happened, given the record heels of the independents. high indexed annuity sales In particular, banks sold for the quarter – or if they their way into an 11.1 peradded other products and cent indexed annuity marservices to their menu, they ket share in third quarter. may have broken even or That’s up from 7.1 percent possibly come out ahead. in third quarter 2012, and For agents who sell withfrom 6.6 percent in third out regard to commission, quarter 2011, according to 5.7% some of the above discusWink figures. sion will be of only passing Assuming that banks pay 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 interest. Their eyes will fosmaller commissions to Source: Indexed annuity average commission, as shown in Wink’s Sales & Market Report 3rd Quarter 2013 cus more on what is going their sales agents than do on inside the products (with other channels, the galloping bank sales may help explain at least percent in third quarter 2012, according to features, options, flexibility, etc.), how some of the average commission decline Wink; and products in the seven-year cat- those changes will fit customer needs and egory increased to an 11.5 percent share the strength of the carriers that back the that Wink’s radar picked up. Sales at broker/dealers (wirehouse only) from 4.9 percent the year previous. Mean- products. But even these agents will take also got a small bounce. Their indexed while, products in the eight- to nine-year the commission trend as a barometer of annuity sales represented a third-quarter surrender charge category remained lev- sorts about how the industry is faring. If commissions continue to drop, at market share of 2.5 percent. That’s not a el at 8.2 percent between the two years, big piece of the pie, but it is up from 1.2 and those with 10-year surrender charges what point will this force agents and dispercent in third quarter 2012, and it put dropped share to 53.8 percent from the year- tributors out of the business or spur them to adopt new practices that enable them broker-dealer production back close to earlier third-quarter share of 59.9 percent. The significance of the surrender charge to continue? It will take future quarters to where it was in third quarter 2011 (a 2.9 numbers is twofold. First, the numbers get a better handle on this. percent share). Given that wirehouses are not known demonstrate that sales are continuing to to be particularly fond of indexed annu- favor products with shorter surrender Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, ities, this turn of events deserves at least a charge periods, a trend begun several annuities and income planning. Linda may be years ago and that carriers have facilitated reached atlinda.koco@innfeedback.com. one-eyebrow salute. The Market Share Factor

Average Agent Commission

48

InsuranceNewsNet Magazine » February 2014


THERE’S NO FUTURE IN

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

Annuity companies love income riders. It’s no wonder… they save billions of dollars each year on them. They sell them without any regard for your future or your client’s best interests. They only care about selling you product. They don’t think twice about trapping your clients into an inferior annuity that most likely will never go beyond the guarantees. They make money at the expense of your practice and your clients’ hard-earned retirement savings. Request our FREE REPORT today that exposes the income rider trap that could ruin your practice. Download free at www.IncomeRiderTrap.com.

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Learn the Truth and Escape the Income Rider Trap at www.IncomeRiderTrap.com Or call us for the full story at 866.268.2640. Peak Pro Financial is not an annuity FMO. We’re a Producer Development Company. We have changed the business plans and lives of agents that write $500K a year and even $20 million a year of annuities. There is no agent to big or too small. February 2014 » InsuranceNewsNet Magazine

49


HEALTHWIRES

Key Dates in ACA implementation in 2014 bitly.com/qrdates

Health Spending Rate of Growth at 53-Year Low U.S. health care spending in 2012 increased by 3.7 percent, the lowest rate since 1960, U.S. officials said. An analysis by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) estimated U.S. health care spending grew at a rate of 3.7

QUOTABLE It’s just another example of ‘We’ll fix that later.’ — Bob Laszewski, an industry consultant who said he’s received complaints from several insurers about the ACA enrollment website.

percent in 2012 to $2.8 trillion.

Lead author Anne B. Martin, an economist in the Office of the Actuary at CMS, said the growth of health care spending during all four years was at the slowest rates ever recorded in the 53-year history of the National Health Expenditure Accounts. Health care policy experts said the drop in the growth of health care spending was due mainly to the recession because the millions who lost jobs also lost health insurance and even those with jobs and health insurance put off treatment for some health problems until economic times were better. The White House acknowledged a slow economy has played a role in keeping cost growth low, but it argued the trend persisted in part because of Obamacare as the economy improved, The Hill reported. The United States spends more on health care than any other country – more than 2.5 times more per capita than the second-highest spending country.

SNAPSHOT OF THE UNINSURED

Just who are the uninsured Americans anyway? A large percentage of them are young white or Hispanic men who are either working or have someone in their family working U.S. officials said. In New York, 1.9 million people, or 12 percent of the state’s population, are uninsured. Fifty-seven percent of uninsured New Yorkers are male, 43 percent are ages 19 to 34, 41 percent are white, 28 percent are Hispanic. Seventy-four percent of uninsured New Yorkers are either working or have someone in their family working full time. In California, the state with the most uninsured, 55 percent of those uninsured are male and 72 percent are working or have someone in their family working full time. Forty percent of California’s uninsured are ages 19 to 34, 50 percent are Hispanic, DID YOU

KNOW

?

29 percent are white. Texas has the high-

est proportion of people without health insurance, at 23 percent, or 4.9 million,

with 79 percent who are working or have someone in the family working full time. Fifty-three percent are male, 39 percent are ages 19 to 34, 50 percent are Hispanic, 32 percent are white.

AMERICANS SEE HEALTH CARE AS TOP NATIONAL PROBLEM

Americans think that health care is the No. 1 problem the government should be working on today – but aren’t confident that the federal government can handle it. In an Associated Press-NORC Center for Public Affairs Research survey, more than 50 percent of respondents named health care reform as the top issue needing attention from the government, more than named unemploy-

ment, the economy or the debt, which were the next three top problems.

