InsuranceNewsNet Magazine - September 2016 by InsuranceNewsNet

September 2016

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September 2016

IUL GRABS THE

SPOTLIGHT Life Insurance Awareness Month Finds Indexed Universal Life Taking Center Stage PAGE 28 PLUS

Marv Feldman's New Life Mission

PAGE 18

Insert: The 2016 Sellersâ&#x20AC;&#x2122; Guide to Life Insurance

PAGE 17

ALSO INSIDE

Special Election Coverage: How Trump, Clinton Divide on the Issues

PAGE 10

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IN THIS ISSUE

View and share the articles from this month’s issue

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SEPTEMBER 2016 » VOLUME 9, NUMBER 9

FEATURES 28 IUL Grabs the Spotlight By John Hilton

Indexed universal life is striking sales gold. But will the product continue picking up business in the wake of the Department of Labor fiduciary rule?

37 Life Insurance Thought Leadership Section Respected minds from five different companies share their leading thoughts on trending products, cutting-edge technology and unique sales techniques.

ELECTION

2016 COVERAGE

LIFE

48 Expanding Hispanic Market Underrepresented in Life Insurance By Cyril Tuohy The Hispanic population in the United States is growing not only in numbers but also in purchasing power. It is a market receptive to life insurance.

INFRONT

10 How the Candidates Divide on Financial, Regulatory Issues By John Hilton The nontraditional candidacies of Donald Trump and Hillary Clinton are leaving everyone wondering whether their views on industry issues will line up on traditional conservative versus liberal philosophies.

INTERVIEW

18 The Feldman Mission

An interview with Marv Feldman Marv Feldman learned the life insurance business from his legendary father and then went on to have a successful life insurance career of his own. But he didn’t stop there. As CEO of Life Happens, he oversees an organization tasked with educating the American public on the importance of life insurance. In an interview with InsuranceNewsNet publisher Paul Feldman (no relation), Marv talks about talks about his new mission, his father and his own career.

52 The Top 3 Reasons a Life Claim Can Be Denied By Eric Halsey It is your responsibility to ensure your clients are well-informed about how their actions affect their policy and how their policy should affect their behavior.

ANNUITY

56 H ow Annuity Compensation Will Change Under DOL Rule By John Hilton Analysts say broker/dealers and their advisors still don’t fully understand how the fiduciary rule affects compensation.

58 C ompanies Cutting Commissions From New Fixed Indexed Annuities

InsuranceNewsNet Magazine » September 2016

By Cyril Tuohy New fiduciary rules will push companies to develop more fee-based products.

HEALTH/BENEFITS 64 H illarycare Would Hurt Consumers, Industry, Agent Advocates Say By Susan Rupe The public option is rearing its head again — and the agent community fears it would further hamper their ability to serve clients.

70 How to Manage the Seven Risks to Clients’ Retirement Income By Brandon Buckingham Investors often are influenced by their emotions, which can disrupt a longterm investment strategy.

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ALSO IN THIS ISSUE

SEPTEMBER 2016 » VOLUME 9, NUMBER 9

BUSINESS

74 The Blue Ocean Strategy to Growing Your Practice Tenfold By Devang Patel Once you create the unparalleled client experience at a reasonable cost, you have achieved “value innovation.”

77 NAIFA: 4 Steps to Turn a Prospect Into a Customer By Troy Korsgaden When you differentiate yourself by offering proper coverages and acting as a discussion partner, you are sure to earn a prospect’s trust.

78 T HE AMERICAN COLLEGE: Mentors and Sponsors: We Are Our Sisters’ Keepers By Jocelyn D. Wright Women often hesitate to take on a mentoring role if they have not achieved a certain level of success. But it’s never too early to start.

INSIGHTS

76 MDRT: Protecting the Golden Goose By Ann Baker Ronn If your client had a goose that laid a golden egg every day, would they insure the egg or the goose?

80 L IMRA: Grow Your Practice While Helping Clients Shrink the Protection Gap By Eric T. Sondergeld Efforts to shrink the protection gap are good for society and create opportunities for financial professionals.

EVERY ISSUE 6 Editor’s Letter 26 NewsWires

46 LifeWires 54 AnnuityWires

62 Health/Benefits Wires 68 AdvisorNews Wires

INSURANCENEWSNET.COM, INC.

3500 Market Street, Suite 202, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford VP MARKETING Katie Frazier CREATIVE STRATEGIST Christina I. Keith AD COPYWRITER John Muscarello CREATIVE DIRECTOR Jacob Haas GRAPHIC DESIGNER Bernard Uhden

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Copyright 2016 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 3500 Market Street, Suite 202, Camp Hill, PA 17011, fax 866-381-8630 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.innmediakit.com or call 866-707-6786, Ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 3500 Market Street, Suite 202, Camp Hill, PA 17011. Please allow four weeks for completion of changes.

Shawn McMillion Sharon Brtalik Joaquin Tuazon Kevin Crider Tim Mader Brian Henderson Emily Cramer Ashley McHugh Darla Eager Yuelin Lai

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

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WELCOME LETTER FROM THE EDITOR

Salesperson – Politically Incorrect?

ou sell insurance. That sentence used to be a simple declaration. Now it’s an accusation. The Department of Labor’s fiduciary rule has invited the fee-only financial advisor world to unload on the commission-based world of the insurance agent. Now contributed articles for magazines and comment sections on websites are shot through with angry denunciations. Phony advisors — that’s what they call agents who advise. The fee-only contingent says you can’t watch out for a client’s best interest and also collect a commission. In fact, that’s why the Department of Labor called its newest fiduciary regulation the “conflict of interest” rule. According to that crowd, the client should pay the advisor a fee for direction on what financial products, if any, to buy. Then the advisor would not collect any money from another party for the sale of a product and instead would be paid a fee on the assets under management. What about life insurance itself? How likely is that to be sold by financial advisors? Not terribly.

Who Will Sell Life Insurance?

The fee-only vision seems to be that insurance would just be the thing that might be called in to help some other strategy. Maybe it will turn on the grease that allows a buysell agreement to go into effect in the event of a business partner’s death. Financial advisors typically express little interest in selling life insurance on its own. Will middle-aged parents struggling to raise children and pay other expenses also pay an advisor to look over their finances? Not likely. And few advisors are prospecting for clients with no appreciable assets to manage. Where will low- and middle-income Americans go when commission-based agents go extinct? Who will sell them insurance that protects the children if a parent dies at a young age? How will these consumers know about the latest insurance innovation that covers their expenses if, or more likely when, they need long-term care? Not the people who can’t slap a fee on asset-poor consumers. 6

the insurance salesman dad at the center of Father Knows Best, that we have to say that. We are not in Springfield anymore.

You Might Be a Salesperson

This is not to say that the fiduciary folks have no valid point. The insurance industry has a problem with agents selling one product to anybody who can pay for it. And it is also a tad dehumanizing for prospects to be handled by salespeople walking them through a sales process designed around closing rather than actually assessing needs and solutions.

Industry Is Already Regulated

Insurance companies and regulators recognized this (well, maybe regulators did first) and are working to solve these problems. Products have been simplified and bad practices have been called out. Inappropriate sales violate the suitability standard, and agents are punished. But these efforts do overlook a critical issue — the commission. It is not so much the commission itself, assuming it is not excessive. But the issue stems more from the fact that the commission is not revealed during the process. If consumers know the facts in a sale, they are empowered to make an informed choice. If it was true that the higher-commission sale yielded a lesser value for consumers, that would be apparent. Transparency has been the best aspect of the DOL fiduciary push, but it has been nudged aside in the effort to kick commissioned agents around. The department says it is out to protect consumers, but in fact it is removing some consumer access by pushing salespeople out of the business. Give consumers access to the facts rather than close markets to them. Salespeople are not inherently evil. How far we have come from the days of Jim Anderson,

InsuranceNewsNet Magazine » September 2016

A columnist for a financial publication wrote a riff on the “you might be a redneck” shtick. The “You might be a salesperson …” column had some good points but mostly cheap shots. You might really be a salesperson if … you think everybody in America is underinsured; someday you hope to move up to a Series 7 from a Series 6; your income goes up sharply every time you hear a motivational speaker; the investments you recommend for IRAs are managed by an insurance company; and so on. This is where we find ourselves this Life Insurance Awareness Month, on the defense and anxious about the future. If the master salesman Ben Feldman could appear in this moment, he probably wouldn’t recognize the industry he loved. The fabled New York Life agent lived to sell insurance. It would be difficult to find someone today who could say that with a straight face. His son Marv has carried on the mission by leading Life Happens to help spread life insurance awareness. In his conversation with Publisher Paul Feldman (no relation), Marv talked about his father’s legacy of dedicated service. He also learned to do something his father was not so good at — balancing work and family, an important lesson for everybody. But thinking back to the days of Ben Feldman and other giants of sales past reminds us of the essence of this business: making sure families are protected from risk. Let’s face it; nobody is eager to buy life insurance — it must be sold. And it takes talent and dedication to do that. There is nobility in that accomplishment, to be able to move people by emotion and help clients care for what they value most. So the next time someone accuses you of being a salesperson, you can tell them “Smile when you say that.” Steven A. Morelli Editor-In-Chief

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was late 1940s when a group of men from the Utah Funeral Director Association returned from a meeting with a big idea — final expense insurance. What soon followed was the formation of the Sentinel Mutual Insurance Company. This small company, one of the early pioneers in final expense, has proven staying power by continually providing quality insurance plans, excellent customer service and consistent agent support.

are complementary to final expense, including a Medicare supplement product that works in conjunction with Medicare Part A and B, as well as a hospital indemnity product that was designed specifically to fill the gaps in a Medicare Advantage policy. Additionally, Sentinel now has annuity products that are designed to fit the needs of the increasingly active senior lifestyle. This product offering combination has cemented a place for Sentinel in the senior market as a strong and stable competitor.

While Sentinel started as a solution to meet the specific need of final expense insurance, in 2006, the company was faced with a new challenge; whether to grow the final expense block or to consider selling the company. This led to a revised final expense product (now titled New Vantage®) as well as other products in the senior space that

So what is the real advantage of a Sentinel policy? It all comes down to a commitment to providing excellent customer service. While the company has grown to include over 100 employees, Sentinel still maintains the quality personal interaction with its policyholders and agents that has been provided throughout the company’s history.

A Proud History Sentinel Mutual Insurance Company Founded (by a Group of Utah Funeral Directors)

1962

Acquisition of Uinta National Insurance Company of Utah and United Reserve Life Company of Montana

1965

Acquisition of National Mutual Insurance Company of Utah

1954

Sentinel Insurance Company advances as a capital stock insurer

2007

Growth milestone: $131.9 million (insurance inforce)

1957

Brand name evolves: Sentinel Security Life Insurance Company

2009

Medicare Supplement added to product offerings

2010

1960

Sentinel Surpasses Goal: $2 Million Assets

Final expense product relaunched as New Vantage® Life

2011

Personal Choice The Board of Directors in 2008 Annuity expands Sentinel product line and growth to $154 million in assets

2012

Sentinel broadens portfolio with Hospital Advantage product and exceeds $300 million in assets

2013

Innovative Summit BonusSM Index Annuity product launched

2014

Sentinel grows to $470 million in assets and raises $15 million of additional capital and surplus

2015

Sentinel grows to $500 million in assets and raises $10 million of additional capital and surplus

1948

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FINAL EXPENSE | ANNUITIES | MEDICARE SUPPLEMENT | HOSPITAL INDEMNITY 1 Single Premium deferred annuities are guaranteed for 5 years. Should you choose to continue the annuity after the five-year guaranteed period, the minimum rate guarantee is 1.00% for contracts issued in 2016. Credited rates effective 01/15/2016 and are subject to change without notice. Quoted rates do not reflect optional liquidity riders. If you choose to add any of the available liquidity riders the interest rate will be reduced accordingly. Early withdrawals may be subject to Surrender Charges and Market Value Adjustments. The IRS may impose penalties for early withdrawals from qualified plans. Contracts issued by Sentinel Security Life Insurance Company. Not FDIC insured. Rates vary by state. 2 S&P Dow Jones indices does not guarantee the adequacy, accuracy, timeliness and/or the completeness of the S&P 500® or any data related thereto or any communication, including but not limited to, oral or written communication (including electronic communications) with respect thereto. S&P Dow Jones indices shall not be subject to any damages or liability for any errors, omissions, or delays therein. S&P Dow Jones indices makes no express or implied warranties, and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use or as to results to be obtained by Sentinel Security Life Insurance Company, owners of the Summit Bonus IndexSM, or any other person or entity from the use of the S&P 500® or with respect to any data related thereto. Without limiting any of the foregoing, in no event whatsoever shall S&P Dow Jones indices be liable for any indirect, special, incidental, punitive, or consequential damages including but not limited to, loss of profits, trading losses, lost time or goodwill, even if they have been advised of the possibility of such damages, whether in contract, tort, strict liability, or otherwise. There are no third party beneficiaries of any agreements or arrangements between S&P Dow Jones indices and Sentinel Security Life Insurance Company, other than the licensors of S&P Dow Jones indices.

ELECTION

2016 COVERAGE

INFRONT TIMELY ISSUES THAT MATTER TO YOU

How the Candidates Divide on Financial, Regulatory Issues ill Clinton and Trump attack W industry issues with traditional liberal and conservative ideology, or radically change course? By John Hilton

s usual in a presidential election, the victor will exert tremendous influence over public policy relative to the financial services sector. Candidates Hillary Clinton and Donald Trump will come at the industry with traditional liberal and conservative ideology, respectively. Or will they? Like most everything else in this very unusual election, definitive ideology is at 10

least a little unknown. After all, Trump surrogates surprised everyone by pushing to have support for reinstating the Glass-Steagall Act added to the GOP platform. Named for a pair of Democrats and passed in 1933, the law created a wall between traditional banking and riskier investment banking practices. GlassSteagall is generally viewed as a liberal regulatory bill, which made it a surprising addition to the GOP platform. Congress gradually weakened the law and finally repealed it in 1999, opening the door for many insurance-banking combination businesses.

InsuranceNewsNet Magazine » September 2016

Likewise, Clinton’s deep ties to Wall Street have many in the financial services world wondering what to expect from the Democrats this time. After all, the party is still home to Sens. Bernie Sanders and Elizabeth Warren, both fierce Wall Street opponents. Yes, it’s that kind of crazy and weird election year. Americans chose Trump by a 51-44 margin when asked to name the better candidate to “handle the economy” in a June CNN/ORC poll. But it gets more difficult to nail down Trump policies when the candidate’s positions often differ greatly from the

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INFRONT HOW THE CANDIDATES DIVIDE

Check out our extended 2016 Election Coverage in next month's issue!

THE ISSUES

TR U M P

CLI NTO N

TAXES: Calls for a "simplified" tax code with four brackets: 0, 12, 25 and 33 percent. Most itemized deductions would be eliminated, except for charitable giving and mortgage interest. Trump favors axing the estate tax, the alternative minimum tax, the Affordable Care Act taxes and the marriage penalty.

TAXES: Wants a 4 percent surcharge on incomes exceeding $5 million and a 30 percent minimum rate on adjusted gross incomes above $1 million. The Clinton tax plan also calls for limited itemized deduction benefits to 28 percent, and increasing rates on medium-term capital gains to between 27.8 percent and 47.4 percent. She also wants to raise the top estate tax rate to 45 percent and reduce the threshold to $3.5 million.

SOCIAL SECURITY: Has not proposed direct Social Security plans, but has said his policies to reform taxes and trade deals, cutting regulation and repealing the ACA will help decrease the pressure on the Social Security system. He has said he is opposed to cutting benefits or raising the retirement age.

SOCIAL SECURITY: Has said she will expand Social Security by increasing taxes on the wealthiest Americans, raising the cap on Social Security taxable income and taxing other income not currently taken into account. Clinton vows to expand the program.

HEALTH CARE: Offers a six-point plan that starts with repealing the Affordable Care Act. Ensuing measures would permit the sale of insurance across state lines, require price transparency for medical care, promote tax deductions and health savings accounts, and transform Medicaid into a block grant program.

HEALTH CARE: Plans to start with building on the ACA, with more options for people with high health care costs, subsidies for middle-income people and restrictions to control high drug prices. She also supports a "public option," the direct sale of health insurance by the government.

GOP platform. On taxes and GlassSteagall, for example, Trump is at great odds with the party. With Republicans positioned strongly to control at least one branch of Congress, if not both, one assumes that final policies will be a mix of the party platform and Trump. The candidates do have records — votes, speeches and public stances — from which we can get a sense of their thinking. Here is what we know about a few key issues of importance to the industry:

The Fiduciary Rule

Although the Department of Labor fiduciary rule has dominated the financial world’s news, it has barely registered a pulse in the campaign. The Trump camp is almost entirely focused on immigration, law and order, and foreign policy issues. Trump has not mentioned the fidu12

ciary rule, but the safe assumption is that he would oppose it, said Craig Lemoine, American College associate professor of financial planning. Clinton wrote a December New York Times column urging Democrats to stay strong on the fiduciary rule. Clinton vowed that, if elected, she will pick up the fiduciary fight from the Obama administration, and said she would go further to strengthen Dodd-Frank regulations. The DOL published new fiduciary rules in April that cover advice provided regarding qualified retirement employersponsored plans and individual retirement accounts. New rules start to take effect in April 2017, with the final mandates being enforced starting in January 2018. Three lawsuits are making their way through federal courts, each seeking an injunction to immediately halt the rule. Meanwhile, insurance companies and

InsuranceNewsNet Magazine » September 2016

agents are simultaneously working to comply with the rule. “If you see an injunction coming down the road in the fall, then I think you kind of wait until the elections play out to resolve it,” Lemoine said. Otherwise, if an injunction isn’t granted, companies are likely to pick a fiduciary route and stick with it, he added, saying, “It’s a very expensive process to change” business practices late in the game. As for further regulation of financial services, Trump has said that government regulations cost $1.75 trillion annually. He vowed to impose a moratorium on new financial regulations until the economy improves and to lead a repeal of Dodd-Frank. Clinton, by contrast, promised to use the regulatory authority of the Department of the Treasury to curb the number of corporate inversions, mergers between

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September 2016 » InsuranceNewsNet Magazine

ELECTION

2016 COVERAGE

INFRONT HOW THE CANDIDATES DIVIDE

Clinton showed a willingness to move left during the campaign, leaving critics wondering how committed she will be to her positions. U.S. companies and foreign corporations structured to reduce their taxes. She supports Dodd-Frank and vowed to “fight for tough new rules, stronger enforcement and more accountability that go well beyond Dodd-Frank.” Clinton is walking a bit of a tightrope, Lemoine noted. Her ties to Wall Street are well-known, but the Warren-Sanders liberal wing gained a lot of momentum during the primary campaign. Did they gain enough influence to push further regulation in a Clinton White House? Clinton showed a willingness to move left during the campaign, leaving critics wondering how committed she will be to her positions.