ENROLLMENT IN MEDICARE ADVANTAGE PLANS will grow more slowly in 2014 than it did the past couple of years, predicted a Citi analyst who follows health insurers. Source: Associated Press

50 InsuranceNewsNet Magazine » February 2014

While Americans are concerned about health care reform, they have little faith in the government’s ability to address their fears. Nearly 70 percent said that they lack confidence in the government to make progress in fixing health care.

ALZHEIMER’S PATIENTS TURN TO FARAWAY LANDS FOR CARE

Many families of patients with Alzheimer’s disease will go to great lengths to obtain care for their loved ones – and some literally will go to the ends of the Earth to find that care. Faraway countries such as Thailand, Greece, Spain and the Philippines are offering cheaper and, to some minds better, care for those suffering from the irreversible loss of memory. The nascent trend is unnerving to some experts who say uprooting people with Alzheimer’s will add to their sense of displacement and anxiety, though others say quality of care is more important than location. There’s also some general uneasiness over the idea of sending ailing elderly people abroad; the German press has branded it “gerontological colonialism.” Germany is already sending several thousand sufferers, as well as the aged and otherwise ill, to Eastern Europe, Spain, Greece and Ukraine. The Philippines is offering Americans care for $1,500 to $3,500 a month, well below U.S. rates. About 100 Americans are currently seeking care in the Philippines, said J.J. Reyes, who is planning a retirement community near Manila.


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HEALTH

Seeing Around the Corner to 5 Trends in Voluntary Benefits N ontraditional employee benefits and financial wellness programs are two of the trends that will be seen in 2014. By Elizabeth Halkos

L

ife is just plain easier when you can see what’s ahead of you. That’s what Mike Myatt, author and Forbes contributor, says about predicting the future. Myatt goes on to say that some leaders clearly have poor vision – their most polished skill seems to be running into brick walls. Other leaders possess adequate vision – they avoid the obvious speed bumps, but fail to stand out from the crowd. Then there are those leaders who possess legendary vision – the rare few who can see around corners. What you may not realize, he points out, is that everyone can learn to see around corners, and it’s not as hard as you think. This year, health insurance producers who have branched out into benefits will be more valuable to their clients and will see their revenue stream increase at the same time. Seeing around the corners in the benefits industry this year involves focusing on the emerging trends in voluntary benefits. The substantial role that voluntary benefits will play for employers and their employees is second only to health care reform in what’s happening in employee benefits this year. Both traditional and nontraditional voluntary benefits are making their way to the forefront of the benefits package that employers offer. Voluntary benefits are no longer a “nice to have” added to the employee benefits package by progressive employers. Voluntary benefits are an essential component of the benefits program in order to attract and retain employees. Producers who offer a variety of voluntary benefits in their product portfolio are helping employers provide benefits that create not only more productive, en52

InsuranceNewsNet Magazine » February 2014

Health insurance producers who have branched out into benefits will be more valuable to their clients and will see their revenue stream increase.


SEEING AROUND THE CORNER TO 5 TRENDS IN VOLUNTARY BENEFITS gaged and empowered workers, but also an increased bottom line. In addition to helping their clients meet their human resource objectives, these producers are increasing their earnings potential by expanding their product portfolio. Here are five emerging trends in voluntary benefits this year that producers should have on their radar.

fits, employees can customize their benefits package and choose what suits their individual needs. They can build a financial safety net by adding on traditional voluntary insurance products as well as nontraditional voluntary benefits such as employee purchase programs, financial education, pet insurance, legal plans and identity theft policies.

1. Voluntary Benefits are Indispensable

3. Nontraditional is Becoming Mainstream

Voluntary benefits are now a “must have” and are indispensable in the employee benefits program. Whether employers choose to offer compliant group health insurance or send their employees to the health care exchanges, voluntary benefits will come to the forefront as a solution to round out the employee benefits package under health care reform. As a result, a wider array of traditional voluntary benefits will be included in the employee benefits package. Among the traditional voluntary benefits employers will add are gap coverage, shortterm disability, cancer, critical illness, prescription, dental, life insurance and hospital supplemental policies. Producers should make sure they have these products in their portfolios.

2. Employees are Asking for Them

Employees like voluntary benefits. Employees ask for voluntary benefits and want to be able to choose from an assortment of these benefits to meet their diverse needs. Employee benefits are an important driver of employee satisfaction. Well-designed benefits plans, based on employee desires and needs, enable companies to strengthen their ability to attract and retain workers. More than three-quarters of employees responding to the Employee Benefit Research Institute’s 2013 Health and Voluntary Workplace Benefits Survey said that the benefits package an employer offers prospective employees is extremely or very important in their decision to take the job. Employees already are speaking out in favor of voluntary benefits to meet their diverse personal needs. A TNS Omnibus survey reported that 86 percent of employees say it is important to be able to customize all of their benefits to fit their individual lifestyle. With voluntary bene-

While many employers are familiar with traditional voluntary benefits, this past year has seen nontraditional voluntary benefits offered more frequently in employee benefits packages. A recent Eastbridge Consulting survey shows 13 percent of employees have selected employee purchase programs as a voluntary benefit offered through their work; 8 percent selected legal plans, 3 percent selected identity protection and 1 percent selected pet insurance. Eastbridge notes that ownership of these products is low because many of these have only recently begun to be accepted as employee benefits. Look for ownership of nontraditional benefits to increase this year. Nontraditional voluntary benefits offer workers a way to obtain items and services through convenient payroll deduction. Most of the nontraditional offerings provide immediate tangible benefits that further increase their appeal, as they can be used year-round to obtain something that an employee needs or wants, rather than many core benefits that employees appreciate only when they are sick or injured. Nontraditional voluntary benefits such as group legal plans, financial planning and employee purchase programs will continue to grow in popularity as viable financial-support tools.