Taxes

Trump modified his tax plan in early August to line up more with the GOP platform and House Speaker Paul Ryan’s proposals. The Trump tax plan would reduce the existing seven income brackets (with rates from 10 to 39.6 percent) to four with rates of 0, 12, 25 and 33 percent. He has consistently vowed to lower the business tax rate for corporations and small businesses alike to 15 percent — down from the current top rate of 39 percent. While Trump increased his tax rates with the modified plan, his proposal would still drastically reduce federal income tax rates. Nonpartisan groups claim his plan would add trillions of dollars to the national debt. Most itemized deductions would be eliminated, except for charitable giving and mortgage interest. Trump favors axing the estate tax, the alternative minimum tax, the Affordable Care Act taxes and the marriage penalty. Trump has said he would consider a payroll tax holiday, a temporary reduction of payroll taxes, to help the middle class. And all of his tax versions include a zero tax rate for the poorest Americans. 14

By contrast, Clinton proposes a tax increase that would substantially impact the richest Americans, according to the Urban Institute-Brookings Institution Tax Policy Center. She favors a 4 percent surcharge on incomes over $5 million and a 30 percent minimum rate on adjusted gross incomes above $1 million. The Clinton tax plan also calls for limited itemized deduction benefits to 28 percent, and for increasing rates on medium-term capital gains to between 27.8 percent and 47.4 percent. She also wants to raise the top estate tax rate to 45 percent and reduce the threshold to $3.5 million. Her plan would limit the value of tax-deferred retirement accounts. Some economists warn that Clinton’s proposals to raise the holding period for long-term capital gains and to impose a transaction tax on high-frequency traders might drive down investments and growth. Tax reform is a major issue for members of the National Association of

InsuranceNewsNet Magazine » September 201

Insurance and Financial Advisors, said Jules Gaudreau, NAIFA president. “Under either side, we will have challenges, and we will face those in a spirit of collaboration and try to make sure the public has the right to plan for their financial future using the products and services of our members,” he said. As for the Federal Reserve, Trump has promised to deliver his reality TV signature line to Chairwoman Janet Yellen on his first day in office: “You’re fired.” Conservatives are annoyed with Yellen’s management style and say the Fed has too much power. While removing Yellen would be popular with the party, it might be too radical a change for the economy, Lemoine said. “I think you’d have some pretty seismic shifts in the pricing of equities if he were to win and on the first day in does all those things,” he added.

Health Care

How to proceed with the Affordable Care Act is expected to be a main theme during the fall campaign. The most significant differences between Trump and Clinton might be on this issue. Trump has vowed to repeal the ACA and replace it with “something really great.” His campaign provides six policy ideas to increase affordability, the first of which is to repeal the ACA. The remaining five points are:

TAWANDA, AGE 58

Lily, 52

Plans to turn her passion into an everyday routine.

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ELECTION

2016 COVERAGE

INFRONT HOW THE CANDIDATES DIVIDE

Trump has promised to deliver his reality TV signature line to Chairwoman Janet Yellen on his first day in office: “You’re fired.” » Allow the sale of health insurance across state lines. This could be difficult as health insurance is regulated by each state. An insurer must be licensed in a state and obey the laws of that state to sell insurance there. Since laws differ, sometimes significantly, from state to state, it is unclear how this would work, experts say. » Permit tax deductions for health insurance. Consumers who purchase health coverage outside the workplace must use after-tax dollars. This proposal would permit them to use pretax money. » Expand Health Savings Accounts. A bipartisan idea, HSAs allow employees to use pretax dollars to pay for health care not covered by insurance. About 20 million Americans already use HSAs. » Increase price transparency. While the proposal doesn’t specify how to achieve this, the idea is to give consumers the costs of treatments. Americans would shop around for the best price if they only knew the cost of treatments, the Trump campaign said.

in to Medicare at “55 or 50 and up.” The idea is known as a “public option” and has been around for a while. Conservatives don’t like the idea because they say it represents a slow expansion of a purely government-run health care bureaucracy. Public option supporters say a government-run plan would add another element of competition into the health insurance marketplace and would lower premiums, especially if the government is able to dictate low reimbursement rates to doctors, hospitals, drugmakers and other medical care suppliers. But those who represent the agent community say that a public option actually would decrease competition rather than increase it, and would hinder consumer access to Professional advice. “Our concern has always been that a public option — a government plan — makes it less of a level playing field for private plans,” said Michael Keegan, se-

» Block grants of Medicaid to the states.

Public Option

Clinton’s proposals start with defending the ACA. For months, she campaigned on some basic ideas to do that — expanding financial protections for people with high health care costs, providing more subsidies to help middle-income people buy their own insurance and reining in high drug prices through government intervention. Then, late in the campaign, Clinton lurched left. Most notably, she announced support for allowing Americans to buy 16

InsuranceNewsNet Magazine » September 20

nior vice president with Health Agents For America (HAFA). “We’re concerned about consumers’ ability to have plans to choose from.” Keegan pointed to the health insurance exchanges and health insurance co-ops that were established under the ACA as examples of why a public option would end up costing the government more money. A number of insurance carriers whose products were sold on the exchanges have cited enormous financial losses from their ACA business, while 16 of the original 23 co-ops have shut down because they could not afford to remain in operation. A public option that is financially self-sustaining “is a great idea in theory, but if you want to put it into practice, I don’t think those numbers will add up,” said Diane Boyle, senior vice president of government relations for NAIFA. “Would it throw more competition into the mix and drive costs down?” she asked. “If anything, it would exacerbate cost shifting and drive prices up. How can it be self-sustaining? Where does the money come from? Nobody is saying.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@ innfeedback.com.

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Marv Feldman followed up his successful life insurance sales career with a new mission and a greater sales pitch â&#x20AC;&#x201C; to inform the American people about the importance of life insurance.

THE FELDMAN MISSION INTERVIEW

there is a first family of insurance, it’s the Feldmans. Ben Feldman was the legendary salesman for New York Life who sold many millions of dollars of life insurance in a career that began in the Great Depression, when millions of dollars meant something. He was credited with selling more than a $1.5 billion in face value, but even his son Marv can’t say for sure how much it really was. All he knows is it was a lot. Marv had a front row seat to his father’s greatness, but he’s done great things in his own right. After building a successful career and agency, he took on the greater task of improving life insurance awareness in the consumer market. At the age of 60, he switched careers and became the CEO of what is known as Life Happens, which promotes September as Life Insurance Awareness Month (LIAM). In this interview with InsuranceNewsNet Publisher Paul Feldman (no relation, by the way), Marv talks about his new mission, his father, his own career and some powerful sales advice. PAUL: How did you get involved with Life Happens? MARV: When I was finishing my term on the Million Dollar Round Table executive committee and I was coming off as the past president in 2003, they [what was then known as the LIFE Foundation] asked me to join the board. I was swamped with everything and couldn’t do it. But they kept coming back and finally I joined. When David Woods retired as CEO, they asked me if I would temporarily take over as the CEO for six months, while they had a search committee looking for his replacement. As the six months ended, they came back to me and said, “Can we convince you to take over as the CEO?” At that point I was ready to make some changes in my own career, so it was an exciting time. I was age 60, and I said, you know, who at age 60 changes careers? But, I went from being an agent to a full-time CEO, still in the insurance business. I was still involved in maintaining my practice, but was slowing down on the production side, and moving that over to my brother and my niece. PAUL: Sounds like you had a succession plan? MARV: I have succession in place. I basically

sold my practice to my brother, with the exception of what we call the A-type clients. I maintain those, and what’s happening is that those A clients are now being transitioned to my niece, who’s in Arizona. She’s a 30-year New York Life career agent. PAUL: It’s still a family business then. Is the agency still in Ohio?

PAUL: That’s because your mom had been working actively in the agency, right? MARV: Yes, she took care of all the financial aspects in the agency. She was there on a daily basis. PAUL: During your tenure, the LIFE Foundation became Life Happens. What’s next for the organization? MARV: There are a couple of things that we’ve done. Last year, we developed and released, at the MDRT meeting, the Life Happens Pro platform. Life Happens actually has three separate, distinct websites — only one is consumer-facing. That’s lifehappens.org. That’s where consumers go to learn about the products, and what our products do, to get the motivation and the education that they need. Then there’s a Life Happens Pro, which is for agents and advisors. That’s a subscription service, which will help them develop their own full marketing resource program that allows them to use all of our materials, to co-brand them, to change anything that needs to

There’s so much more inward focus on the companies, on their own brand, that they really lost track of reaching out to the consumers.

MARV: The original Feldman Agency is in East Liverpool, Ohio. When I started in the business, I started with New York Life in Columbus. I signed my first contract with them in 1966, while I was still a senior in college. Then I signed my actual career contract in March of ’67. So I’m coming up on 50 years as a fulltime agent with New York Life. I spent two-and-a-half years in the field, in Columbus, about 200 miles from my father. Then five years in management, which I thoroughly enjoyed, and probably would still be in management if it weren’t for the fact that my mother developed terminal cancer. My dad said, “Can you come back to help?” Then when she passed away, he said, “Would you please leave New York Life’s management program and stay fulltime to help me in my agency?” And that’s what we did.

be changed — colors, verbiage, pictures. Whatever has to be done to make it compliant for their organization, we will do for them on a subscription basis. Then there’s the Life Happens Pro Home Office platform, which has a lot of materials for the home offices to use. You can see what other companies are doing, how they’re using it, what works and what doesn’t work. One of the things that we did change is, if a company no longer supports us, or hasn’t supported us, they can’t access anything anymore, except the consumer site. But it used to be that the companies could use us whether they supported us or not. That’s no longer the case. They have to financially support us in order to work the resources into their own marketing programs.

September 2016 » InsuranceNewsNet Magazine

INTERVIEW THE FELDMAN MISSION That was done to make sure we continue to get the funding that we need. There’s tremendous downward pressure on the funding, from the companies, because of the economic situation, with all the regulatory issues and the increased long-term interest rates that might be out there for the foreseeable future. Companies have been in cutback mode and reorganization mode since 2008. We’re coming up on eight, nine years that that’s been happening. What we’re seeing is that there’s so much more inward focus on the companies, on their own brand, that they really lost track of reaching out to the consumers, the middle market, as an industry. And that’s why there’s a lack of trust from the consumers toward the

For more of Marv Feldman’s discussion of his father and some advanced sales tips, turn to the Life Insurance Awareness Month booklet on PAGE 17.

somebody who had a loss, let’s talk about somebody who’s in a risky profession, and why they might consider life insurance a key, because of the risk that they have.” I threw in the name of Danica Patrick. I’m a gearhead, and I love anything that goes fast — anything in motorsports is my thing. And it turned out she was the spokesperson we ended up using. PAUL: Didn’t Danica have an interesting life insurance story? MARV: She did. It turned out that her grandfather died and the grandmother had to sell most of the farm in order to pay for the costs and the taxes. We didn’t know that story existed at the time we reached out to her to ask if she would be

We create money where none existed before, for the sole purposes of creating security, dignity and peace of mind. financial services industry. It’s all about their own brands. What we try to do is to educate and motivate the consumer and build the confidence in the industry, in all the different distribution systems that the companies use. We’ve gone 100 percent digital and no longer have anything in print. That makes it easier for companies to use. We have more than 3,000 social media posts per year that the companies can access. Content is key in social media, as you know, and we’re making all that available to our member companies. And by doing these types of things, it enabled us to go out and get a spokesperson this year like Danica Patrick, who’s a professional racecar driver. We were having a phone call talking about the LIAM resources and what we wanted to do for a spokesperson. One of my board members said, “Let’s do something different this year. Instead of telling the story of 20

our representative, but it came out in the interview process. So not only do we have somebody who’s in a high-risk profession — and she talks about risk —she also talks about her grandfather passing away. PAUL: For Life Insurance Awareness Month, what are some good ideas that agents could use in their marketing? MARV: We have all of the realLIFEstories, which are videos of insurance in action. One of the things I recommend is that agents conduct either an email campaign — or a hardcopy mail campaign if they prefer to send a letter — referring clients to the links to watch these particular stories. Because these are motivational stories that talk about how a product kept a family together, kept a business together, helped the loved ones in a time of need. We’re trying to make sure that people have the security, the dignity and the peace of mind, through the utilization of our products. That’s what we do as an industry: We create money where none existed before, for the sole purposes of creating security, dignity and peace of

InsuranceNewsNet Magazine » September 2016

mind. No other industry can do that. So these realLIFEstories reinforce what our products do. The calculator that we have on the website is a magnificent piece to refer clients to. Many times, a client or a prospect will say, “Well, I don’t know how much I need.” And instead of the agent or advisor saying, “You need to buy x dollars of life insurance,” they can suggest going to a nonprofit foundation website for the answer. Or if they’ve embedded it in their own website, they can tell them, “This is from a nonprofit organization.” It will then calculate and tell them what the needs are. Now we have the need, whether it’s $100,000 or $10 million, and it’s time for the advisor and the client to sit down and talk about what needs to be done. Then you start planning based on cash flow, asset allocation and all the insurance that fits for that particular situation. But now you’re dealing with a number that the client came up with, not a number told by the agent or advisor. It makes it much easier for the planning to take place, because now you’re doing the things that the client knows need to be done. PAUL: Content is extremely important for any type of marketing campaign. MARV: Content is key — that’s one of the things the agents are struggling with. So we have materials to put out there. We have short videos that they can post, maybe 15 seconds or a minute. We have a brand-new Insurance 101 animated video. We also have a new risk video that we just finished and posted. We’re trying to soften the beaches. We can’t make the sale for companies and agents, but we can help develop the mindset. PAUL: Speaking of developing the mindset, you and your dad had techniques for doing that. The “disturbing question” is definitely something your dad promoted and that you perfected. Would you tell us more about that? MARV: Asking those disturbing questions makes a person understand that they have a problem. How are they going to solve that problem?

PAIN VS. GAIN INTERVIEW

September 2016 Â» InsuranceNewsNet Magazine

INTERVIEW THE FELDMAN MISSION

MARV: Very! People don’t need to remember what they bought, but why they bought it. The concept-sell is what’s important, not the product-sell. That’s really the key for everything my dad did and for everything I’ve done. That’s one of the things we stress through Life Happens.

MARV: This is one for whether you’re brand new in the business or you’ve been around for 10 or 20 years. Sometimes, we have a mindset where we say, “This person needs $5 million of coverage,” but you’re uncomfortable making that proposal, because you think the number is too big. So what I learned from my father is to think big. Don’t be afraid to talk to your client about what they need today, and what they’re going to need three, four, five, seven years down the road. Add a zero to the proposal. And it’s amazing how often your prospects and your clients will agree, “Yeah, you’re right, I do need to think about a little bit down the road, we do need to take care of that future planning.” You can move to that next level of production just by thinking big, by adding a zero. One of the keys I learned from my father was to look at how much coverage the medical exam or the non-medical will permit that person to apply for. Maybe you’re applying for $250,000 of coverage, but the medical is good for up to $1 million. Go back to the insurance company, and ask for an alternate policy, or an additional policy, for the difference. Then when you go back to the individual, you can say, “Here’s the $250,000 that we were talking about, but as soon as I walk out the door, everything we’ve done is out of date. We need to think about the growth of your business, growth of your income, growth of your family and the increased protection that you’re going to need over the next few years.” You can tell them the company looked at the information that was provided and they really think you should have $500,000 of coverage, not $250,000. So, here’s the $250,000 we talked about and here’s another $250,000. I might have a term policy and a permanent policy. We can buy a little bit of tomorrow by doing this. That’s the concept of getting the person to understand that they have to do more than just deal with the problems of today.

PAUL: What is the best advice that you can give to a seasoned agent or advisor?

PAUL: That is a powerful concept. Have you seen an increase in business with it?

Hopefully they have enough confidence in my abilities as an agent that I can come back and make the recommendations as to what they need. The recommendation might have nothing to do with insurance. It may just be that they need to redo their will or their trust or have a buy-sell agreement. But if you don’t ask the disturbing question, you’re never going to get beyond an introduction with that particular prospect. PAUL: What’s your favorite disturbing question? MARV: When I was going in to see a prospect for the first time, I liked going to their office. Most of my clients were small-business owners. They had small manufacturing plants, construction organizations or mining companies. I wanted to see their operation, and see how it worked, meet the people and see who was important, or which family members were involved. I would look around the office at the pictures, awards and plaques. Maybe they have models of the trucks or the construction equipment, and you start asking questions about all that. All of a sudden, you see the pride that they have in their organization. They want to talk about their organization and their people. Well, that lets you know what’s important to them. And then you ask, “Well, what is your succession plan? What’s going to happen if you have to step away? Who’s going to take over the business? Are you going to give it to somebody? Are you going to sell it to somebody? What’s going to happen? Do you have partners? Well, what happens if one of your partners dies?” You ask about the plan and let them talk. And it becomes very obvious to them very quickly that they have issues they haven’t addressed. PAUL: What’s normally your next step after asking about a succession plan? MARV: You can then ask, “You’ve built a tremendous estate — what plans have you made for paying the transfer costs when you die?” And they’ll say, “Well, what do you mean?” You start making them understand that 22

Don’t be afraid to talk to your client about what they need today, and what they’re going to need three, four, five, seven years down the road. Add a zero to the proposal. part of everything they own isn’t theirs. “You’ve got an $11 million estate, and you’ve got at least $5 million of inheritance taxes that have to be paid. Do you have $5 million in cash?” And they’ll say, “Well, no, of course I don’t have $5 million in cash.” You just keep asking these questions, and it becomes very apparent to the person fairly quickly that they need to do some planning. They need to figure out how they’re going to do these things, because they hadn’t thought about it. That’s my job. PAUL: Both you and your dad sold almost exclusively using concepts and not product. How important is that?

InsuranceNewsNet Magazine » September 2016

PAIN VS. GAIN: PART 2 INTERVIEW

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Questions for Prospects and Clients

INTERVIEW MARV: In my own practice, that one tool jumped my production 20 percent on average. So if people want to do something that will give them a 20 percent jump in production, they can do that. Still keep in mind what the client’s needs are — you don’t want to oversell. PAUL: That’s a great way to increase production without seeing any more prospects! MARV: It’s something that we did consistently in my practice. Yes, there may be a cost with the company when you have to send back policies to be redone or to be canceled, because the client didn’t want it. But you only have to have one or two people say yes, and it pays for all the expenses for the entire year. So if you’re making $100,000 a year and this will give you another $20,000 of income, that’s a significant increase, and you’re not calling on any more people. PAUL: We have a huge attrition rate in this industry. What would you tell a new agent coming into this business? What is something that they really need to know or focus on? MARV: The problem I see is one that I have. I have severe call reluctance — I’m not afraid to tell people that I have it, because I do. I hate to pick up the telephone. I hate to make the calls. I hate to prospect. And I use the word “hate” because that’s true — it’s not dislike; I hate it. But I forced myself to do it, because making those calls, or sending out the letters when I have to follow up with a phone call, is the most efficient way of reaching the people I need to get to. I targeted specific market segments that I wanted to reach — the closely held business owners. That’s what I went after, and that’s all I prospected for. I forced myself to send out the letters and to make the phone calls. And it worked out quite well. So new people coming in have to determine a market that they’re comfortable with because you only have so many friends and relatives you can call on. Ask yourself, “What is your background? Where did you come from? What is your history? What do you know about?” 24

Asking the right “disturbing” question can help determine which specific area is the prospect’s hot button. Here is a sampling of some questions to ask. • When was the last time someone, • How do you want to be rememnot involved in your planning, gave bered by your children, your grandyou a second opinion as to whether children, your favorite charities, your or not you have covered all the community and society? bases? • Is there an institution that you care • Do you have enough confidence in deeply about, a church, charity or your advisors to let me give you a school to which you would wish to second opinion? leave a meaningful legacy, assuming we could create a highly tax efficient • What do you want to accomplish way for you to do so? with your life? Why are you here? What is your purpose? • If you had a family foundation, what would you want it to be known for? • What are your key concerns? • What would you like your ideal • What does financial security mean calendar to look like in five years? to you? • If you knew with virtual certainty • What does financial freedom mean that you were going to die within to you? the next six months, what changes would you make in your life and in • What do you want to accomplish your planning? with your money? • What changes would you like • What is your family financial to make in your overall financial philosophy? situation? • What’s important about money • How do you feel about the income to you? tax system in this country? • What is your overall financial and investment strategy or game plan? • How do you feel about estate taxes and related costs? • What are your goals? • Could your children pay the estate • What is your exit strategy? tax in the next nine months without • How and when do you see yourself liquidating key assets? retiring? What will you do, and what • Assuming, as we have to do, that will it cost you to do it – not just the when you are both gone, up to half day after you retire, but 10, 20 and your estate will get taxed away, how even 30 years later? do you want the tax to be paid? • Where do you want your money to go?

Maybe you’re from the trucking industry — fine, call on people from the trucking industry. Figure out where your comfort level is, target that market and go after that market in some manner. Find a system, develop a system, work the system and make sure that system is working for you. So I hired people in my firm to make phone calls for me, because I hated making them. And that worked great for me. PAUL: In the sales industry, the more you can delegate, the more successful you’ll be, because you can focus on the right things. MARV: Focus on the right things; delegate authority and responsibility. But you have to track what you’re doing and what they’re saying. You can’t just give it to them and walk away. We trained our clients to call our support people when they had service questions. So the support staff did the service,

InsuranceNewsNet Magazine » September 2016

• If you want your children to just pay the half, might they be forced to sell something you really wouldn’t want them to sell? • What is an acceptable amount of estate tax shrinkage? What have you done to get there? • What have you done to protect your assets from divorce, bankruptcy or creditors of your children? • Are your parents living, and if so, will you be expected to contribute to their support at some point? • Have you made provisions for the possibility that you may need nursing home or other care late in your life? • What are your thoughts about “The American Dream?” • What is your understanding of “The American Dream?” • What are your thoughts about giving your children a head start? • What are your thoughts about inherited wealth? • What concerns do you have regarding your children and inherited wealth? • To whom would your spouse or your children turn for advice on managing their inheritance? Marv Feldman, Man on a Mission, 2016

and if there was an area that required my intervention, they would come to me and tell me. Or if it was a situation where they thought I should know about something because it presented an opportunity to do something better for the client, then they would let me know. So I could call the client back and say, “I see that you called my office, and I saw some of the things you want to accomplish. It might be good for us to sit down and chat, and see if we need to make any revisions in the program that you currently have.” Hiring support staff is a business decision that agents and advisors have to make. Sometimes that’s a very difficult decision to make, especially for people who are struggling — to put more money into the practice at a time when they feel they’re not doing as well as they should. But if they do, they’ll have an exponential return, because they’ve got that much more time to go out and be efficient in front of clients and prospects.

PAIN VS. GAIN: PART 2 INTERVIEW

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NEWSWIRES

DOL Rule Carries Hefty Price Tag for Carriers The Department of Labor’s fiduciary rule was announced in April, and now some carriers are adding up the price tag for implementing it. Principal Financial Group estimated that implementing the DOL rule will cost an estimated $1 million a month for the next 18 to 24 months, and between $5 million and $10 million a year afterward. Executives from Ameriprise Financial said DOL rule compliance-related issues had cost the company $11 million in the first half of 2016. Insurers are spending the money to upgrade their information technology systems, restructure products and features, alter fee and commission schedules, and implement new training programs to meet the DOL requirements.

HEALTH CARE COSTS REACH RECORD HIGHS

The nation’s health care tab is expected to exceed $10,000 per person, according to the Department of Health and Human Services. And it will keep on growing. HHS officials predict that health care spending will grow at a faster rate than the national economy over the coming decade.

National health expenditures will hit $3.35 trillion this year, which works out to $10,345 for every man, woman and child. What’s driving the trend? A stronger economy, faster growth in medical prices and an aging population. In addition, Medicare and Medicaid are expected to grow more rapidly than private insurance DID YOU

? 40%

KNOW

as the baby boom generation ages. HHS also projects that the share of Americans with health insurance will remain above 90 percent, assuming that the Affordable Care Act survives in its present form.

QUOTABLE

I think you will see a slight move in position where the Fed is going to suggest that they are looking to raise rates at least once this year. — Chris Zaccarelli, chief investment strategist at Cornerstone Financial Partners

INSURERS FLEEING ACA EXCHANGES

Health insurers are backing away from the exchanges created by the ACA, citing growing losses and higher-than-expected claims. Aetna joined UnitedHealth Group and Humana in announcing it will scale back its participation on the exchanges in 2017. Consumer advocates fear that decreased competition among insurers in the ACA marketplace could lead to higher prices for consumers.

FEWER BEHIND IN PAYING STUDENT LOANS

A bit of sunny news on the financial scene: Fewer borrowers are falling behind in their private student loan payments, according to Credit.com. Private student loan delinquency and charge-off rates are at their lowest since before the financial crisis, the report says, and a smaller share of borrowers have put their loans into a state of forbearance. Private student loans make up only 7.5 percent of the more than $1.35 trillion in outstanding student loan debt in the U.S. However, the news about loan payback rates in this segment is significant. Private student loans generally don’t provide much flexibility to borrowers who may have trouble affording their payments, which can make them even harder to repay than federal student loans.

of working households lack access to, or are ineligible to participate in, an employer-sponsored defined contribution plan. Source: Government Accountability Office

InsuranceNewsNet Magazine » September 2016

Aetna projected a $300 million loss this year from individual coverage it sells on the exchanges. This is triple what the company lost last year. In May, UnitedHealth said it would leave exchanges in all but three of the 34 states in which it sells coverage, citing losses incurred in that segment of its business. Also in May, Humana said it could leave some of the 15 states in which it sells individual coverage on the exchanges.

They might have life insurance but do they have enough? Almost one third of Americans say they need more life insurance.1 Help explain their options with our user-friendly resources for Life Insurance Awareness Month.

Visit whatsinaname.foresters.com to download your LIAM resources.

LIMRA/Life Happens 2015 Insurance Barometer Study, January 2015 Foresters Financial and Foresters are trade names and trademarks of The Independent Order of Foresters (a fraternal benefit society, 789 Don Mills Road, Toronto, Canada M3C 1T9) and its subsidiaries. 414093 US (08/16) September 2016 Âť InsuranceNewsNet Magazine 27

IUL GRABS THE

SPOTLIGHT As regulatory pressure grows on annuities, interest shifts to indexed universal life. BY JOHN HILTON 28

InsuranceNewsNet Magazine Â» September 2016

IUL GRABS THE SPOTLIGHT FEATURE

erle Gilley normally seats about 60 agents for his training seminars on selling indexed universal life insurance. Since the spring, he has been more popular than a dressmaker during wedding season. When it came time for Gilley to book his August seminar, he traded the 60-seat room at the Westin for one that seats up to 200. Gilley, president of TriQuest USA in Virginia Beach, thinks he knows the source of his sudden popularity. “The guys that are coming to see me, their primary market was the senior market,” he explained. “These are the guys that were selling indexed annuities to seniors and replacing 401(k) and IRA money. But the DOL has come out and highly regulated that market, and it is going to continually get tighter and tighter.”

carrier that’s anybody carrying an IUL in their portfolio.” Overall, trends in life insurance are being driven by changes in three main areas: product/sales, regulation and agent force. The industry is seeing dynamic product and sales growth, but is equally challenged by regulatory pressure and difficulties in agent training and recruitment. Product/Sales: While IUL is the star here, the good news does not end there. Whole life continues to post strong sales growth. And new riders for long-term care and disability coverage are adding sales zest across all life products. Regulation: The Department of Labor’s fiduciary rule is directing regulatory attention to annuities, to the benefit of IUL. But recent regulation on illustrations from the National Association of Insurance Commissioners (NAIC) is having an impact on IUL sales practices.

“I’ve seen the transformation from having or three carriers in the whole USA selling IUL to just about every carrier that’s anybody carrying an IUL in their portfolio.” – Merle Gilley, president of TriQuest USA

That IUL is striking sales gold is no secret to anyone paying attention over the past few years. But will IUL continue picking up business in the wake of the fiduciary rule? Those who sell IUL expect it to continue to flourish. “I’ve watched the IUL market go from $43 million a year in national target sales when I first started to I think it’s close to $3 billion now,” said Gilley, in business for 19 years. “I’ve seen the transformation from having two or three carriers in the whole USA selling IUL to just about every

Agent Force: The average age of agents is 59, and the sales force is not very diverse. That is making it difficult for the industry to make inroads with millennials and minority populations, as well as to grow business through social media tools.

Product/Sales

IUL strikes a balance between traditional life insurance and market flirtation that has resonated with investors. The product boasts some of the strongest sales growth in the industry.

IUL new annualized premium increased 13 percent in the first quarter of 2016, according to the LIMRA U.S. Retail Individual Life Insurance Sales Survey. The product was the second-biggest driver of overall individual life growth and now represents 56 percent of UL and 21 percent of all individual life premium. In short, sales are booming. A decade ago, IUL sales totaled $252 million for the year. In 2015, agents sold about $1.8 billion worth of IUL premium, according to the Wink Sales & Market Report. Likewise, whole life continues to sell well, with annualized premiums up 11 percent and number of policies up 6 percent in the first quarter, according to LIMRA data. Whole life has seen 10 consecutive years of growth and, as of August, represented 36 percent of the total life insurance market, according to LIMRA data. Mutual companies, which are the primary sellers of whole life, were able to ride out the recession largely because they did not have to show the returns that public companies do. Whole life products also benefit from their guaranteed premium and coverage amount, as well as their potential to earn dividends, said Mark Morris, senior public relations consultant with LIMRA. “Consumers say they value these guarantees, especially during times of uncertainty,” he said. Sixty-five percent of life insurance companies, including seven of the top 10 carriers, showed positive growth in whole life sales. LIMRA is forecasting positive growth in whole life for this year and continued growth through 2019. Mutual companies continue to dominate whole life sales, enjoy strong credit ratings and perform well financially. Northwestern Mutual, for example, provided an estimated $5.6 billion to policy owners through its 2016 dividend payout. Ordinary and group life remain core to the industry, contributing 27.1 percent of direct premiums in the first quarter, according to A.M Best data. “While growth for ordinary and group

September 2016 » InsuranceNewsNet Magazine

FEATURE IUL GRABS THE SPOTLIGHT

$1,858

$1,803

Annual Indexed Life Premium

$1,560

$1,356

(in millions)

$973

$696

$512

$539

$531 $431

$352

$64

$62

$63

$84

$99

$101

1998

1999

2000

2001

2002

2003

life sales has been slower than for annuities, it is expected to remain a key driver of long-term in-force profit for the industry,” the report stated.

Riders on the Storm

Unique riders are helping prepare and insure consumers for a variety of late-life events — most important, health care challenges. Many riders allow access to cash value in the policies (if conditions meet the terms of the riders) to help clients pay for assisted living, nursing home care, adult day care and more. Speaking at LIMRA’s annual Life Insurance Conference in April, Steve Saltzman encouraged agents to get more involved in holistic planning. Riders are key to growing the book of business, he stressed. “Consumers are engaged, and they’re looking for help as it relates to having a better plan and potentially transferring some 30

$139

2004

$186

2005

2006

2007

2008

2009

2010

of that risk, and that’s what these products tend to do,” said Saltzman, principal with Saltzman Associates in Waxhaw, N.C. “When seniors were polled about what their greatest financial worry is related to retirement, health care expenses top the list,” he added. Sales numbers bear that out. Premium for products with riders increased 14 percent in 2015, a rebound from the decline in new premium growth in 2014, according to LIMRA data. New premium totaled $3.1 billion in 2015, which represents 15 percent of all new premium collected for individual life insurance products. There were more than 200,000 life policies with riders sold in 2015, a 37 percent increase compared with 2014 totals.

Regulations Driving Trends

A couple of significant regulatory moves are also affecting life insurance sales.

InsuranceNewsNet Magazine » September 2016

2011

2012

2013

2014

2015

2016 YTD

On April 8, the Department of Labor published its long-fought fiduciary rule. The industry successfully defeated the DOL’s 2010 proposal, and three lawsuits are underway to delay or overturn the current regulation. But odds are growing that advisors and agents are going to be adhering in some form to a fiduciary standard; if not the DOL rule, then possibly an SEC standard called for under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. That means adhering to a restrictive best interest contract exemption (BICE) if agents want to continue selling popular fixed indexed annuities (FIAs) on a commission basis. It includes arduous disclosures, liability exposure and a signed contract between agent and client. IUL is very similar to the hot-selling FIAs. Both give consumers future, tax-deferred earnings, along with the possibility

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(800) 345-8816 F www.piu.org F piu@piu.org September 2016 » InsuranceNewsNet Magazine

FEATURE IUL GRABS THE SPOTLIGHT of some gain tied to an index. Agents interested in switching their product focus from FIAs to IUL will find carriers — led by Allianz Life — swiftly adapting to market pressure. A top IUL seller in the independent distribution channel, Allianz moved quickly to draw agents to its Life Pro Plus product.

agents need to be prepared. “While not a broadly used strategy, selling life insurance to a 401(k) plan is certainly covered by the rule,” said Caleb Callahan, chief operations officer and executive vice president of ValMark Financial Group. “That one is a direct bull’s-eye in terms of what the rule covers.”

companies be able to support those rates for the life of the product. Provisions detailing information on policy loans and establishing additional standards went into effect for all new business and in-force life insurance illustrations on policies sold on or after March 1, 2016. Separate from the loan illustration disclosures, agents have to present three other new illustration disclosures. So far, AG 49 is drawing a mixed reaction from the industry. Moore can live with the limits on illustrated rates. “It’s not how I would have done it,” Moore said. “But it’s livable, and I think it’s going to help insurance companies in the end.” In fact, Moore thinks AG 49 will help preserve the IUL market. “Indexed life is a great product and I want us to be able to use it as insurance professionals,” she said. “I don’t want it to get a tarnished name due to a whole bunch of class-action lawsuits and suitability problems.” The changes to policy loans limit interest rate differences that can be illustrated between interest rates credited to loaned amounts and the corresponding loan rate charged to the loan balance. If the illustration includes a policy loan, the illustrated rate credited to the loan

“Indexed life is a great product, and I want us to be able to use it as insurance professionals.” — Sheryl Moore, president and CEO of Moore Market Intelligence and Wink Just weeks after the fiduciary rule was published, Allianz announced it was adding a convertible term rider and a multiplier interest bonus to the Life Pro Plus IUL. The rider allows the policyholder to add term insurance to their permanent policy and have the option to convert all or a portion of the term coverage, over time, to permanent coverage. The bonus design uses a multiplier to grow the accumulation potential of the policy. Beginning in year 11, the bonus is calculated based on any interest earned throughout the policy year, and credited annually, with a cap of 1 percent. “The latest enhancements provide consumers with increased flexibility to address a variety of changing needs, from a new addition to the family to an unexpected financial obligation,” said Jason Wellmann, senior vice president of life insurance sales for Allianz Life. The product design changes accomplish another important goal as well. They put Allianz in the news and at or near the top of sales spreadsheets at a time when agents are looking for IUL products. Although the DOL targeted annuities with the fiduciary rule, analysts say some life insurance sales could be affected. The fiduciary rule governs advice on qualified retirement account money. So that means all life insurance sold into 401(k)s and purchased with plan distributions will be covered by the new rule. Experts say the direct impact on life insurance sales might not be significant, but 32

With the fiduciary rule tied up in court, the final regulations for selling products into retirement funds are not yet finalized. The DOL has said it will issue guidance to clarify aspects of the rule, and has not ruled out significant changes before the rule’s initial mandates take effect in April 2017.