4. Financial Wellness Benefits will be Popular

Employees’ financial problems are employers’ problems too. This is because employees not only bring their financial problems to the workplace in the form of stress, but they also deal with their financial issues during business hours. If employers want their workers to be focused on their jobs, then they have to consider how to help their employees with their finances.

HEALTH

A growing number of companies have discovered that they can build employees’ loyalty, increase their productivity and improve job satisfaction by providing programs that help them attain financial wellness. Many employers have discovered no-cost and easy-to-implement options to help employees develop healthier relationships with money. They are offering financial education and financial wellness programs at work to help employees take control of their financial future and increase their financial literacy with on-site money management, financial planning seminars and employee purchase programs.

5. Nontraditional will Continue to Expand

Over the past few years, the types of nontraditional voluntary benefits available on the market have diversified. Expect to see more expansion in the types of available benefits this year. Among the latest nontraditional voluntary benefits are financial planning and online educational services, including college courses, certifications and career development, and even specialized courses for health care professionals. Empowering employees with educational benefits can be a valuable addition to the benefits package. Look for more of these to emerge this year, such as Graduate Management Admission Test prep and Graduate Medical Education courses offered on the educational side. Also coming will be affordable solutions to support work-life balance, such as vacations. Producers who embrace the emerging trends in voluntary benefits this year will, indeed, be seeing around the corners. By bringing the emerging trends to the table with their clients, these producers are doing more than simply presenting a variety of products to their clients. They are helping employers meet their HR objectives by improving recruitment and retention as well as the bottom line. In the process, producers will add to their own revenue stream. Elizabeth Halkos is chief revenue officer of Purchasing Power, which offers employer-sponsored voluntary benefits. Elizabeth may be contacted at elizabeth. halkos@innfeedback.com.

February 2014 » InsuranceNewsNet Magazine

53


FINANCIALWIRES

2 in 3 call 2013 a “bad year” for their family. bitly.com/qrbadyear

QUOTABLE

Bully for 2014! The equities markets blew the doors off even the most bullish prognostications last year, so analysts have the 2013 filter on their crystal ball as they look into 2014. The year ahead looks good to almost every soothsayer out there. For example, Business Insider did a roundup of outlooks and found an average call for the S&P 500 to hit 1,955. The index stood at 1,839 on Jan. 9. The public seems to agree, with the Bloomberg Consumer Comfort Index showing people less gloomy. The gauge ticked up to minus 28.4 by Jan. 5 from minus 28.7. That might have sounded like a thermometer in Chicago from around that time, but apparently it’s a good number. Bloomberg credited growing employment opportunities, higher stock prices, a better real estate market and less political brinksmanship in Washington. That last one might be as fleeting as a cold snap, but apparently it’s warming the hearts of Americans enough to make them spend money. Of course, when you have bulls, bears can’t be far behind, even if it’s just a few stragglers. Money magazine had a piece headlined “Stocks, bonds? In 2014, think cash,” which basically said stocks are overvalued. It said the S&P 500’s price/earnings ratio for the year is 16, “which is more than 15 percent higher than the market’s long-run average.” Then it goes on to say bonds are dogs, so hide cash under a money market mattress. As imprudent as this might seem to be in today’s market, this advice is in a major consumer publication, so your clients are reading it.

WHEN THE ‘GUARANTEE’ WORD IS IFFY

Federal regulators are looking hard at the terms “protected,” “guaranteed” and similar safe-sounding words when used in names of variable insurance products and mutual funds. “We understand that insurance is often associated with protection against risk or loss,” said Norm Champ, director of investment management at the Securities and Exchange Commission (SEC), in a speech this fall. “However, when an insurance contract is also an investment product, it is important that the product name not overstate the safety and security provided by insurance aspects of the contract in a way that could be confusing or misleading for investors.” So that’s why the staff has published a Guidance Update (2013-12) on the topic. That’s why the staff has been requesting that some funds and contracts change their DID YOU

KNOW

?

54

names. And that’s why the SEC is urging product issuers to consider reviewing the names used in both newly developed and existing contracts and possibly changing them to something “more balanced and representative” of actual promises. Takeaway for advisors: If variable annuity or variable life name changes start coming down the pike on existing products, the SEC guidance might have something to do with it. For compliance purposes, it’s time to use the new names.

AND THEN THERE ARE THE ALTERNATIVES

Alternative mutual funds saw record inflows of $37.1 billion for the first 11 months of 2013, according to Morningstar. That represents a 41 percent organic growth rate, the Chicago researcher says. Is it a fad? Maybe or maybe not. Morningstar says the alternatives category group had inflows virtually every month

THE AVERAGE RETURN ON 8 AN INITIAL PUBLIC OFFERING was 20 percent MINORITIES MAKE UP ONLY PERCENT of the financial advising industry, this year. to The average increase in the first daywith (or 37 “pop”) is 13ofpercent. according a 2007 SIFMA report, compared percent the overall Source: Renaissance Capital U.S. population. Source: SIFMA

InsuranceNewsNet Magazine » February 2014

As a financial planner, if I make a mistake I can usually correct it. But as a doctor, if you make a mistake, a patient can be harmed or even die. — Joel Greenwald, writing in The New York Times about his career switch from physician to financial planner

over the past five years. However, Morningstar also says that assets in the alternatives group make up just 1.2 percent of longterm mutual fund assets. In other words, alternative mutual funds have a long way to go before they achieve mainstream status. In the meantime, if customers drool over having alternative investments in their variable annuity or variable life products or in their retail fund accounts, it won’t hurt to point out the big and small of this trend. As the saying goes, past results are not a guarantee of future performance.

IRA MARKET IS BIG, VERY BIG

IRAs

make up Individual retirement accounts approx. account for about 28 percent of all U.S. retirement assets, according to a guidance document on IRA rollovers from the of all U.S. Financial Industry Regulatory retirement assets Authority (FINRA). In raw dollars, that comes to $5.4 trillion of the total $19.5 trillion retirement plan market at the end of 2012. By comparison, defined contribution plan assets came in at $5.1 trillion, and various other retirement plans had assets with a combined total of $9 trillion, the federal authority says, citing figures from the Investment Company Institute (ICI). The natural question to ask is, did consumers save their way into that huge IRA money pot all on their own (i.e., outside their employer-provided retirement plans)? Well, no, they didn’t. The largest source of IRA contributions was none other than rollovers from employer-sponsored retirement plans. In 2011, those rollover assets were almost 13 times the amount of direct contributions, according to Employee Benefits Research Institute numbers cited by FINRA.

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FINANCIAL

The 10x Formula to Grow Your 401(k) Business N ew, hungry advisors can boost their sales by helping seasoned 401(k) advisors increase their business tenfold. By Charlie Epstein

S

easoned advisors looking to grow their 401(k) business tenfold without having to do 10 times as much work have all they need to succeed. The answer is new advisors looking for better leads and a way to jumpstart their career. But how can they find one another? That’s the trick. But before we get to that, let’s look at some facts: » More than $8 trillion exists in 401(k) retirement assets. » The majority of 401(k) plan participants lack financial literacy and do not have the resources for a secure retirement. » More than 10 million working Americans are taking their Social Security benefits already, and they urgently need financial guidance as they near their retirement years. In every dollar of retirement revenue an advisor generates from the 401(k) assets they manage, there is 10 times that amount of revenue available to be generated from ancillary business opportunities. These ancillary business opportunities include group benefits; life insurance and disability, including key person insurance; deferred compensation arrangements; long-term care insurance; and individual financial planning services to owners, executives and every employee. Don’t forget the ability to capture rollovers from retirement assets outside the plan from old 401(k)s or individual retirement accounts. Since 2002, I have coached more than 56

Seven Solutions for Seeking Seasoned Advisors If you are new to the business or just stuck in a rut, the solution might be in mining someone else’s already established book. Here is how to help seasoned advisors see the value of their book: 1. Identify 401(k) advisors age 55 and over in your chosen location. 2. Research their practice, subscribe to their newsletter, review their website and follow them on social media. If they hold financial planning workshops, attend them. Learn what they do, why they do it and for whom they do it. 3. Consider who has the same values and beliefs as you do. Whom do you already admire in the industry and whose approach and style appeal to you? 4. Send them a letter and introduce yourself. Let them know what you most admire about them and their practice. Share how you believe you could help them service their existing clients and generate new business. Offer them a specific solution to a problem you perceive they have. They may already recognize this problem, as I did, or it may be a constructive eyeopener — a sparkling new opportunity to generate business almost effortlessly. 5. Follow up with a phone call and ask to meet and share your ideas in person. 6. Be persistent but respectful. Remember, they have been in business longer than you and they think they know everything! 7. Do this with 10 local 401(k) advisors.

2,500 advisors, both new to and experienced to the industry. Many of the young and energetic ones are struggling to find qualified leads to work with or are wasting money on the wrong “magic” systems. Then there are the advisors with a strong book of 401(k) business. This type of advisor is very experienced and successful in managing the assets of the plan but does not necessarily have the time or tenacity to work all the ancillary opportunities. Some of these advisors focus on financial and estate planning, but it is

InsuranceNewsNet Magazine » February 2014

primarily geared toward business owners and their key employees. The largest potential client base, the “rank and file” employees, is not being serviced at all. The funny thing is that both types of advisors are looking for ways to take their practices to the next level. I started out in the life insurance business back in 1979 and, over the years, I grew to have enormous enthusiasm for the retirement industry. One of my early differentiators as a 401(k) advisor was to focus on successful retirement plan out-


FINANCIAL

THE 401(K): HOW TO ADD ANOTHER ZERO TO YOUR BOTTOM LINE comes for both plan sponsors and plan participants. I find it absolutely vital to offer educational meetings for all my 401(k) plans. As a by-product, relationships were built and many employees started coming to me for other financial planning advice. I soon developed a repeatable system for setting up one-on-one meetings and, over the years, built a significant stream of additional revenue. This was great for me while I was still building my practice from the ground up. But it got to a point when I could no longer continue to scale the front part of my business and keep up with all the subsidiary business demands that helped shape my success, satisfaction and significance. So I am able to share with you this secret to success not only because I have experienced it myself in my practice, but because I see the same predicament across the country with advisors in my coaching programs. If you are a new advisor trying to plant the seeds for a successful finan-

If you are a new advisor trying to plant the seeds for a successful financial planning future, your solution is to partner with a seasoned 401(k) advisor. cial planning future and are frustrated by the lack of results, your solution is to partner with a seasoned 401(k) advisor. Present them with the opportunity to grow their business faster, easier, cheaper and bigger, with you as the solution. When I was able to reach a certain level of production in my practice, I partnered with another local advisor

who was passionate about retirement education and qualified to discuss financial planning and products. I knew that education was important to the success of the plans I managed, and I knew there was a demand for additional needs from all demographics. Over the years, I have had several advisors work on my team to provide additional value to my book of business, and together we garnish the additional returns. This has allowed me to keep my primary focus on selling more 401(k) plans and follow other business opportunities while still providing the benefits of employee education and one-on-one support for employees. The ancillary business benefits both me and the junior advisor, and the value of the financial assistance to the employees is unquestionable. It’s a win-win-win! Charlie Epstein, CLU, ChFC, AIF, is the founder of The 401k Coach Program and author of Paychecks for Life. He may be contacted at charlie.epstein@ innfeedback.com.