NAIC Regulations

The National Association of Insurance Commissioners is the primary source of life insurance regulation. Last year, the NAIC finalized its two-part Actuarial Guideline 49, known as AG 49.

Although the DOL targeted annuities with the fiduciary rule, analysts say some life insurance sales could be affected. The regulation came about in response to concerns that IUL illustrations were unsustainable. As IUL sales boomed, Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink, said the potential for lawsuits grew as well. Part one of the guideline went into effect Sept. 1, 2015, and resulted in more reasonable illustrated rates below 7 percent for products. It also required that

InsuranceNewsNet Magazine » September 2016

balance cannot exceed the illustrated loan charge by more than 1 percent. That means that for a carrier charging 6 percent loan interest, for example, the maximum illustrated rate on the loan balance cannot exceed 7 percent.

‘Off the Deep End’

In other words, AG 49 slammed the brakes on wide interest rate differentials, also referred to as “loan arbitrage,” which

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For financial professional use only. Not for use with the public. Long-Term Care insurance is underwritten by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02110 (not licensed in New York) and in New York by John Hancock Life & Health Insurance Company, Boston, MA 02117. MLI042216179 LTC-7070 5/16 September 2016 » InsuranceNewsNet Magazine

FEATURE IUL GRABS THE SPOTLIGHT

U.S. Individual Life Sales Premium ($ billions)

Policies (millions)

Premium 6% in 2015 Policy Count 4% in 2015

16 12 14 10

6 4 4 2

0 1984

1986

1988

1990

1992

Preliminary results

played into the hands of skilled agents. Moore is no fan of the loan changes. “I really think that they went off the deep end with that,” she said. “It’s not what I had in mind at all. It’s not very flexible at all. And it’s also discriminatory.” The loan change gives whole life products an advantage over IUL, Moore said. A whole life product with a dividend could illustrate a positive arbitrage much larger than 1 percent, she explained. Richard M. Weber predicts the NAIC will revisit the rule because the allowable percentage is still too high. “I think AG 49 certainly accomplished its objective in coming up with a rationale for a number that is based at least on something historic,” said Weber, president of the Ethical Edge, a fee-only insurance fiduciary advisory firm, “rather than 34

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: LIMRA’s Individual Life Sales Survey and LIMRA Estimates

just whatever the company happened to allow as a default.” Weber’s company offers fee-based consulting in a number of areas of life insurance policy management. The company never recommends illustrating a policy at more than 5 percent, he said. “If the performance is better than that, then that’s good for the policy owner,” Weber said. “We would much rather have performance be a positive than a negative for you. We want you to start with a reasonable expectation.”

Agents in Turmoil

The fiduciary rule is forcing some agents into a choice: get a Series 65 license and keep selling annuities under the new rules, or focus more on IUL and other life products.

InsuranceNewsNet Magazine » September 2016

That regulatory pressure just adds to the difficulty of attracting talent to the industry. Establishing a client base and making enough sales for a decent paycheck take time. To make matters worse, outside forces — for example, the rise of technology and lack of diversity — are making it harder for traditional agents to best serve the market. The average age of insurance agents is 59 and trending higher, noted Ernst & Young analysts in the 2015 Retail Life Insurance and Annuity Executive Survey. Agents and carriers most receptive to change are adapting much better. Historically, selling insurance is a “low-engagement” process with customers. “We kind of set up our businesses where we sell you a product and then we

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For agent use only. Not for use with the public. Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), 197 Clarendon Street, Boston, MA 02117 and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. Insurance policies and/or associated riders and features may not be available in all states. MLINY033116285 September 2016 Âť InsuranceNewsNet Magazine

FEATURE IUL GRABS THE SPOTLIGHT

Individual Life Insurance Growth Rates by Product First Quarter 2016 | Percent Change 2015–2016 Annualized Premiums

Face Amount

Universal Life

Number of Policies -1%

Variable Universal Life

-14

-13

-12

Term

Whole Life

Total

Source: LIMRA’s U.S. Retail Individual Life Insurance Sales Summary Report, First Quarter 2016

leave you alone,” said Doug French, principal with E&Y. Changing that tradition will be hard, but insurers need to develop a “holistic” approach to customer relationships, he added. The report refers to this as “life-cycle selling.” “The key is to change the role of the agent at the point of sale to unlock customer lifetime potential, not just take an order or close a sale,” the survey states. For instance, this cross-selling could include integrating 401(k) plans with options for life, health and disability insurance. Today’s customers are accustomed to being served through a variety of digital platforms. The traditional insurance agent sitting behind a desk meeting with clients isn’t going to work anymore, the E&Y report said. At the very least, insurance companies need to have a presence online, because that’s where the customers are. Thanks to the internet, customers have “unprecedented access to pricing information,” the report noted. That is feeding the rise of robo advisors and self-service. In order to better reach millennials, insurers are trying to streamline the buying process, Mary Pat Campbell, vice president of insurance research at Conning said, with varying degrees of success. “That age group is used to not having to go through the rigamarole of the sales process that you generally have to do with 36

life insurance,” she added. “So various players are trying to reduce some of that buying pain.” The spotty economy since 2008 and persistently stagnant wage growth are other issues affecting low life insurance ownership, said Scott Hawkins, vice president of insurance research and consulting at Conning. “You have other pressing demands for your disposable income, and life insurance, in surveys, oftentimes falls to the bottom, which is certainly understandable,” he said. “It’s this message of you need to prioritize retirement, then health insurance and life [insurance] last.” Many top insurers are very eager to diversify their advisor force, Hawkins said. It could be the key to unlocking significant sales potential. “When you look at the demographic makeup of most financial advisors, they are solidly middle aged, solidly white and solidly male,” he noted. “In an increasingly

InsuranceNewsNet Magazine » September 2016

diverse America, that presents a challenge in marketing.” Meanwhile, Gilley is watching the trends and adapting on the fly in his Virginia-based marketing organization. While his training seminars are a hot ticket, he wants to stay one step ahead of the transitory life insurance marketplace. That means being ready for an influx of agents who want to move from selling annuities to selling life insurance. In business for 15 years, Gilley has between 3,000 and 3,500 agents selling IUL. “I love life insurance. I always have,” he said, bullish on IUL. “What other product is there in the marketplace that will give me some upside potential but limit my risk?” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john. hilton@innfeedback.com.

Check out the latest LIMRA and Life Happens research on who is buying life insurance and why. Turn to our Life Insurance Awareness Month booklet on PAGE 17.

Special Sponsored Section

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t’s September. Life Insurance Awareness Month. So what are we “aware” of? As always, we know that life insurance is a powerful tool to ease inevitable hardships of life. We’re certainly keen to the aging of America’s largest generation. We know that products continue to evolve with phenomenal complexity as well as bold simplicity. And we are aware that the legislative shadow currently cast over annuities will inevitably spread. In this special series, respected minds from five different companies share their leading thoughts on trending products, cutting-edge technology, unique sales techniques, serving age and gender demographics and the ramifications of the Department of Labor’s recent legislation.

INSIDE Consumers Want a Better Life: How John Hancock Is Delivering It Q&A with Brooks Tingle from John Hancock Life Insurance PAGE 38

Before You Sell Single Premium Life, You Have to Read This! By Rob Whitlow from AAI Global PAGE 42

The Time Is Now for FIUL What Do Women Want From Q&A with Jason Wellmann and Todd Life Insurance? Petit from Allianz Life Insurance Q&A with Michelle Prather from Company of North America OneAmerica PAGE 44 PAGE 40 TIME to Consider Permanent Life Insurance By Stacy Miner from Global Atlantic Life Insurance Company PAGE 45September 2016 » InsuranceNewsNet Magazine

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Consumers Want a Better Life How John Hancock Is Delivering It

A corollary to this more interactive presence is another major trend today, which is the power of technology to engage customers. In our case, this obviously means mobile apps. We have some innovative features as part of our Vitality HealthyFood™ program. If our John Hancock Vitality customers are in the grocery store and aren’t sure whether an item they’re looking at is healthy, they can scan the bar code. We have an app that will give them a health score on that item and recommend alternatives. Also, we have a game called the Vitality Wheel. Customers who’ve completed a 10th workout within a certain period of time are alerted by their mobile device and get to spin a wheel that’s like the Wheel of Fortune. Rewards include gift cards from national retailers including Starbucks and Whole Foods. These have been extremely well-received by customers.

Q: What industry changes are you seeing as far as distribution?

hen John Hancock Life Insurance rolled out its Vitality™ program last year, it disrupted an age-old tradition in the industry: that gloomy conversation about death. With wearable devices and an integrated incentive and rewards program, John Hancock Vitality is engaging the American public in an exciting and healthy new way. In this Q&A, John Hancock Insurance Senior Vice President of Marketing and Strategy Brooks Tingle discusses the next evolution of Vitality and what role producers can play in making life better.

Q: What industry changes are carriers zeroing in on currently?

Insurance carriers are being introspective about the necessity of changing how we address consumers’ needs. John Hancock’s approach has been among the most prominent, as evidenced by our Vitality program. It’s a whole new approach to life insurance that offers protection and financial security while also rewarding customers for living a healthy life. There is a natural alignment between consumer health and longevity and the goals of the life insurance industry. After all, healthier lives are in everyone’s best interest. Up until recently, however, we have been so focused on providing protection at the end that we have not sufficiently thought about helping people live longer and healthier lives along the way. Now, for the first time, we are moving away from the paradigm in which clients interact with their life insurance company perhaps once a year—when there’s a bill, an annual statement or a privacy notice. Instead, we are interacting with our active John Hancock Vitality customers 21 times a month, on average, as they earn points and enjoy rewards, premium savings, and access to health and wellness tips and resources. 3838 InsuranceNewsNet InsuranceNewsNet Magazine September 2016 38 Magazine »» September 2016 InsuranceNewsNet Magazine » September 2016

Companies are looking for ways to leverage new technology to try to reach underserved segments of the U.S. consuming public. There has never been a larger proportion of the U.S. public who are underprotected by life insurance. So carriers—certainly John Hancock—are creating new ways to reach those people, simplifying the insurance purchasing process, and making it easier for them to get the important insurance coverage they need. Traditional distribution, as it has been for much of the industry’s history, is very effective. There is just not enough of it anymore. We believe it’s critical to reach the customers who aren’t being touched by traditional insurance advisors, introduce them to our solutions and then give them choice—the choice to work with John Hancock however they prefer.

Q: How are John Hancock’s new solutions changing the way consumers view life insurance?

The biggest change is that consumers are starting to actually think about life insurance as a dynamic, positive, active part of life while they’re living rather than something that just serves a purpose at the time of their death. With John Hancock Vitality, we’re seeing a level of customer satisfaction that is unprecedented in the life insurance space. I was just telling somebody this morning that it’s hard to believe we’re talking about life insurance, given the tremendous feedback we’re getting. I’ve had people write to me and say, “This is the coolest thing I’ve ever seen.” Some of them are worth millions of dollars, so it’s not about the $10 Starbucks gift card. It’s about the engagement and the fun.

Q: How has John Hancock Vitality changed since it was launched last year? John Hancock Vitality, at its core, recognizes the incredibly simple logic that a life insurance company should care a great deal about someone living a long, healthy life. Another never-

The Life Insurance Issue • Special Sponsored Section

ending objective of the program is its evolution. We went to market last year with a set of ways to earn points and be rewarded, predominantly around physical activity and preventative screenings. This spring, we added the HealthyFood program, which is multifaceted. It helps customers identify healthy foods; then, at participating grocery stores nationwide, they can receive a 25 percent discount on these foods—and save up to $600 a year. Customers also earn Vitality points for their smart choices. These Vitality points can lead to immediate awards and help drive premium discounts. Also, we are collaborating with the Friedman School of Nutrition Science and Policy at Tufts University so we can provide policyholders with access to expert nutrition information and guidance to help them eat healthier every day.

Q: What kind of response have you received from producers regarding John Hancock Vitality?

There may be some who hesitate to embrace a new, technologybased product after selling a certain way for a number of years, but generally the response from our producers has been quite strong. What we want them to know is that customers want this kind of solution. When we’re talking directly with customers in various ways, whether it’s through focus groups or some of our other channel activities, the vast majority of customers prefer this type of insurance to the traditional life insurance policy. So one, the consumer desire and receptivity are there. Two, as the producer, you don’t need to be involved in all of the moving parts. We have a call center for John Hancock Vitality that will help customers sync their free Fitbit®, claim their rewards, etc. We have a customer experience HOW THE JOHN HANCOCK VITALITY PROGRAM WORKS team that actively watches as rewards are claimed and makes sure everything is working smoothly. The role of producers is fundamentally unchanged except that now they’re able to talk to their customers about life rather than just talking about death.

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Q: How does John Hancock Vitality appeal to consumers at different stages in their lives?

First and foremost, our customers are looking to be protected by life insurance, so that is something common to all life-stage demographics. Beyond that, as related to the suite of benefits, we still see a lot in common among the different age groups. We have found that people overall want to live healthier lives. We just rolled out an expanded Vitality program for customers over age 71, taking into account their unique health and wellness considerations. That means they’ll get credit for the things they do to stay healthy but at a pace that makes sense. Even in their 80s, people still want to be aware of what they can do right now to live a longer, healthier life. Now, certainly at different stages in one’s life, different aspects of the program do resonate more. Young professionals are concerned with exercise and getting enough sleep. New parents are concerned with making the right food choices, and as healthy foods can be a bit more expensive, the grocery savings of up to $600 per year is appealing. And older adults are concerned about how to reduce health risks and live longer. We’ve also found rewards, including the cruise and hotel discounts, are great incentives for this age group. We’ve seen some myths and illusions shattered, though. Some people thought Vitality would appeal mostly to younger people. However, the first call we received in the call center last year was from a 72-year-old gentleman saying he loved the app. Also, some might have guessed wealthy clients wouldn’t value the savings. That’s also proven not to be the case.

Q: What is the most important thing life insurance producers need to be doing for their clients right now?

The most important thing is simply to have the discussion. There are so many U.S. consumers today who don’t have the life insurance protection they need. And as somebody who has grown up in this industry, it pains me. I’ve had the opportunity to lead functions like claims, and I’ve heard amazing stories about how families’ lives were changed as a result of the life insurance policies in effect. No matter what type of financial professional you are, engage your clients with this important protection, and understand that it no longer needs to be a discussion just about what happens at the end. Now it’s also a conversation about what an important role life insurance can play in motivating and rewarding clients for living a healthy life.

Help deliver the better life consumers are asking for. Visit JHRedefiningLife.com today.

For Agent Use Only. Not for distribution or use with the public. Insurance policies and/or associated riders and features may not be available in all states. Vitality is the provider of the John Hancock Vitality Program in connection with policies issued by John Hancock. Premium savings are in comparison to the same John Hancock policy without the Vitality program. Annual premium savings will vary based upon policy type, the terms of the policy, and the level of the insured’s participation in the John Hancock Vitality program. Rewards and discounts may vary based on the type of insurance policy purchased and are only available to the person insured under the eligible life insurance policy. Rewards and discounts are subject to change and are not guaranteed to remain the same for the life of the policy. HealthyFood savings are based on qualifying purchases and may vary based on the terms of the John Hancock Vitality program. Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA 02110 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. MLINY072916125.

September 2016 » InsuranceNewsNet Magazine 3939 September 2016 » InsuranceNewsNet Magazine

The Life Insurance Issue • Special Sponsored Section

The Time Is Now for FIUL

ith America’s largest generation now in the throes of retirement, the financial industry’s focus on retirement planning is acute. Investments and annuities remain popular with financial professionals, but fixed index Jason Wellmann universal life (FIUL) insurance has also arrived on the scene as a useful addition to a holistic retirement portfolio. In this Q&A, two executives at

Allianz Life Insurance Company of North America (Allianz Life)—Jason Wellmann, Senior Vice President, Life Division, and Todd Petit, Assis-

Todd Petit

tant Vice President, Actuarial Product Development—weigh in on new innovations in FIUL, nuances of how to discuss FIUL with clients and the environmental factors of today’s industry that are driving the growth of this versatile product.

Q: Why is this a good time to diversify your portfolio with FIUL? JW: Changes are coming to the insurance industry as a result of the Department of Labor (DOL) Fiduciary Rule. Although sales of some financial products will experience significant changes, the current impact on life insurance is minimal. As a result, there has never been a better time for financial professionals to consider how FIUL might be a useful addition to their sales portfolio. In today’s environment, consumers are looking for ways to diversify their financial strategy with products that provide elements of protection, tax advantages and ways to address market volatility. FIUL can help meet those needs and be a key component of a holistic financial strategy.