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February 2014 » InsuranceNewsNet Magazine

57


BUSINESS

How to Execute Your Business Plan Increase sales by identifying your most important activities, gaining control over your time and getting your staff involved in the process. By Todd Colbeck

T

he majority of financial professionals fall into one of three buckets:

[1] Those who don’t write a business plan.

[2] Those who write a business plan

and don’t follow it as much as they intended.

[3] Th ose who write a business plan and follow it exactly as they intended.

The majority of professionals I know typically fall into bucket No. 2. They write a plan because their manager wants them to, then they stick it in a drawer and forget about it. If that sounds like you, this article will be a big help. If you are in bucket No. 3 and you followed your plan but didn’t hit your targets, this article will also help. If you are in bucket No. 1, congratulations! You don’t have any bad habits, and you can get right down to properly compiling and executing your business plan. In compiling your business plan, you need to recognize the difference between a desire and a goal, how to get the results you want in the least amount of time, and how to leverage your staff in the process. When you do this successfully, your office likely will be running itself in about a month! When I ask advisors about the goals they have for their business plan, I often get a list of desires like “to acquire 50 new clients” or “to sell 100 policies.” Well, there is nothing wrong with having a desire, but planning is about the things you can control. So, instead of expressing a desire to acquire 50 new clients, you might say, “I will spend 10 hours prospecting a week” or “I will use a referral system every time I meet with a client.” 58

Instead of saying, “I want to sell 100 policies,” you might say, “I will continuously test and improve my insurance presentation until I can close nine out of 10 qualified clients” or “I will conduct at least 10 service meetings a week and present a new insurance strategy whenever appropriate.” Note the difference between simply stating desires you can’t control and executing controllable activities that will lead directly to achieving those desires. What type of controllable activities should you focus on in your business plan? And how do you leverage your staff in this process? Just as financial professionals fall into one of the three buckets I mentioned earlier, activities fall largely into three buckets as well. First, you have activities that are important but not urgent. Next, you have activities that are urgent but not important. Finally, you have activities that are both urgent and important. The bucket that is the biggest time suck

InsuranceNewsNet Magazine » February 2014

is obviously the one containing activities that are urgent but not important. However, the most profitable bucket is the one containing activities that are important but not urgent because, in that bucket, you consciously are able to be proactive about your time. Now that you know which bucket is the most profitable, can you tell me your most important activities? Strangely, most people can’t. You should be able to rattle them off in your sleep because 80 percent of your results come from only 20 percent of your activities. For a financial professional, the most important activities are prospecting, meeting with clients and closing sales. Think about it – what percentage of your time did you spend on those activities last month? Now, what would happen to your results if you doubled that percentage of time next month? So those are the important activities on which you should focus to implement your plan successfully and grow your business.


HOW TO EXECUTE YOUR BUSINESS PLAN The most common problem I see regarding these activities is simply poor time management. In order to execute your business plan successfully, good time management is critical. Try planning your day the night before by listing the top six things you want to get done. The next day, start by working on the most difficult thing first, when you are fresh, and save the easy things for later in the day. Now think what would happen if you leveraged this time management system with your staff. Your results really would take off! But how can you manage to do

BUSINESS

help change that list if necessary. After about a month, your office likely will be running itself. Be aware that as you and your staff spend more time executing those 20 percent of the tasks in your business plan that generate 80 percent of your results, you will become busy. You may even find it necessary to hire additional staff because you will have so much more business to process and so many more clients to serve. Consider linking financial incentives to the staff’s top “20 percent” tasks if you know that timely execution of those

The 80/20 rule is a universal principle. That means 80 percent of staff member’s results come from 20 percent of their activities. that while you are busy focusing on your own critical activities? This is where you need to leverage your staff to help you execute your plan. The 80/20 rule is a universal principle. That means 80 percent of staff members’ results come from 20 percent of their activities. Do you know what those activities are? Well, if you don’t know, I can practically guarantee no one else does either. Here is how to find out. Make a list of all the activities you want this staff person to perform. (We will assume this staff person is self-motivated.) You must have at least 10 items on that list. Next, go through that list and identify the three activities that generate 80 percent of the results. This is not difficult; they will jump right off the page when you see them. Then, ask the person what percentage of their time generally is spent on those items. (Try not to look too upset when you find out!) Now help your staff manage their time with the ideal of doubling the amount of time spent doing these three things, using the six-item technique you will be doing yourself, which is planning your day the night before by listing the top six things you want to get done. In a mornign meeting, review the six things on which your staff will focus each day and

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tasks will grow your practice. But there is another method to provide incentives that works great and is free. That method is to give your staff feedback and recognition every week. Most advisors I speak with believe this is important but they simply are too busy to remember to do it consistently. I suggest putting a reminder on your calendar. A goal should be linked to an activity over which you have control. The most important activities to control are the “20 percent” activities that create 80 percent of your results: prospecting, meeting with clients and closing sales. The financial rewards you desire in your business plan are simply a result of good execution of the proper activities. Planning the top six things on which to focus each day will help you stay on track. Finally, make sure you and your staff discuss the “20 percent” activities that create 80 percent of their results and align those activities with incentives. Todd Colbeck, MBA, is owner of Colbeck Coaching Group, Miami Beach, Fla. He formerly was brokerage vice president of the northeast U.S. region at American Express Financial Advisors. Contact Todd at Todd.Colbeck@innfeedback.com.