Q: How has the FIUL market been impacted by recent regulations and a new environment? JW: Phase 1 of Actuarial Guideline 49 (AG 49) was implemented on Sept. 1, 2015, and defined the maximum illustrated rate on a consistent basis for all carriers, assuming they have similar index allocations. Most illustrated rates for FIUL illustrations were lower than before AG 49 was implemented, which opened the door for increased product education for financial professionals and consumers. Before AG 49, the industry often focused on the numbers shown in illustrations, but now there is more of a focus on developing

4040 InsuranceNewsNet Magazine » September 2016 InsuranceNewsNet Magazine » September 2016

innovative product features. AG 49 Phase 2 went into effect on March 1, 2016 and included limiting loan crediting rates to 100 basis points over the charged rate. It also required additional disclosures within the product illustration.

Q: How did the FIUL market react to AG 49? JW: AG 49 created a lot more moving pieces and room for interpretation when it comes to product design. Allianz Life has always supported the spirit and intent of AG 49 in hopes of leveling the playing field. Some companies may push the limits by illustrating bonuses that are not guaranteed, creating more competition around which carriers can illustrate the highest bonus. As a result, financial professionals may run their illustrations at the maximum rate—which means the carrier with the highest cap and bonus looks the most attractive—even though that product might not be the best fit for their client. The ability to illustrate a maximum rate of 6 to 7 percent is necessary in order to be relevant in the market. TP: Increased emphasis is also being placed on product innovation, which can add a layer of complexity. With that said, I would advise financial professionals and consumers to fully understand those innovations and how they impact the policy for the long term. Oftentimes, there is a trade-off down the road that comes by adjusting levers within the policy. Some companies may change their product floors and policy charges to obtain a higher illustrated rate. This is exactly why product education and transparency are so important—they encourage the financial professional to compare products holistically by features and benefits and avoid being misled by isolated benefits. The new environment puts the ownership on the financial professional and consumer to know the financial strength and ratings of the carrier. It also puts increased focus on the insurance companies themselves, in terms of company strength, rate setting and renewal history.

Q: How has product design changed as a result of AG 49? TP: AG 49 has leveled the playing field in terms of illustrated loan amounts, but it is important to understand other features and competitive advantages of the product or products you’re selling. Bonus amounts are not calculated as part of the maximum illustrated rate, so carriers can get creative when it comes to bonus designs. Accumulation bonuses are becoming more common in FIUL policies; however, it is important to know that not all bonuses work the same. Bonuses provide a benefit to the policyholder, but they are not free. Many companies apply additional fees or charges to help offset the cost of the bonus and any associated guarantees. Higher bonuses are generally offered as a trade-off for

The Life Insurance Issue • Special Sponsored Section

lower minimum guaranteed interest rates. Products with a bonus may also have caps and participation rates adjusted to take the bonus into account. Some bonuses are applied only to the unloaned value of the policy—meaning that taking a loan will reduce the amount of future bonus credits. Other bonuses are applied to both the loaned and unloaned values. Probably the most important consideration to take into account regarding bonuses is whether they are guaranteed or nonguaranteed. Products with nonguaranteed bonuses are riskier for the customer because an illustration may show a high bonus that could change in the future. AG 49 Phase 2 affects indexed loans, so loan options and flexibility are key elements of product design that benefit the consumer. The loan rate can significantly impact policy values, so the first question you should ask when discussing indexed loans is whether the loan rate is locked in or if it can change. Does your client have to select all fixed or all indexed loans, or do they have the option to take both? Is there flexibility around whether the index used for crediting the indexed loan has to be the same as the index used for new premium and/or unloaned cash value?

paid out over a period of time (usually 10 to 30 years). Carriers are marketing the benefit of a lower cost of insurance in return for a spread death benefit. The question is—who actually benefits from this? With these policies, the beneficiaries don’t have the option to take the death benefit as a lump sum. While this is beneficial in some instances, it may not be in the best interest of the client who needs access to the full death benefit to pay down their mortgage or supplement college costs, for example. It is important that the policy owner and beneficiaries fully understand the impact of the lower cost of insurance charges in exchange for a death benefit spread out for a certain number of years.

Q: What do you see for the future of FIUL?

JW: Since 2005, FIUL sales have increased substantially, and I believe this will continue. New innovations in product design will continue to drive the growth of the FIUL market. There is a huge opportunity to expand FIUL sales with registered reps, due to new industry regulations coming into play like the DOL Fiduciary Rule. Carriers will begin implementing additional rigor around their suitabilUNDERSTANDING ACCUMULATION BONUSES ity and affordability guidelines to make sure financial professionals are doing the right thing Accumulation bonuses are becoming more common in FIUL insurance policies, but it’s important for their clients. to know that not all bonuses work the same. Here are some considerations to keep in mind as you run illustrations and explain these bonuses to your clients. TP: Allianz Life will continue to lead the way with product innovations as the economic ACCUMULATION BONUS CONSIDERATIONS environment and consumer needs change. Is the bonus guaranteed or nonguaranteed? Living benefits and unique index allocation options will become more prevalent within How do loans impact the bonus? Is the bonus applied to FIUL policies, causing carriers to continuousloaned or unloaned values? ly refresh their products. The 2017 CSO tables Can cap and/or participation rate adjustments be made now will also affect the FIUL industry. The amount or in the future to cover the bonus? of premium a consumer can pay into their policy will be reduced by about 10 percent. How much are fees and charges increased to cover the bonus? Since accumulation FIUL policies are typically max funded, carriers will need to make adjustments to drive efficiencies within the policies. The new CSO Innovative index allocation options are also gaining tractables will affect policies sold on Jan. 1, 2020, and beyond. tion in the FIUL space. Allianz Life has always been an inPolicies sold prior to that date will be grandfathered in and novator when it comes to the indexes we offer, because of our company’s experience with indexing and hedging. Our use the 2001 CSO tables. innovations start with a consumer need in mind. When the monthly sum crediting strategy was introduced in 2005, it responded to consumers wanting to capture more of the movements of the index than could be provided by an annual point-to-point index with a cap. Our blended index strategy was launched in 2008 and added bonds and international indexes for those wanting exposure beyond U.S. equities. The trigger method was developed in 2013 and responded to the consumer need for simplicity. Also launched in 2013 was our volatility-managed index, which increases upside potential in a low-interest rate environment. These innovations are now being replicated in the industry. Spread death benefit designs are new to the industry. Instead of the death benefit being paid out in a lump sum, it is

Learn more about FIUL products available from Allianz Life at www.allianzlife.com/fiul Questions? Call the Life Case Design Team at 800.950.7372

With an external index the client’s policy does not directly participate in any equity or fixed income investments. Guarantees are backed by the financial strength and claims-paying ability of the issuing company. Products are issued by Allianz Life Insurance Company of North America.

September 2016 » InsuranceNewsNet Magazine 41 41 September 2016 » InsuranceNewsNet Magazine

The Life Insurance Issue • Special Sponsored Section

Before You Sell Single Premium Life, You Have to Read This! Rob Whitlow, CEO AAI Global

ingle Premium Life is an enduring product that delivers what life insurance was originally invented for. But as our industry advances, so does this long-standing staple, with multiple rider options and its rising popularity as a retireRob Whitlow ment income generator. These intricacies trickle down to the sales process, so before your next appointment, familiarize yourself with the following 4 steps so you can optimize results for your clients and your own bottom line.

4 Steps to Optimize Your Sales Process STEP 1: The Lay of the Land Check existing policies of your current and new customers. You wouldn’t believe how many clients over 50 have an old policy with cash value that will enable you to convert to Single Premium Life where suitable. Many people create a new POWER TIP will that does not align with Don’t ask to see their policy. Let them know that, the beneficiaries on their life as part of your beneficiary insurance, creating confusion alignment review, you will and possibly costly lawsuits need to document the beneficiaries as listed on among beneficiaries. all life insurance policies.

STEP 2: 2 Buckets Separate all savings money into only 2 categories: A) money that will be used for income, and B) the last money that will be used for income. Some clients have money in the wrong bucket, like a situation that’ll cause them to take an IRA last when they are forced to take income at age 70 ½. The “last monPOWER TIP ey” (money designated Don’t ask questions like “How much do you want to leave to your for later years in retirekids?” This is a ridiculous question, ment) should always as most people will say they want to be either a Roth IRA or use the money. non-qualified funds, such as those used to purchase Single Premium Life. Remember to let your client know that hiding assets from you can cause you to give improper advice. STEP 3: The 3-Fold Plan The 2-bucket method allows you to recommend a 3-fold plan using Single Premium Life. To position the 3-fold plan, use the 3 questions every prospect should be asking:

4242 InsuranceNewsNet Magazine » September 2016 InsuranceNewsNet Magazine » September 2016

Question 1: What if I die too soon? Answer: Purchase Term Life with 2 tranches, or pools. Stagger Term Life to have, for example, a 10-year policy to cover the immediate risk of losing income, with a large amount of death benefit, coupled with a 20-year term at a lower death benefit. This way, as you get older and need to cover less replacement of income, you will not be over-insured later and will not be under-insured early. Question 2: What if I live too long? Answer: Term Life becomes the most expensive policy in the life insurance world once you outlive your policy. By the time you reach the end of the term, you might be at an age where you are too sick to purchase more term insurance. To cover the risk of living too long, combine Indexed Universal Life — which would be in place to cover expenses toward the latter part of life — with Single Premium Life by taking a portion of savings and creating a final expense plan with paid up death benefits. This means if later in life you need to drop all premiums due to income limitations, you at least have a paid up burial policy.

POWER TIP Question 3: What if I don’t die? Obviously, they’ll think Answer: A Term Life/Indexed it’s silly when you urge them Universal Life/Single Premito ask this question. They’ll laugh and say, “Everyone um Life combo will actually dies!” And voilá — you have solve the problem of “What if them saying it, not you! Now I die too soon?” It also allows it’s time to position that you to use CD, money market threefold plan ... or even savings account money and convert an appropriate amount to the “last bucket.” This is the money you are least likely to ever touch, which can be used to solve both “What if I die too soon?” and “What if I live too long?” How can it solve both problems? Because if you don’t outlive your money, that Single Premium Life money now goes tax-free to your kids. If you beat the odds and outlive your life expectancy, you can now use the money for income in the form of withdrawals or loans. You can also get a policy that comes with a longterm care benefit so you have valuable coverage no matter what the circumstances. STEP 4: The Right Product A great Single Premium Life product from AAI Global Pacific is the Estate Enhancer, which allows a client to pay a one-time premium and get an instant tax-free death benefit. The Estate Enhancer product also has a preferred rate class that provides the most death benefit for the money, bar none. Add in the point-of-sale approval, and you end up with an easy process that solves a huge planning problem for many of your clients.

The Life Insurance Issue • Special Sponsored Section

Grow by Partnering Thomas J. Boesen, CIMA, COO AAI Global

are not life insurance licensed. This is a great opportunity for you. As with any partnering ew business is essenarrangement, there must be tial for every agent’s trust, which isn’t easy to build. growth. UnfortuCreating a relationship with nately, it is also the someone whom you have no most challenging task to exerelationship or connection cute. I’ve spent 22 years in the with is difficult to do in a broker/dealer world and it’s the short amount of time. Hence, same process there. I’ve seen where might you find an admany methodologies attemptThomas Boesen visor to partner with? Start ed, with some more successful with your best clients. Ask them if they than others. I would like to discuss the have a financial advisor they use for their best method I’ve seen to grow your busiinvesting and if they see them as a trusted ness. That method is Partnering. advisor. If so, probe as to the scope of the “Partnering”? With whom? … Regisrelationship and whether the advisor has tered investment advisors and broker/ brought up insurance in the past. If they dealers. You as an insurance agent have haven’t, ask the client for an introduction. tremendous knowledge of the uses of There’s your connection. The value proplife insurance in protecting clients’ asosition to your client is to have a coordisets and creating a legacy for future nated effort between their financial progenerations—knowledge that is not typfessionals. You might also seek out friends ically taught in the broker/dealer world. and family who have relationships in the Broker/dearlers typically have an insurRIA/broker/dealer world as well. ance specialist to assist in such analysis. As you can imagine, you may run Many RIA/broker/dealer advisors avoid into some skepticism on the other side. this discussion because of their lack of That should be expected. The advisor real understanding of the topic, or they

POWER TIP

Although product selection is crucial, it’s important to fit Single Premium Life products in as an overall extensive plan that solves problems; rather than selling the technical benefits, describe scenarios where adding the product will solve problems. Use real-world examples and ask great questions like, “Have you already prepaid for your burial and plot?” This opens the door to talk about a better way to cover that expense.

REWIND … STEP 0: Did you start with warm, highly qualified leads? The best sales process in the world is useless if you don’t have anyone to sell to. One of the most effective ways to get warm leads is to connect with outside sources. You need 4 team members: 1) CPA: CPAs work with investors in tax planning. Recruit a CPA to work with you, as your tax-free death benefit story will

is thinking, what’s in this for me? Meet and get comfortable with them. This includes learning about their client advisory process. Once you’re comfortable, introduce a prospect to them. Yes, you need to be the first to do it. Be sure the introduction fits into their client profile. You want it to be meaningful. It should be a joint meeting. You should set expectations that this is a reciprocal relationship. Let them know what you’re looking for. During this process, it would be appropriate to inquire with the advisor what high-net-worth clients they have for whom you could jointly perform insurance reviews. You should have no more than two of these relationships. If they’re working, that’s all you can handle. Remember, it’s a reciprocal relationship. Use your business instincts to determine whether it’s a win-win relationship. My recommendations in this space are small RIAs who cannot take a commission (fee only) and smaller broker/ dealers. They must see your competence as an insurance professional. Since you can’t participate in investment fees, they should not ask to participate in insurance commissions as well. Best wishes in your pursuits!

resonate with clients who need more advanced insurance planning. 2) Estate Planning Lawyer: Estate planning lawyers or elder law attorneys can refer clients who are already thinking about their legacies. What better time to make sure that legacy goes to beneficiaries in the most effective way? 3) P&C Specialist: Recruit a property and casualty insurance agent to refer clients who have already purchased Term Life insurance and need an advisor to talk to about completing their planning. 4) Broker/Dealer: What is the right criteria when looking for a broker/dealer to partner with? The answer is, it’s complicated. See the above sidebar article by AAI Global’s COO, Mr. Thomas Boesen.

Offer your clients outstanding, versatile Single Premium Life products. Get started today at www.singlepremium.life. September 2016 » InsuranceNewsNet Magazine 4343 September 2016 » InsuranceNewsNet Magazine

The Life Insurance Issue • Special Sponsored Section

What Do Women Want From Life Insurance?

ichelle Prather has worked in the insurance industry for more than 20 years. In 1998, she began working with asset-based long-term care (LTC) products, and now, with OneAmerica®, she teaches financial professionals and consumers how to build strategies to address LTC expenses. In this Q&A, Michelle, who was recently named Vice President of national accounts, discusses LTC and the unique insurance considerations of women.

Also, beware the perception of women as emotional and aggressive. We simply want to know what’s going on with our money. This perceived emotion and aggression is really just passion, which is a positive, in my opinion. Also, be very sincere. Women have gut feelings about people, and if a woman doesn’t feel sincerity or doesn’t feel comfortable, you’re probably not going to get her business.

Q: How did you come to be involved with the cause of life insurance for women?

Q: What does OneAmerica have in place to better serve women as clients?

Well, it was really by luck that I was involved in the LTC industry earlier in my career. I absolutely fell in love with creating strategies to help address the catastrophic event that we know as long-term care, and it’s something that especially affects women. We live longer, so we’re more likely to need it. Plus, we tend to be the family caregivers, so women end up juggling a career with taking care of parents, which impacts not only careers, but marriages and children.

Q: How are today’s women clients different from previous generations, and how do they differ from men?

They’re more involved than previous generations. Also, there are more single women today. All the financial decisions need to be made, and what they fear most is outliving their money. They feel that if they need care and their children have to be their caregivers, then it’s their fault that their children didn’t get to fulfill their dreams. Men understand risk differently than women do. Men often don’t view themselves as needing someone to help with activities of daily living. But women tend to think about these things all the time and want to be thoroughly educated on all options.

Q: What insurance products are women likely to find important?

Long-term care is probably at the top of that list. Because women, being the go-to caregivers, see the impact LTC struggles have on families. Next is life insurance. Traditionally, estate planning and tax planning seem to often fall on the men, but women tend to live five or more years longer, and all the while tax laws and rates change. When a single woman passes on, she likewise might leave an estate that needs to be distributed. So, life insurance for estate and legacy planning is very important.

Q: What about women financial professionals selling to women? Well, the old saying is “Men buy from women, and women buy from women.” Women often have that teacher’s heart. We often strive to be very thorough and well-researched. I’m not sure why we don’t see more women financial professionals, but the ones who are in the industry are very successful.

OneAmerica is a financial services industry leader, especially with the options that come with our products. We have life insurance, retirement products and of course long-term care protection. With Care Solutions, we have innovative options for LTC, utilizing both life insurance and annuities. Care Solutions is a line of asset-based LTC that can be tweaked and tailored. It allows the death benefit of life insurance policies to be used, tax-free, to pay for long-term care, whether it be a nursing home, assisted living or even care in their own home. If care isn’t needed, no money is wasted, because their heirs get to receive that as death benefits. Offering lifetime protection and unlimited protection is perfect for women because they may need care for longer periods of time than men. OneAmerica is the only company that offers joint life benefits—two people covered on one policy. We don’t require them to be married either. Often, we see mothers and daughters on one policy together. And then finally, there’s the ability to use multiple types of funding. No longer is long-term care protection one size fits all. Women want choice, and women want knowledge, and that’s what we’re able to provide.

Get your complimentary Care Solutions guide and learn how to address the top 5 LTC objections at www.CareSolutionsLTC.com.

Q: What do agents need to know about selling to women?

Women are such a great market that is so underserved. Number one, make sure you’re educated as a financial professional before you bring something to women. Women want to be educated, so professionals working with women should have a teacher’s heart.

4444 InsuranceNewsNet Magazine » September 2016 InsuranceNewsNet Magazine » September 2016

OneAmerica® is the marketing name for the companies of OneAmerica. Products issued and underwritten by The State Life Insurance Company® (State Life), Indianapolis, IN, a OneAmerica company that offers the Care Solutions product suite.

The Life Insurance Issue • Special Sponsored Section

TIME to Consider Permanent Life Insurance By Stacy Miner, CLU, ChFC, CASL, RICP Vice President Marketing/Training, Global Atlantic Life Insurance Company

is highly funded and becomes what is known as a Modified Endowment Contract, distributions are taxed to the extent of gain in the contract.

ith September being Life Insurance Awareness Month, it’s a great time to consider the flexible lifetime benefits that permanent life insurance offers a financial strategy. When I started Stacy Miner has worked in the financial services industry for in the life insurance business, 15 years. He’s an experienced I had the opportunity to work wholesaler and trainer on with an experienced agent who universal life, whole life and indexed annuities. told me that life insurance can help alleviate the effects of time. He was not a mystic speaking philosophically, though I did initially think he was speaking of time in a chronological sense. He did, however, turn out to have wise insight. “TIME,” as he defined it, is an acronym that helps illustrate the power and flexibility of permanent life insurance to prospects and clients. The acronym stands for Taxes, Inflation, Mistakes and Emergencies. By highlighting these financial challenges, agents can easily demonstrate to their clients how permanent life insurance provides an attractive option for financial flexibility during one’s lifetime. Most people already know how life insurance can help them manage the adverse financial effects of dying, but many do not realize that it can also help manage financial adversity in life.

2. Inflation. According to InflationData.com, the average annual inflation rate in the United States from 1913 to 2015 was 3.18 percent. Depending on the type of permanent life insurance product chosen, many traditional universal life carriers are crediting non-guaranteed interest rates between 4 and 5 percent; indexed universal life insurance carriers illustrate non-guaranteed rates between 5 and 7 percent, just to highlight two product types. Over time, the interest credited to both products will likely outpace inflation based on the historical average inflation rate. Couple that with the tax benefits, and the policy can be an attractive supplemental resource for rising costs, particularly in retirement.

EMER G

1. Taxes. Generally, life insurance proceeds paid on the death of the insured are not included as taxable income for beneficiaries, with a few exceptions. Focusing our attention on how life insurance can help a policyholder during their lifetime, we also find some compelling tax advantages. First, policy values accumulate tax-deferred, so growth is allowed to compound rather than be dragged down. The second benefit, which makes the tax-deferred growth even more compelling, is the owner’s ability to access the value on a tax-advantaged basis through policy loans and withdrawals. Generally, withdrawals are tax-free up to the amount of premium paid into the policy, known as the cost basis. Policy loans are not taxed because the policyholder is responsible for repaying the loan, either personally or out of the policy’s proceeds. This assumes the policy remains in force until the death of the insured. Of course, the tax results ultimately depend on exact circumstances. Withdrawals over cost basis are taxed, and if the policy

INFLA T

MIST AK

and how life insurance can help alleviate or reduce their impact on clients

4. Emergencies. Not all financial emergencies involve premature death. It’s quite likely your clients will suffer some injury, disability or chronic illness over the course of their lifetime. If they’re lucky, the “emergency” they face might be just a gap in employment or the need for a new car. Whatever emergency they experience, permanent life insurance provides access to cash value that can be used for a multitude of reasons. In addition, many products today offer riders that are triggered should a disability or serious illness occur. These riders pay out benefits that may include premium waivers or advancing a portion of the death benefit to cover expenses associated with a critical or chronic illness. The life insurance industry has a number of catchy sayings, clichés and sales strategies to promote the need for permanent life insurance. If you’re looking for ways to help grow your business, remember to discuss the lifetime benefits of permanent life insurance—now’s the T-I-M-E.

ION

The 4 Elements of TIME

CIES N E

3. Mistakes. We all make mistakes, even financial ones. Cash value that accumulates inside a permanent life insurance policy can be accessed for any reason, likely on a tax-advantaged basis. So if a mistake is a result of a financial misstep, such as investing in a business venture that fails, your clients can take comfort in knowing that their life insurance cash value can serve as a bandage.

Global Atlantic Financial Group, in addition to retirement, reinsurance and funeral planning product lines, offers a full range of traditional life insurance products with a focus on indexed universal life. Learn more at www.globalatlanticlife.com.

September 2016 » InsuranceNewsNet Magazine 4545 September 2016 » InsuranceNewsNet Magazine

TAX

LIFEWIRES

More States Require Insurers to Locate Beneficiaries

20 States require search $5B

QUOTABLE

Driving racecars is risky. Not having life insurance is riskier.

Paid to beneficiaries

Illinois became the latest state to consider requiring life insurers to locate the heirs of unclaimed life insurance policies and pay them the money they are owed. More than 20 states already have laws on the books rePaid to states quiring companies to search for beneficiaries. The laws require companies to cross-check their databases against a federal database of the deceased, although they differ on when to start those checks. Since 2011, companies have paid out more than $5 billion to beneficiaries of unclaimed policies, according to estimates by the Florida Office of Insurance Regulation. They’ve also forwarded more than $2.4 billion to states, which continue to search for beneficiaries.

$2.4B

FINAL EXPENSE PREMIUM UP 5%

Final expense life insurance sales are cre eping up, increasing 5 percent between 2014 and 2015, according to the Life Insurers Council. Many consumers might associate this type of coverage with the policies that are pitched on TV commercials. However, more than 80 percent of final expense policies were sold through independent agents or independent marketing organizations, according to the council. The average age of someone purchasing final expense coverage was 63 years old. There has been a gradual increase in average issue age (66.5 in 2012 to 66.8 in 2015). Researchers note that many companies have stopped selling this type of coverage to consumers younger than 50, which could be contributing to the rise in average issue age.

MORE CHANGES AT METLIFE

MetLife is spinning off its U.S. retail unit and giving it a new name. The business will be called Brighthouse Financial DID YOU

KNOW

66%

after it is broken off from its parent company. It’s the latest move in MetLife’s effort to pursue a spinoff, sale or initial public offering for that segment of its business. The rebrand will give a new identity to MetLife’s individual annuity and life business. MetLife officials said that the move will give the company the ability to focus more on its group business in the U.S. and its international operations. In addition, MassMutual completed its acquisition of MetLife’s Premier Client Group, its retail force of 4,000 captive agents. MassMutual said most of the agents will stay on with MassMutual. The move will increase MassMutual’s network of financial professionals by 60 percent – to more than 9,200.

BANK LIFE SALES DOWN BUT COULD BE GROWTH AREA

LIMRA looked at bank life insurance sales in 2015 and found that although sales are down, the channel is ripe for growth among millennials. In 2015, life insurance sales reported in the bank channel for the year were

of consumers say they are likely to recommend life insurance ownership to others. Source: Life Happens

InsuranceNewsNet Magazine » September 2016

— Danica Patrick, 2016 spokesperson for Life Insurance Awareness Month

down 19 percent compared with 2014. A key factor was reduced sales of one of the largest product lines in the bank channel, universal life with a lifetime guarantee.

Although LIMRA research found that about 70 percent of bank customers use their bank only as a place to deposit and withdraw funds, the millennial generation could change all that. LIMRA found that 60 percent of millennials believe it is important to have all their financial needs met in one place, and they are less likely to have a relationship with a life insurance agent or a financial advisor.

GROW YOUR SALES WITH SECURIAN’S LIFE SALES STRATEGIES FOR: BUSINESS OWNERS Take BOLD action to identify business owners’ needs, create strategies and implement solutions. LEARN MORE: securian.com/BOLD

HIGH NET WORTH CLIENTS Make your clients’ estate plans EPIC by helping them maximize their assets for retirement and at death. LEARN MORE: securian.com/EPIC

MILLENNIALS AND UP Give your sales a LIFT and show clients why permanent life insurance should be part of their financial strategy. LEARN MORE: securian.com/LIFT

For more information about these complimentary marketing campaigns and other resources, visit securian.com/LifeHub

hij abc INSURANCE | INVESTMENTS | RETIREMENT

Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2016 Securian Financial Group, Inc. All rights reserved. F82624-30 Rev 7-2016 DOFU 2-2016 38639

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public. September 2016 » InsuranceNewsNet Magazine

LIFE

Expanding Hispanic Market Underrepresented in Life Insurance s more Hispanics move upA market, they are more receptive to buying life insurance.

By Cyril Tuohy

ife insurance agent Charles Rivera knows what U.S. Army generals mean when they talk about “boots on the ground.” Rivera, a financial advisor with Eagle Strategies and an agent with New York Life, started his business in Wichita, Kan., more than 30 years ago. There was a lot of ground to cover, he recalled. Back then, there weren’t as many Hispanic prospects in Wichita and the surrounding communities as there are today. But why work in Wichita rather than the Hispanic meccas of Dallas, Denver, Los Angeles or Miami? That was the point. He was one of the few Hispanic agents with boots on the ground in Wichita — at least back then. Today, even in the internet age, a bootson-the-ground strategy remains the game changer in the quest to crack the Hispanic market. “We solve issues by knocking down the door and getting out into the community,” Rivera said. Over the years, Rivera hasn’t changed his basic boots-on-the-ground approach, but Wichita and the Hispanic market around him, certainly have changed. In 2014, there were an estimated 55.4 million Hispanics in the United States, making up about 17.4 percent of the population, census data show. That population delivered $1.5 trillion in buying power, economists estimate. Even with slowing population growth, by 2030 Hispanics will number an estimated 78 million in the U.S., or 22 percent of the population, census projections indicate. The bulk of the Hispanic population is concentrated in two states: Texas and California. 48

Charles Rivera built his business serving the Hispanic community in Wichita.

Pavement Pounding, 2016 Style

Nearly every insurance agent, Rivera included, has a story about knocking on doors. But “boots on the ground” takes on a more figurative meaning in the 21st century than it did in years past. These days it means getting involved locally, showing your visibility, raising your profile to a higher level than in the past. In Rivera’s opinion, Hispanic agents lead best by example. “What I do speaks louder than what I say,” Rivera said. Serving on the board of a community nonprofit organization or a local or state Hispanic Chamber of Commerce, or as a trustee of a community college or a state university, provides the kind of visibility Rivera’s talking about. The higher the profile, the more visibility it will generate, which is important to capture the attention of Hispanic prospects, Rivera said. Raising visibility helps agents network with other professionals such as accountants, bankers and lawyers. When these professionals see you as the “go-to” person, “that’s an important entrée into the Hispanic market,” he said. Face time and making an in-person case for buying life insurance are considered critical to sales success, Hispanic market researchers say. “We know that showing up strong in the community also drives trust in our brand,” said Jaime Morales, a Chicago-based agency owner for Allstate.

InsuranceNewsNet Magazine » September 2016

When it comes to setting financial priorities, buying life insurance lags behind saving for retirement, reducing debt, building emergency savings and funding education for future generations. That’s according to a 2014 Prudential research study on the Hispanic-American financial experience. Only 28 percent of Hispanics owned workplace-based life insurance, compared with 47 percent of the general population, the Prudential survey found. In addition, the survey found only 25 percent of Hispanics owned individual life insurance, compared with 37 percent of the general population. Pounding the pavement is considered table stakes in the fight for the Hispanic financial services dollar, and there’s no substitute for pressing the flesh. “The ad world can do all they want, but it’s not going to get done until you get out there and shake hands with the guy who owns the bakery or the tortilla company,” Rivera said.

Receptive Yet Reticent

Hispanics may have trouble ponying up for life insurance premiums, yet they remain as receptive as ever to life insurance products, according to Strategic Business Insights’ 2014-2015 MacroMonitor Hispanic Oversample. Asked whether they would seriously consider buying insurance that guarantees income in case of a disability, 66 percent of Hispanics said yes, compared with 60 percent of non-Hispanics. To the question of whether buying life insurance is a good way to protect a family’s lifestyle, 71 percent of Hispanics said yes, compared with 70 percent of non-Hispanics. When asked whether it’s important to have enough life insurance to cover three years’ worth of household expenses, 71 percent of Hispanics said yes, compared with 64 percent of non-Hispanics. Asked whether they have enough life insurance, 63 percent of Hispanics said they don’t, compared with 50 percent of non-Hispanics.

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September 2016 » InsuranceNewsNet Magazine

LIFE EXPANDING HISPANIC MARKET UNDERREPRESENTED IN LIFE INSURANCE And 62 percent of Hispanics said buying life insurance is a good way to save for the future, compared with 49 percent of non-Hispanics. A separate New York Life survey last year of Hispanic business owners found that 58 percent said life insurance offers peace of mind and 46 percent said they didn’t want to burden their families and their children when they die. Although Hispanics recognize the importance of life insurance, objections conspire to hold them back from purchasing it, writes Felipe Korzenny, director emeritus of the Center for Hispanic Marketing Communication at Florida State University. Some of those objections include cultural beliefs grounded in fatalism, the fact that some Hispanics come to the U.S. with little or nothing to insure, the obtuse and opaque terminology found in life insurance, and the fact that insurance isn’t required in many Latin American countries. Among Hispanic business owners, 37 percent said they don’t see the need for life insurance coverage, 32 percent said they can’t afford it and 19 percent said they are too young to consider purchasing it, according to New York Life. Selling life insurance to Hispanics remains a high-touch proposition to which many of the basic sales principles still apply, particularly for Hispanics new to the U.S. An estimated 70 percent of Hispanics prefer to buy their policies through faceto-face meetings, said Nilufer R. Ahmed, senior research director with LIMRA. Agents said that some of the ways to connect with this market are by emphasizing what life insurance products can do for a family, dressing to suit a prospect’s economic standing and never faking their Spanish.

A New Dynamic: Life and Wealth Transfer

More recently, an important new variable has begun to influence Hispanics’ life insurance buying patterns: the role of education. The level of education attained by second-, third- and fourth-generation Hispanics in the U.S. means they are earning college degrees in record numbers. Research shows a correlation between acculturation and purchasing life insurance. Among U.S.-born Hispanics, 20 percent had a college education, compared with 50

An Integrated Approach to Reaching the Hispanic Market No life insurance agent is an island. Agents, particularly captive agents, function as part of a greater distribution chain. That chain is governed to a greater or lesser extent by the insurance companies with which they have contracts. The most successful Hispanic marketing campaigns come from an integrated approach to the insurance-buying process, according to Felipe Korzenny, director emeritus of the Center for Hispanic Marketing Communication at Florida State University. In a 2006 research paper titled “Trends in Marketing Insurance to Hispanics,” Korzenny cited MetLife, Allianz, New York Life, Prudential and Nationwide among the life insurers reaching out to the Hispanic community with advertising and branding campaigns. Property/casualty insurers also have undertaken nationwide marketing campaigns, with varying levels of success. Korzenny revealed the model for the integration sequence that reinforces the Hispanic connection at every touch point. The process unfolds something like this. It starts when a prospect sees a life insurance company sponsoring a community event. The would-be buyer returns home to check the insurer’s website, which explains — in Spanish — the different life insurance products the company offers. The prospect picks up the phone and calls the toll-free number, and a bilingual customer service representative answers.

only 12 percent of foreign-born Hispanics in the U.S., according to the U.S. Census Bureau. Hispanic communities across the country have a long history of entrepreneurship. Hispanic business owners operate successful restaurants, markets and other enterprises, and new arrivals continue to launch new ventures. As more acculturated Hispanics attain higher education levels, they move into segments of the economy such as utilities, logistics and distribution, and manufacturing, said Hector Vilchis, corporate vice president of New York Life. In response to the increasing role of Hispanics in the U.S. economy, New York Life has tripled the number of its Hispanicfocused agents to nearly 2,000 over the past 15 years. Among the top Hispanic-owned businesses in the U.S., six had annual revenues of more than $1 billion, according to a 2014 listing by DiversityBusiness.com. They are Brightstar Corp., A. Millican Crane Services, Technology Transfer Services, SDI International, The Related Group and Goya Foods. And Hispanics are aspiring to success outside the business world as well. For example, U.S. Labor Secretary Thomas E. Perez, the son of Dominican immigrants, and Supreme Court Justice Sonia Sotomayor, whose parents are of Puerto Rican descent,

InsuranceNewsNet Magazine » September 2016

Hispanic marketing expert Felipe Korzenny says marketing has to start with physical presence in the community. Later that week, a well-known Hispanic actor, athlete or celebrity — Selena Gomez, for example — explains the value of life insurance in a television commercial. Returning to the insurer’s website, the consumer learns there are Spanish-speaking agents nearby. The buyer and his family walk into the Main Street office of a Hispanic agent, who offers them premium coffee (most likely from Central America). Companies that create “culturally relevant messages” and then communicate those messages to the Hispanic consumer will be more successful in marketing insurance to the Hispanic market, Korzenny wrote. — Cyril Tuohy

carry Hispanic blood into the highest levels of government. So it won’t be long before benefactors with quintessentially Hispanic names — Diaz, Marquez, Perez and Rodriguez — start showing up on stadiums, arenas and museums as well, and that is leading to a new conversation with agents. Transferring wealth to the younger generation through life insurance is a topic Morales said he regularly discusses with his customers. “We talk through their goals and how to achieve a secure financial future,” he said. As the Hispanic market’s “generational build” gathers steam, Hispanic business leaders increasingly are asking agents how to protect and transfer wealth. For many agents as well as clients, putting these strategies in place represents a new stage in financial planning, Vilchis said, since the idea of generational wealth in America is a new concept for many Hispanic families. With parts of the Hispanic market starting to generate substantial wealth, the pavement worth pounding may well become exponentially bigger. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril. tuohy@innfeedback.com.