February 2014 » InsuranceNewsNet Magazine

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

MDRT INSIGHTS

Despite Changing Direction, Take the Compliant High Road In the midst of the confusion over implementing the Affordable Care Act, employers and administrators must be certain to comply with the new law. By David Goldfarb

T

he media noise on implementation of the Affordable Care Act is deafening. It’s important for employers and administrators to familiarize themselves with the items outlined below so they can ensure compliance.

Marketplace Notification

Effective Jan. 1, 2014, employers must provide notice to employees within 14 days of their hire date. Specifically, health care reform requires employers to include the following information: a description of marketplace services; potential availability of subsidies; potential loss of employer contributions to health care; and marketplace contact information. Employers are free to craft their own marketplace notices, but the government has provided two templates available at bitly.com/qrfsla.

Grandfathered Status

Employers desiring to maintain grandfathered health plan status must include a statement in any materials provided to a participant or beneficiary. They need to describe the benefits provided under the plan or health insurance coverage, as well as include contact information for questions and complaints. Any plan sponsor that fails to provide this annual notice will be determined to have forfeited grandfathered plan status. Employers are encouraged to use the language at bitly.com/ qrgrandfather to satisfy this requirement to maintain grandfathered plan status. Plans existing on or before March 23, 2010, aren’t required to comply with certain health care reform mandates, such as providing internal and external claims appeal processes. 60

IRS Form W-2 Reporting

Health care reform requires employers that sponsor group health plans for their employees to report the cost of coverage – the portions paid by both employer and employee. The cost generally continues to be nontaxable to employees. Employers not subject to transitional relief need to report health plan costs in Box 12, using code DD on the Internal Revenue Service Form W-2. Employers that issued fewer than 250 W-2s in the prior year are not required to report group health plan costs until the Internal Revenue Service issues future guidance. Employers must be given at least six months’ advance notice of any change to this transitional relief. Also, employers are not required to report the cost of coverage on any midyear W-2 issued to an employee who terminates employment before plan year-end.

Summary of Benefits and Coverage

The law requires plan administrators to produce an annual Summary of Benefits and Coverage (SBC). An SBC is intended to be an easy-to-understand document that includes the following elements: »A description of coverage for each category of benefits, exceptions, reductions or limitations. »C ost-sharing provisions of coverage; deductible, coinsurance and copayment obligations. »R enewability and continuation of coverage provisions. »A coverage facts label or coverage examples. »A statement that the SBC is only a summary and that the plan document, policy or certificate of insurance will govern contractual provisions of coverage. »A contact number to call with questions and a web address where a copy of the actual individual coverage policy or group certificate of coverage can be obtained and reviewed.

InsuranceNewsNet Magazine » February 2014

»C ontact information to obtain a list of network providers, an Internet address where an individual may find more information about prescription drug coverage and the Uniform Glossary. The law states that participants, beneficiaries and prospective enrollees must receive an SBC with initial enrollment materials and, in most circumstances, annually at least 30 days prior to the first day of coverage for a new plan year. Additionally, administrators must furnish an SBC within seven business days to any participant or beneficiary who requests one.

IRS Form 720

Beginning in 2013, health insurance issuers and sponsors of self-funded employee benefit plans began to calculate, report and pay Patient-Centered Outcome Research Institute (PCORI) fees. PCORI helps fund a quasi-governmental entity to monitor and report on the effectiveness and outcomes of medical treatment. The fee is based on the number of covered lives under a plan, multiplied by a stated dollar amount, which is $2 (# of lives x $2). Although insurance carriers must file Form 720 and pay the fee for insured plans, such plan sponsors should coordinate with their respective carriers to ensure compliance. There are many health care reform notice reporting requirements with which employers and group health plan administrators must comply in 2014. It’s important to alert them to these changes that certainly lie ahead as lawmakers tangle over implementation of the law. David Goldfarb is managing principal, Digital Benefit Advisors, Dallas, Texas. He is a fouryear member of the Million Dollar Round Table (MDRT) and four-time Top of the Table qualifier. David may be reached at david.goldfarb@innfeedback.com.


NAIFA 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.

Living Benefit Riders Open Up Possibilities for Your Client U nderstand the benefits of the long-term care/chronic illness rider to help your clients make the most of their life insurance policies. By Michael Smith

A

bout a year ago, I wrote an article about living benefit riders that are attached to life insurance contracts. As most of you know, living benefits are long-term care, critical illness and terminal illness riders that allow the insured to access the death benefit of his life policy should he need longterm care services, suffer a critical illness such as a heart attack or cancer, or have a terminal condition with death likely to occur in a year or less. In most cases, any claim for living benefits is considered an accelerated advance of the death benefit and is tax-free. These riders are available on both term and permanent life insurance coverage and vary between carriers. I would like to present my findings on living benefit riders and provide a sales idea I discovered over the past year for one of them – the long-term care/chronic illness rider.

Long-Term Care/ Chronic Illness Riders

More insurance carriers have introduced a living benefit to new policies since I last wrote about living benefits. The most common is a long-term care (LTC) version actually filed as a chronic illness rider under Internal Revenue Service (IRS) Code 101(g). These chronic illness riders must not be marketed as long-term care insurance (LTCi) and must have indemnity payments if there is a claim. While it is similar to a true LTC rider, there are important differences, such as: » A true LTC rider is filed under IRS Code 7702B and 101(g), can be marketed as LTCi and is typically an expense

reimbursement plan. The advisor is required to hold a health license and be LTC trained and certified in order to sell it. On the other hand, selling a chronic illness rider does not require a health license or training. » Both the chronic illness and the LTC riders have similar triggers to warrant a claim, including a cognitive impairment or an inability to perform two of the six activities of daily living (ADL). However, it is possible for someone to not qualify for a claim under the chronic illness rider even though he is eligible under the LTC definition. For example, suppose your client is working in his yard, slips off a ladder and falls. He breaks his back and leg, but he will recover. He cannot perform two ADLs, but because he is expected to recover, he is not considered to have a chronic condition. Therefore, he is not eligible for a claim. On the other hand, a true LTC rider would provide a benefit to him provided the elimination periods are met, even if he is expected to recover. It is important that this aspect is understood by your prospect or client when sharing benefits and features with him. The plan design for LTC/chronic illness riders varies according to carriers. Some have the rider optional and underwritten. It is possible to qualify for life insurance but be declined or rated for the LTC/chronic illness rider. The rider does have an additional premium cost. Usually, the client chooses a percentage of the death benefit to be avail-

able monthly at claim time. For example, a $300,000 universal life (UL) insurance policy could have a 2 percent LTC rider, which could be used to help cover LTC expenses. Two percent of $300,000 equals $6,000 of monthly benefits, which can be used to reimburse or cover LTC services as needed by the insured. A second plan design has the LTC/ chronic illness rider automatically included in the policy with no additional underwriting or premium cost. However, the actual amount of dollars available for LTC services is unknown until claim time. One carrier, for example, allows for an annual withdrawal of 24 percent of the death benefit. But then a formula is calculated and the actual amount of available dollars becomes known. Consider another $300,000 UL policy, for example. Twenty-four percent of $300,000 is $72,000, or about $6,000 per month. But then the formula kicks in. If the client is 60 years old at the time of the claim, he will receive about 60 percent of the $72,000 per year, or $43,200. The remaining $28,800 of the eligible benefit for that year is forfeited. An 80-year-old making a similar claim would receive 80 percent of the $72,000, or about $57,000 for LTC services, with the other $14,000 forfeited. The formula is somewhat age-based. The older the client is at the time of the claim, the more favorable the actual benefit will be. It is more challenging to plan for the exact amount of dollars to be available for an LTC/chronic illness claim, but the rider is built in and does not require an additional premium. Michael Smith, LUTCF, is president of CPS Horizon Financial in Hales Corners, Wis. He is a NAIFA member and chairman of the association’s Member Benefits Committee. Mike may be contacted at michael. smith@innfeedback.com.

February 2014 » InsuranceNewsNet Magazine

61


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

LIMRA INSIGHTS

The Independent Advisor: One Size Does Not Fit All C arriers who understand this growing sales channel can do more to attract and retain the business of top independents. By Donna B. Chaffin and Emily Tracey

F

or many core financial products and services, independent distribution is the leading sales channel in the industry. It accounts for half of life insurance new annualized premium and 40 percent of annuity business written. Independence is appealing to experienced financial professionals for a variety of reasons. Independent advisors have the autonomy to build their own practice and control their own business, the financial flexibility to charge for their services using the method that works best for them and their clients, the ability to build equity in their practice, and even to have a better work-life balance. Having a better understanding of the practices of today’s independent financial professional (IFP) will help all the entities – manufacturers, intermediaries and the practitioners themselves – work more efficiently together. Manufacturers and intermediaries that understand the practices and preferences of their IFPs can build an appealing value proposition to attract and retain the business of top independents. Organizations that work with IFPs need to be sensitive to the fact that not all IFPs are alike. Investment-focused IFPs are slightly younger, make more money and have fewer clients than their insurance-focused counterparts (see Table 1). Almost half of investment-focused IFPs choose to focus on investment products because of a personal preference, even though the majority (91 percent) of this group has a life insurance license. The study also noted that IFPs looking to place their fixed life and annuity business will constantly re-evaluate their carrier relationships, creating increased competition among those carriers. 62

Table 1 — IFP Practice Profile InvestmentFocused

BalanceFocused

InsuranceFocused

Age (median)

52

52

56

% Female

8%

15%

9%

2011 Gross Income (median)

$205,000

$200,000

$159,000

Number of Clients (median)

175

220

269

While survey respondents identified themselves as a particular type of financial professional, for this research they were reclassified based on actual product mix. IFPs with 80 percent or more of their revenue or sales coming from investment or advisory products are categorized as investment-focused IFPs. These same products make up 44 percent or less of the revenue or sales of IFPs categorized as insurance-focused, and the remaining IFPs are referred to as balance-focused.