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September 2016 » InsuranceNewsNet Magazine

LIFE

The Top 3 Reasons a Life Claim Can Be Denied avigating the myths and reN alities of what can cause a life insurance claim or policy to be invalidated is tricky. By Eric Halsey

nsurance agents often face questions from clients about what exclusions might exist for a particular policy. Navigating the myths and realities of what can actually cause a life insurance claim or policy to be invalidated in 2016 is tricky, as there have been many industry shifts over the last few years. This list delves into what can (and cannot) cause a client to lose their life insurance coverage today. Although these three reasons for claims being denied are well-known, the specifics are changing. Even though approximately 99 percent of all claims are fulfilled, there are still pitfalls. Just because the chance of being denied is low doesn’t mean you can neglect the possibility and be careless. Ultimately, it’s your responsibility to ensure your clients are well-informed about how their actions affect their policy and how their policy should affect their behavior. Here’s what you need to be aware of today.

1. Suicide

This is one of the most common and most well-known invalidation clauses in life insurance policies. However, that doesn’t mean it’s widely understood. Although many assume that death by suicide invalidates a life insurance claim, this generally is not true. The most common content of a suicide clause is that a death by suicide claim will be paid to the claimants if two years have elapsed since the policy’s starting date. This is important to understand for anyone taking out a policy: Their life insurance policy will keep their family protected in the case of suicide, but it’s wise to take out the policy sooner rather than later to ensure they’ll be fully covered. 52

In addition, many agents and policyholders alike neglect the fact that anytime they switch to a new policy, this clock is restarted. A public example came with the apparent suicide of actor Heath Ledger in 2008. As his life insurance policy was only a few months old and contained the aforementioned two-year clause, his $10 million claim was denied, leading to a protracted legal battle. This is an example of what can go wrong and why it’s important to pick the right policy for your client and stick to it if possible.

2. Fraud

This particular way of invalidating a life insurance policy may seem obvious, but that’s due in part to the gravity of the word “fraud.” In fact, any misstatement or misrepresentation can be taken as a reason to invalidate a claim. The distinction is that a policyholder may feel as if they’re not committing fraud, but simply phrasing something differently or bending the truth slightly. The insurance company, however, does not take those distinctions quite so lightly. A single mistake made on the original

InsuranceNewsNet Magazine » September 2016

policy could be reason to deny a claim a decade or more later, potentially sparking a messy legal battle no one in that situation will enjoy. That’s why it’s vital to make sure clients understand that it’s paramount to be 100 percent accurate on their policy application. In fact, in the previously mentioned Heath Ledger case, the insurance company claimed he misrepresented his history of drug abuse, a fact that caused additional problems for the claimants in his case. This was a mistake that could have been avoided with more attention to detail and honesty when applying for the policy in the first place. Illegal drug use is just one example of the risky behaviors that can lead to your client’s life insurance claim being denied. Another behavior that can put your client’s claim at risk is a history of drunken-driving convictions. If your client tries to hide this type of behavior, they risk having a claim denied.

3. Risky Behavior

This type of invalidation clause has seen quite a bit of evolution over the last few years. In the past, it was common for policies to include clauses that invalidated

THE TOP 3 REASONS A LIFE CLAIM CAN BE DENIED LIFE coverage when death resulted from military service or other acts of war, risky sports such as scuba diving or skydiving, or even flying an airplane. Today, many of those exceptions have become rare or virtually nonexistent. The military exclusion largely reflects the fact that soldiers today are much less

were common, they essentially have vanished in recent years in response to advances in treatment. As a result, today HIV is treated the same as any other chronic illness: It will increase premiums but have little other effect. Overall, this shift in behavior on the part of insurance companies is a welcome

It’s vital to make sure clients understand that it’s paramount to be 100 percent accurate on their policy application. likely than soldiers in previous conflicts to lose their lives. However, over the last few years, insurance companies have decided to focus more on pricing than on excluding risk. In essence, if your client is a skydiver, the insurance company still wants their business, but would prefer simply to charge the client a higher premium. One interesting example is HIV. While exclusions for HIV-positive clients once

change in the life insurance industry. It allows clients to have more freedom in how they live their lives, with the understanding that this will influence the cost of their life insurance.

The Good News: Denials Are Increasingly Rare

which insurance companies won’t pay are increasingly rare. With modern life becoming safer, even as chronic illnesses become increasingly common, life insurance companies are more interested in simply pricing risky behavior and conditions instead of looking for excuses to deny claims. In short, as long as your clients read their policies carefully, understand the exclusions and don’t misrepresent any information, their beneficiaries shouldn’t have any problems receiving a claim when the time comes. For advisors, the importance comes in making sure this information gets across and that you stay on top of all the insurance industry’s trends as they evolve. Eric Halsey writes about the insurance industry on the Simple Life Insure blog. Eric may be contacted at eric.halsey@innfeedback.com.

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September 2016 » InsuranceNewsNet Magazine

ANNUITYWIRES

FIAs to Surge in 2016, Drop in 2017 This year is shaping up to be the year of the indexed annuity. 60 LIMRA Secure Retirement Insti- 55 tute predicted that retail indexed 50 annuity sales would rise between 15 and 20 percent over last year, 45 to exceed $60 billion by the end 40 of 2016. 2015 2016 2017 But the indexed annuity party will be over next year, thanks to Amount in Billions the Department of Labor’s fiduSource: LIMRA Secure Retirement Institute ciary rule. LIMRA SRI assistant research director Todd Giesing warned that the sales gains seen this year will be erased in 2017 when the fiduciary rule goes into effect. Nearly two-thirds of indexed annuity sales in 2015 ($34 billion) were funded through individual retirement accounts or rollovers from retirement accounts (qualified assets). Once the DOL fiduciary rule is fully implemented, financial professionals who sell indexed annuities purchased with qualified assets will need to use the best interest contract exemption process to prevent these sales from being considered “prohibited transactions.” “The challenges of implementing the BIC exemption will have negative impact on indexed annuity sales in 2017,” Giesing noted. “For that reason, we are projecting a 30-35 percent decline in indexed annuity sales in 2017, bringing sales totals down to 2013 levels (nearly $40 billion).”

AMERICANS’ TOP RETIREMENT FEAR – OUTLIVING INCOME

Retirement is depicted as a carefree time, unshackled from the demands of the workplace. But for many Americans, he idea of retirement is riddled with fear. The top fear? Outliving their retirement funds. Half of all Americans said they are most afraid of outliving their income or being unable to maintain their current lifestyle. Nearly 20 percent said they fear having insufficient funds to cover their health care expenses in retirement. That’s according to a survey by the Indexed Annuity Leadership Council. The IALC survey also showed that 45 percent of Americans are interested in DID YOU

KNOW

products such as fixed indexed annuities that protect principal regardless of stock market downturns. The need for retirement income is crucial, the IALC survey indicated, with a quarter of baby boomers having less than $5,000 in retirement savings and nearly one in five Americans having no idea how much money they have saved for retirement.

WEAK PLANNING CAN TARNISH GOLDEN YEARS

Here’s a different twist on retirement planning. Instead of focusing on the amount of money saved for retirement, help your clients focus on the amount of income those savings will generate. That’s the advice from Northwestern Mutual. “There’s something about

37 percent of millennials have nothing saved for retirement. Indexed Annuity Leadership Council

InsuranceNewsNet Magazine » September 2016

QUOTABLE

As There companies are 11 companies acclimate offering to the new QLAC (qualifying regulatory longevity environment, annuity contract) our expectations products.are While for indexed this is a small and annuity sales new topart experience of the DIA growth market, in 2018 and we expect beyond. to see an uptick in sales in 2016. — Todd Giesing, LIMRA Secure Retirement Institute

actually showing income that is more effective than showing what’s in the nest egg,” said Rebekah Barsch, vice president of planning for Northwestern Mutual. Show a client that a $50,000 individual retirement account earning 5 percent will generate $2,500 a year in retirement and advisors are likely to generate that “aha moment,” she said. Saving a percentage of income in a 401(k) plan doesn’t help retirement investors understand how much they are likely to receive when the time comes to leave the workforce. Advisors have an opportunity to help paint a picture of clients’ future retirement needs and help them put together retirement income plans that last, Barsch said.

FIDELITY ADDS NEW YORK LIFE ANNUITY TO LINEUP

Fidelity Investments announced that the New York Life Clear Income Fixed Annuity —FP Series will be made available as part of Fidelity’s product portfolio. The new product is a fixed deferred annuity with a guaranteed lifetime withdrawal benefit that provides customers with guaranteed income throughout retirement, along with greater flexibility in the form of withdrawal options. It’s not the first time Fidelity and New York Life have partnered. Fidelity already makes available several New York Life annuity products, including single premium deferred annuities, deferred income annuities and single premium immediate annuities.

September 2016 Âť InsuranceNewsNet Magazine

ANNUITY

How Annuity Compensation Will Change Under DOL Rule T he best interest contract exemption theoretically allows advisors to continue selling fixed indexed and variable annuities on a commission basis. But being in compliance could be tricky.

“The BIC exemption does not preserve the status quo with additional conditions.” — Bradford P. Campbell

By John Hilton

he Department of Labor fiduciary rule was published more than four months ago, but analysts say broker/dealers and their advisors still don’t fully understand how the rule affects compensation. The rule allows commissions if they meet certain disclosures and the recommended investment product is in the client’s best interest. But it isn’t quite that easy to put those words into practice and be in compliance, said Bradford P. Campbell, counsel at Drinker Biddle & Reath in Washington. “I think what people read into that is ‘OK, well maybe we can still operate largely as we have been. We’re just going to

“We’ll probably have some sort of court ruling, at least on that initial set of motions, in September,” Campbell said. “Throughout the fall, we’ll probably be learning more about where the litigation is going.”

Ways to Set Advisor Compensation

Broker/dealers have a couple of options for advisor compensation under the BIC, said Fred Reish, a partner with Drinker Biddle, calling it “the single most disruptive change” under the BIC. The key word in the rule is “reasonable,” meaning that all compensation must be reasonable. It has many in the industry

“They [insurers] don’t even have enough time under the current time frame to get into compliance by April 10.” — Fred Reish have to jump through additional hoops to do so,’” he said. “That’s not the case. The BIC exemption does not preserve the status quo with additional conditions.” Critics say the DOL is trying with its 1,023-page rule to force the industry to move from a commission-based model to a fee-based model. Opponents filed three lawsuits, the first of which was scheduled to be heard Aug. 25 in the District of Columbia District Court. 56

concerned about the potential for vagueness. When it comes to the compensation paid to the broker/dealer by the insurance companies, mutual funds and others, Reish is unconcerned. In time, benchmarking standards will emerge to define reasonable compensation to broker/dealers, he said. “I have a fairly high degree of confidence that that will work itself out more easily than people think,” Reish said, add-

InsuranceNewsNet Magazine » September 2016

ing that although agents and advisors can still be paid by commission, that payment will fall under a new standard. Instead, broker/dealers can opt for one of two compensation methods: charging a level fee or establishing a compensation structure based on “neutral factors.” The latter option will permit more freedom of payment, but carries the potential for a class-action lawsuit against the broker/dealer if compensation isn’t done right, Reish said. He recommended that broker/dealers hire a third-party consultant to do an analysis of service factors and create a fee structure based on those neutral factors. Examples of “neutral factors” might include the complexity of the product, the amount of work involved, how long it takes to work with a customer and to explain the product, the advisor’s accreditation and other aspects. “They have to be factors that are not based on the fact that you sold this product versus that product,” Reish explained. “They have to be factors that are neutral as to the product or the sale.” The fee structure would apply to all products sold within a category. There’s still risk in creating those compensation grids, Campbell said, even if done with an outside consultant. “Your expert says that it should be two times the compensation for an annuity as it is for an indexed fund or a mutual fund because there’s more work,” Campbell said, citing a hypothetical case. “The plaintiff is going to have an expert that says, ‘Well, that’s great, but it really was 1.2

times. Let’s sue about it and find out who was right.’” While the broker/dealer is allowed to accept variable compensation, the advisor must be agnostic with regard to products sold within a category, Reish said.

Speedy Schedule

Both Campbell and Reish are working with clients struggling to get into compliance with the fiduciary rule. The initial fiduciary rule mandates take effect April 10, 2017, with the remainder of the rule effective Jan. 1, 2018. “They don’t even have enough time under the current time frame to get into compliance by April 10,” Reish said. “Therefore, they can’t wait to see what the outcome of the litigation or any of these other eventualities might be.” The Aug. 25 hearing, on the National Association for Fixed Annuities v. Labor Department lawsuit, will be followed by a Sept. 21 court date on the Market Synergy lawsuit in Kansas District Court. Three lawsuits filed by several plaintiffs in the U.S. District Court for the Northern District of Texas were consolidated by the court and will be heard on Nov. 17. Opponents sought first and foremost to delay the rule implementation into the next administration. But even that strategy might prove ineffective. Democratic nominee Hillary Clinton has said she will pick up the fiduciary rule fight without interruption. As for her Republican opponent, “most of us don’t really know what Donald Trump thinks about this rule, if anything,” Campbell said. The industry would happily accept any changes and concessions the Department of Labor is willing to make, Campbell said. But the realities are forcing companies into full-speed compliance mode. “We have to prepare as if the rule that we’re going to have to comply with in April is essentially the rule we have now,” he said. “We have nine months now until compliance, and that’s just not enough time to change a ship of this size.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@ innfeedback.com.

September 2016 » InsuranceNewsNet Magazine

ANNUITY

Companies Cutting Commissions From New Fixed Indexed Annuities B y stripping out agent commissions from its new FIA product, a carrier is appealing to fee-only registered investment advisors.

By Cyril Tuohy

ere’s a signal that there’s still plenty of room for growth for annuity sales in the registered investment advisor channel. Great American Insurance Group introduced a zero-commission fixed indexed annuity to be sold by a financial professional who is both an insurance agent and an investment advisor representative affiliated with an RIA. By stripping out agent commissions from its new Index Protector 7 fixed indexed annuity, Great American was appealing to fee-only RIAs as it released the product in August. In the past, these 58

RIAs have shied away from selling commission-based FIAs. “This opens up the door to thousands of advisors,” said Tony Compton, Great American vice president, broker/dealer sales with Great American. Most FIAs pay, on average, 3 percent to 6 percent of the contract’s value to the selling agent. With this product, investment advisor representatives now can offer this solution to their clients and charge a fee for their services, Compton said.

New Comp Options

Under the new annuity compensation structure, exposure to market declines remain the same with an FIA — zero. But the upside exposure to market gains increases by another 1 percent to 2 percent over the 3.5 percent to 4.5 percent point-to-point cap typically offered by the index contracts, Compton said.

InsuranceNewsNet Magazine » September 2016

The key to the zero-commission product is that it will allow producers and advisors who own an RIA or who function as an investment advisor representative to build up their assets under management (AUM) using annuities. AUM compensation models typically charge between 0.5 percent and 1 percent, so the higher the asset base grows, the more advisors are compensated. It is believed that agents will gravitate toward the zero-commission model, at least for a portion of their indexed annuity business, Compton said. Great American, a subsidiary of American Financial Group, sold $3.7 billion worth of fixed indexed annuities last year, according to Wink’s Sales & Market Report. Most of the company’s indexed annuity sales are conducted through broker/dealers and banks. New fiduciary rules issued by the Department of Labor have raised

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ANNUITY COMPANIES CUTTING COMMISSIONS FROM NEW FIXED INDEXED ANNUITIES investment advice standards. Although the regulations aren’t eliminating commission-based products for their potential conflicts of interest, many industry experts indicate the conflict of interest rule will push companies to develop more fee-based products. Insurance-only producers, who earn commissions, traditionally have been the channel through which the bulk of fixed indexed annuities are sold. More recently, sales of fixed indexed annuities by Series 6 or Series 7 registered representatives working through a broker/dealer have exploded. However, the channel that remains untapped is the Series 65 investment advisor representative affiliated with an RIA, Compton said. “We have a focus on registered reps in the bank and broker/ dealer space and now we want to bring RIAs into the space,” he said. And why wouldn’t RIAs be receptive to the idea? While RIAs as a group are growing, much of the growth is going to the top-echelon 200 or 300 RIAs. “I’m not convinced that the average or the median RIA is growing, even though I know the industry is growing a lot,” consultant Chip Roame, managing director of Tiburon Strategic Advisors, said in a webinar earlier this year. In 2014, there were about 12,000 feebased financial advisors registered with the Securities and Exchange Commission in a universe of about 126,000 independent advisors nationwide, according to Tiburon.

As broker/dealers become more familiar with fixed indexed annuities, “it’s certainly our view that long-term distribution in banks and broker/dealers will likely someday overtake what we were getting from independent agents,” John Matovina, CEO of American Equity Life, said in a June presentation at the Des Moines Insurance Conference. Not only is the independent agent channel “a little more mature in terms of market” than the broker/dealer channel, but in the independent agent channel, there’s “not necessarily a clear identification of where that distribution will be replenished from,” Matovina said. Over the long term, banks and broker/dealers offer “a far greater opportunity than what we have with independent agents,” he said. American Equity, with about 540,000 policyholders, sold $6.9 billion worth of fixed indexed annuities last year, according to Wink’s Sales & Market Report. That put American Equity just ahead of Great American Insurance Group and behind the market leader Allianz Life. Fixed indexed annuities have recorded torrid sales recently, cresting at $53 billion in 2015 and becoming the shining stars of the fixed annuity world. Investors who need guaranteed income like fixed indexed annuities because investors can capture a portion of the market’s gains while protecting their investment from loss. In a good year, a fixed indexed annuity can perform much better than a bank certificate of deposit. With a receptive market, and DOL regulators clamping down on commission-based sales generated by the independent agent channel, the race is on to sell fixed indexed annuities through other means. This creates an opening for banks, broker/dealers and RIAs. Jackson National Life, the nation’s top seller of variable annuities, announced

Zerocommission products will allow RIAs to build up their AUM using annuities.