Getting the IFP contracted initially is only the first step. IFPs place their life and annuity business with only half the insurance carriers with which they are contracted. Evidence shows that carriers can earn their loyalty though, as IFPs place more than half of their life and annuity business with just one carrier. Carriers also must be aware that loyalty cannot be taken for granted. Almost half of IFPs stopped writing business with at least one carrier in the past two years – this is especially true of IFPs who focus on insurance products. The reason for dropping a particular carrier typically is due to the carrier’s having noncompetitive products. Other common reasons involve a carrier’s financial instability, the desire to reduce the number of companies with which they are contracted, and service and support issues. Service models developed to support independent professionals cannot be one-size-fits-all. Just as their professional profiles differ by product focus, the services and support valued by IFPs vary tremendously depending on the products they offer. Investment-focused IFPs are most interested in technology support to accompany their more transaction-oriented sales. To make their involved sales process more efficient, insurance-focused IFPs have a higher regard for new business processing support. To help run their complex business, balance-

InsuranceNewsNet Magazine » February 2014

focused IFPs find practice development and coaching to be the most valuable support offering. Organizations wanting to earn IFP loyalty should tailor their service offerings to meet the demands of the specific type of IFPs they are targeting. With commoditization in some products and compensation, a focus on the services and support most valuable to IFPs can make all the difference. Methodology: This article is based on a LIMRA and McKinsey & Co. joint study that looked at the practice of almost 2,000 financial professionals. This piece focuses on independent financial professionals – those with no primary affiliation or employment relationship with any one firm or company. Donna B. Chaffin, MBA, FLMI, is associate research director, distribution research, with LIMRA. She is responsible for trending and topical research related to distributing financial products and services through broker/dealers and independent financial planners. Donna may be reached at donna.chaffin@ innfeedback.com. Emily Tracey, MBA, is analyst in the distribution research department at LIMRA. She is responsible for conducting research related to independent distribution intermediaries and monitoring trends as these channels evolve. Emily may be reached at emily.tracey@ innfeedback.com.


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63


THE LAST WORD

Al Granum 1922-2014

Looking back on a man who revolutionized the way insurance professionals build their clientele. By Larry Barton

EDITOR’S NOTE: Larry Barton has retired from his position as president and chief executive officer of The American College and is now chancellor. He is still representing the college at industry events and on regulatory matters.

M

y first job, at the age of 16, was writing obituaries for my hometown paper in Massachusetts. I hated it. A sophomore in high school, I would spend three afternoons a week working for Kathryn “Kay” Jorgensen, the publisher of The Arlington Advocate. She was a superb teacher, mentor and skilled journalist. But after a few weeks, she would watch me call funeral directors, family members and friends of the deceased. They would cry, I would cry. They would talk about Mom and Dad, their interests and accomplishments, and how they died. It was more depressing to me than algebra. One day, I asked Kay if I could begin to blossom out into covering politics and sports. She replied, “Larry, you are looking at your job the wrong way. Don’t you understand? You are writing the single last thing that will ever be published about that person’s life. It will go into family Bibles. People will treasure it. The news passes. Lives are remembered.” Her words smacked me in the face then and they still smack me in the face as I remember them. I was looking at my job the wrong way. Remembering a life is important, and in that spirit, I’d love to share with you a life that changed our industry. Nearly every notable insurance agent has heard of, or adopted, the One Card System. The system articulated the science of how to manage prospects so they could eventually understand the importance of life insurance. We lost the founder of that 64

system in January, but it is his life, and not his passing, that is worth recounting. Al Granum’s story is one of unwavering belief in the importance of the work of financial professionals, of uncompromising commitment to always doing the right thing for the client, and of unquestionable generosity to share everything he learned for the benefit of the industry. Born just a few years before the Great Depression and World War II, Al Granum grew up in a small town in northern Wisconsin. He was passionate about education and graduated Phi Beta Kappa from the University of Wisconsin-Madison in 1943, simultaneously earning his Bachelor of Arts and Master of Arts in Life Insurance. After graduating, Al served our country for three years by joining the U.S. Navy during the height of World War II. Upon returning home in 1946, Al contracted with Northwestern Mutual in Amery, Wis., where his legacy was born. After a mere eight years as a life insurance agent with Northwestern Mutual, Al qualified as a life member of the Million Dollar Round Table. He was then appointed managing partner in Chicago in 1963. During his tenure as managing partner, his agency with Northwestern Mutual became the first office in the industry to write more than $150 million of new business in a 12-month period, ranked first in company volume and/ or premium a staggering 37 times, and qualified 42 of his 45 agents as MDRT members. It was during that period that he conducted his groundbreaking research, which ultimately led to the development of the Client Building and the One Card System. This ingenious system is a proven track to success for financial services professionals – providing both the art and science of building a clientele. It is arguably his most influential and important contribution to the industry. After 23 legendary years, Al Granum retired from his managing partner position, but he continued his work – traveling around

InsuranceNewsNet Magazine » February 2014

the world to teach his Client Building system to help strengthen the profession on a global basis. Al was awarded a chair in practice management at The American College, endowed to him by his peers in 2001. This made him one of seven to be recognized in this way in the college’s history. I am honored to serve in the chair that bears his name. In June 2012, to honor his legacy and commitment to lifelong learning, Northwestern Mutual and The American College formally launched the Northwestern Mutual Granum Center for Financial Security. The center, led by Sharen King, leads original, cutting-edge research, thought forums, webcasts and advisor resources. I urge you to research what has emerged from the center at no cost to the entire industry, as Al encouraged. Of all the accomplishments and accolades we can pin on his lapel, it must be said that Al Granum was rarely driven by recognition. On a tombstone, we remember the essentials of a life – name, lifespan and, if we are fortunate, a quote or simple tribute. The virtual capsule for Al Granum would have the names of tens of thousands of agents who brought life insurance to millions because of the unique tools he created. On the web site at The American College, where people began to post messages within hours of Al’s passing, what struck me was that peers from New York Life, Prudential, MassMutual and MetLife as well as many independent insurance agents dropped by to offer a personal thanks. The rope of competition drops when we remember a jewel. This one was a diamond. Larry Barton, Ph.D., is chancellor of The American College, where he serves as the O. Alfred Granum Professor of Leadership. Larry may be contacted at Larry. Barton@innfeedback.com.

Photo: Joe Wigdahl

Remembering a Diamond in the Industry


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