Banks, B/Ds to Overtake Independent Agents in FIA Sales

As distribution channels compete for fixed indexed annuity sales following passage of the DOL fiduciary rule, banks and broker/dealers will overtake independent agents as the likely preferred sales channel for American Equity Life, the No. 2 seller of fixed indexed annuities last year. 60

earlier this year that it is readying a feeonly variable annuity to be distributed through broker/dealers affiliated with an RIA, according to a government filing. “Based on Jackson’s ongoing conversations with our broker-dealer partners, we think the legal/compliance costs of managing a commission-based platform under the DOL proposal will result in more demand for fee-based variable annuity products,” a Jackson National spokeswoman said.

Channels Warm to FIA Product Changes

American Equity’s anchor relationship with an independent marketing organization might generate between $100 million and $150 million annually from a thousand agents reporting into that field organization, American Equity’s Matovina said. But getting to that $100 million to $150 million level through a bank or broker/ dealer could be done with a lot fewer agents, he estimated. American Equity executives said that banks and broker/dealers are becoming more accepting of FIAs in light of changes to the product structures — such as shorter surrender periods, the disappearance of premium bonuses and simpler choices. Banks and broker/dealers, which are heavily regulated, were given a boost earlier this year when DOL regulators authorized them as “financial institutions” to sign off on fiduciary transactions involving retirement accounts. But independent marketing organizations, which recruit independent agents and help insurers distribute life and annuity products, are not authorized to act as a financial institution. This raises the liability exposure to individual agents. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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On September 13, 2016, They’ll Start

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September 2016 » InsuranceNewsNet Magazine

HEALTH/BENEFITSWIRES

QUOTABLE

Will They or Won’t They? The Latest Merger News

We are telling people to keep paying their premiums, since most co-ops have waited until the end of the year to officially close their doors.

The back-and-forth between Cigna and Anthem, and between Aetna and Humana, has dominated the health insurance world recently. Will they merge? Or will they call it quits? The latest prediction from Moody’s Investors Services says “yes” to the Aetna-Humana union but “no” to Anthem’s proposed Cigna purchase. Moody’s said there is a “reasonable probability” that Aetna’s proposed $37 billion purchase of Humana will be approved. But Moody’s is predicting the proposed $54 billion Anthem purchase of Cigna will fall through. The Department of Justice filed suit seeking to block both deals, stating that the two mergers would stifle competition.

HEALTH NET CAUSES $300M HEADACHE FOR CENTENE

WHO YOU GONNA CALL?

Health insurers have formed their own version of “Ghostbusters.” They are going after phantom providers – medical entities that file false claims from nonexistent channels. These phantoms create a fraud scheme designed to get insurers to pay out on claims for services that were never provided. Florida, California and Texas have been hotbeds of phantom activity, but when Horizon Blue Cross detected similar activity in New Jersey, where it operates, the ghostbusters went into action. “That doctor may not have been anyone who had submitted claims in the past and then, the first two months, they’re throwing big numbers up, and we’re going to flag that right away,” a Horizon spokesperson said. Using data analytics, Horizon generated $43.2 million in savings and opened 988 new fraud cases in 2015. DID YOU

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Centene may be having buyer’s remorse after its $6 billion purchase of Health Net last year. Centene earmarked $300 million to cover potential losses from business the company picked up in its Health Net acquisition, company officials said. Centene executives disclosed that they had discovered $300 million in “premium deficiency reserves,” or an estimate of a potential loss. This mainly was due to the increased use of substance abuse treatment centers in California and unfavorable results in the company’s individual commercial business in Arizona. The company now says it’s looking to reduce its “exposure” in Arizona’s individual market because problems there account for a large portion of the potential $300 million loss.

MORE WOES FOR ACA CO-OPS

About two-thirds of the health insurance co-ops that were set up under the Affordable Care Act have gone out of business. Now some of the surviving co-ops are taking the feds to court.

Hospital charity care dropped by 13 percent in 2014, the first year in which the Affordable Care Act was implemented. Source: Pittsburgh Northwestern Post-Gazette Mutual

InsuranceNewsNet Magazine » September 2016

Source: Business Wire

— Stephani Becker, a health policy specialist for the Sargent Shriver National Center on Poverty Law

Maryland’s co-op, Evergreen Health, was the first to take the plunge into a lawsuit. Evergreen’s suit claimed that private insurers gamed the system to avoid making risk adjustment payments. Under the risk adjustment provision, insurers with healthier members must make payments to insurers with unhealthier members. Evergreen CEO Peter Beilenson claimed his co-op was unfairly labeled as healthier because private insurers encouraged their less-healthy members to go to the doctor so their patient pools would appear less healthy. Evergreen is now expected to owe between $18 million and $22 million in risk adjustment payments.

23 co-ops were established in 2014 7 co-ops are still in operation

In addition, co-ops in Massachusetts, Illinois, New Mexico and Oregon have filed separate lawsuits over the ACA’s risk corridor program. The risk corridor program was set up to provide federal funds to help insurers weather the uncertainty during the ACA’s early years. But the feds announced last year that they would honor only 12.6 percent of co-ops’ requested payments.

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HEALTH/BENEFITS

Hillarycare Would Hurt Consumers, Industry, Agent Advocates Say The idea of having a governmentrun health insurance plan competing with existing carriers is not sitting well with many in the industry. By Susan Rupe

he public option is back in the discussion about health insurance — and the agent community fears it would further hamper their ability to serve clients, while doing nothing to rein in costs. The public option — the idea of creating a government-run health insurance plan to compete with existing carriers — was included in the Democratic Party platform. President Barack Obama also spoke out in favor of the concept in an article he wrote in the Journal of the American Medical Association, saying consumers should be able to buy health insurance directly from the government. Meanwhile, Democratic presidential candidate Hillary Clinton has said if elected she would work with interested governors to implement state-based versions of the public option. She also favors allowing consumers to enroll in Medicare at age 55. Public option supporters say a government-run plan would add another element of competition to the health insurance marketplace and would lower premiums, especially if the government is able to dictate low reimbursement rates to doctors, hospitals, drugmakers and other medical care suppliers. But those who represent the agent community told InsuranceNewsNet that a public option actually would decrease competition rather than increase it, and would hinder consumer access to professional advice. “Our concern has always been 64

InsuranceNewsNet Magazine » Septe

that a public option — a government plan — reshapes the playing field and makes it less of a level playing field for private plans,” said Michael Keegan, senior vice president with Health Agents for America. “We’re concerned about consumers’ ability to have plans to choose from. Are you going to have a marketplace that is geared more toward the government? When government comes in and ends up

the big player, will this crowd out competition? Will this crowd out private insurers? Will consumers have the choices that they would not have otherwise?” In addition to its pushing out competition from private insurers, another concern raised was the cost of running a public option. A price tag has not yet been put on a public option, but nearly all discussion of such a proposal emphasized that the program would have to be self-sustaining. Keegan pointed to the health insurance exchanges and health insurance co-ops that were established under the Affordable Care Act as examples of why a public option would end up costing the government more money. A number of insurance carriers whose products were sold on the exchanges have cited enormous financial losses from their ACA business, while 16 of the original 23 co-ops have shut down because they could not afford to remain in operation. “Health insurers already have a head start in terms of creating provider networks,” he said. “To be a new entrant in that market really is very difficult. It does require a lot of money if you’re going to get a robust plan in place and create these networks.” A public option that is financially self-sustaining “is a great idea in theory, but if you want to put it into practice, I don’t think those numbers will add up,” said Diane Boyle, senior vice president of government relations for the National Association of Insurance and Financial Advisors. “Would it throw more competition into the mix and drive costs down? If anything, it would exacerbate cost shifting and drive prices up. How can it be self-sustaining? Where does the money come from? Nobody is saying.”

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HEALTH/BENEFITS HILLARYCARE WOULD HURT CONSUMERS, INDUSTRY NAIFA President Jules Gaudreau echoed the concerns about cost in a statement in which he said a public option “would impose a huge economic drain on states. The potential loss of millions of insurance-related jobs and billions in annual state premium tax revenues would be devastating to our already financially strapped state economies.” Health insurance agents already are struggling with reduced and eliminated commissions from policies they sell on the exchanges. Throw a public option into the mix and agents could be squeezed even further. “This will further squeeze compensation,” HAFA’s Keegan said. “There is an assumption by some in the state and federal governments that agents are just salespeople. Certainly when you look at what goes into servicing clients, it’s much greater than that. At what point will agents and brokers even want to stay in this business? If agents and brokers leave, consumers will be hurt.” At NAIFA, Boyle said part of what is fueling the public option discussion is the perception that agent commissions

A public option that is financially self-sustaining “is a great idea in theory, but if you want to put it into practice, I don’t think those numbers will add up.” — Diane Boyle, senior vice president of government relations, NAIFA are driving up the cost of health insurance. “What is missed is the value that the agent brings to the system,” she said. “How do you replace that service? How do you get access to a professional who offers guidance?” Would a public option go so far as to eliminate health insurance agents altogether? Boyle said it depends on how the option is structured. “The devil is in the details,” she said. “Look at the exchanges. When they were first proposed, the ques-

tion was, would the exchanges put agents out of business? Depending on how they’re designed, absolutely they could.” Boyle said she doesn’t believe the public option will gain momentum, “but if it does, do we step in and ask if there is a role for the agent within that structure? Access to professional advice even in a government-run plan is going to be necessary. How is the government-run plan going to enroll individuals, how is it going to provide consumers with access

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InsuranceNewsNet Magazine » September 2016

HILLARYCARE WOULD HURT CONSUMERS, INDUSTRY HEALTH/BENEFITS

“It is a fundamental insurance principle that unequal competition in the market over time will lead to adverse selection and long-term market damage.” — National Association of Health Underwriters to advice? Even in that scenario, could there still be a role for the agent? Will it be a meaningful, fairly compensated role? Probably not.” The National Association of Health Underwriters is dusting off the position paper it issued against the public option back in 2009 and updating it as it prepares to do battle against the proposal again. In that position paper, NAHU cautioned that a government-run option would lead to unequal competition and long-term market damage.

“Since the public plans reimburse providers at lower rates and account for other administrative costs differently, the playing field would never truly be level. For example, private health insurers pay providers upfront while Medicare merely reimburses them based on what Medicare is willing to pay out for any given procedure,” the NAHU paper said. “It is a fundamental insurance principle that unequal competition in the market over time will lead to adverse selection

and long-term market damage.” NAHU also is concerned about the cost impact a public plan option will have on all Americans. “If Congress creates a public health plan option for the under-65 population, privately insured people will be forced to bear significant indirect costs due to its existence,” according to the NAHU position paper. “Existing public programs like Medicare and Medicaid pay providers a reduced rate as a financing mechanism. There is a great deal of evidence to show that providers then shift these costs onto the private payers. Any expansion of a public program or buy-in plan would only increase the amount of cost being shifted to the privately insured.” Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@ innfeedback.com.

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NEWSWIRES

QUOTABLE

More Young Adults Rely Financially On Parents It’s taking longer for young adults to leave the nest, not only physically but financially. Nearly one-third of those in their 30s and more than one-fifth of those in their early 40s receive “significant, ongoing” financial support from their parents. That’s according to the Society of Grownups, a financial planning company for young adults and part of MassMutual. Young adults reported they need help from mom and dad for everything from paying their phone bills to repaying those pesky student loans. The trend toward kids remaining “on the family payroll” longer is having an effect on the parents’ ability to save for retirement. Baby boomers who are still footing their kids’ bills are half as likely to be retired as are parents whose kids are financially independent, according to a report from the financial research firm Hearts & Wallets.

FINANCIAL STRESS HAS A TOXIC EFFECT ON WORKERS

Fiscal stress and physical stress have nearly the same effect on workers, according to studies. An Associated Press-AOL Health Poll found that employees who experience high levels of stress caused by debt are more likely to struggle with depression, anxiety and heart problems than are those who have low levels of debt-related stress. Meanwhile, the annual Financial Stress Research study named cash management the primary factor leading to financial stress. When a worker’s finances are out of control and there is little hope for turning things around, the result is a high stress level. These usually are the employees who live paycheck to paycheck, have expenses that exceed their incomes, maintain high debt levels and have no emergency savings.

CONSUMERS RUNNING BACK TO PLASTIC

One sign that consumers think the Great Recession is so 2009 is a return to plastic. The number of credit card accounts in the U.S. is on the rise, and is expected to DID YOU

KNOW

return to prerecession levels. Credit card accounts hit a peak of more than 496 million in the second quarter of 2008, and fell sharply, by 24 percent, during the financial crisis to about 379 million in 2010, according to the Federal Reserve Bank of New York. The number of cards in circulation has been rising steadily since, with more than 435 million in use today.

The people we serve need great partners as much as they need great products. — Gregory C. Oberland, Northwestern Mutual president

to the increase in credit card use, according to Ezra Becker at the credit monitoring firm TransUnion.

OLDEST BOOMERS BUST 70 Oh, how things change. The generation whose motto was “Don’t trust anyone over 30” is now looking at withdrawing money to fund their retirement. LIMRA reports that on July 1, the first group of baby boomers hits the magic age of 70½, that age at which they must begin making required minimum distributions from their tax-deferred retirement savings.

“I hope I die before I get old.” - Pete Townshend, 1965

Credit Cards 500 450 400 350

2008

2010

2016

2018

*in millions

The number of cards in use is expected to hit the previous peak by the second quarter of 2018, according to Michelle Hutchison, a money expert at Finder.com. Lenders are using better rewards and sign-up bonuses to attract new customers, and those are major factors leading

THE AVERAGE RETURN ON AN INITIAL PUBLIC OFFERING was 20 percent this year. The average increase in the first day (or “pop”) is 13 percent.

The median annual income for U.S. retirees is $32,000.

Source: Transamerica Source: Renaissance Capital Center for Retirement Studies

InsuranceNewsNet Magazine » September 2016

But according to LIMRA, 70½ is only one of the age “signposts” that baby boomers are passing along the retirement journey. That journey begins at age 55, when retirees may begin taking 401(k) withdrawals. It proceeds through claiming Medicare benefits at age 65 and reaching Social Security full retirement age between 66 and 67. LIMRA Secure Retirement Institute research shows that those who work with an advisor are more prepared to pass those signposts and more likely to have completed planning activities such as determining their income, expenses and health care coverage in retirement.

Financial Insights

with Dean Zayed

Industry Leader Speaks Out on the REAL Implications of the DOL Rule

ean Zayed, president and CEO of Brookstone Capital Management, shares his thoughts on current trends for registered investment advisors (RIAs) and their place in the everchanging financial landscape today. Q: How does the DOL fiduciary rule affect insurance-only advisors versus those who are licensed? As we know, the DOL is imposing a fiduciary standard to act in the best interest of clients, which includes the sale of annuities. With this rule, insurance-only advisors would need one of four “financial institutions,” which include insurance companies, banks, broker/ dealers and RIAs, to approve and sign a Best Interest Contract Exemption (BICE). While insurance companies are understandably hesitant to sign a BICE without direct supervision of the agent, licensed advisors registered with an RIA are at a clear advantage. Brookstone, for example, is prepared to be a fiduciary partner for advisors, which would include customizable BICE options. If you are an in-

put a management team in place that has extensive experience overseeing annuity and securities sales. We understand and support the sale of annuities and are fully committed to advisors who rely on that space as part of their business. To help fulfill fiduciary duty, we are in the midst of making a tremendous investment in our compliance infrastructure, with the goal of making us the most DOL-ready RIA in the industry. This compliance capability will include, for example, comprehensive annuity comparison software as part of the thorough oversight we will conduct for every recommendation an advisor makes. Our goal is to make the transition to the post-DOL world as seamless as possible for our advisor partners. In addition, Brookstone initiated a meaningful fee reduction this past January to stay ahead of the DOL’s stance on “reasonable fees.” Fees will matter more than ever, and those who refuse to lower their fees to at least what is regarded as “industry standard” will soon be deemed irrelevant.

Q: Do you see this impacting the IMO market? What should they do to position themselves? IMOs are in a unique position since they are not an approved financial institution according to the DOL rule, which means they would not have the authority to sign the BICE. Without this authority, their While no one knows for sure agents may be left scrambling for BICE approval on their annuity sales. At what the final ruling will impose, the initial outline is changing the Brookstone, we have historically built solid relationships with FMOs and mindset of our industry. IMOs and would have the ability to be the fiduciary partner in those transactions. In surance-only advisor, the DOL rule may presour opinion, FMOs and IMOs should ement the most compelling reason to become an brace a relationship with an RIA firm that investment advisor representative and have a true fiduciary relationship with the right RIA. is willing to fulfill all the necessary obligations of the DOL, as well as provide a full, Those who stay as insurance-only may find it challenging to conduct “business as usual” turn-key asset management platform to their agents. To that point, we have had a plethora without the right fiduciary partner. of meaningful conversations with FMOs and IMOs and insurance companies that look at Q: How should RIAs and their advisors Brookstone as a true thought leader in the prepare for the ruling? While I can’t speak for all RIAs, Brook- space and are looking to partner with us as a stone has a historical focus on partnerships preferred DOL-capable RIA. This is an exwith independent insurance agents and has citing time for Brookstone, since the fiduciary S P O N S O RED CO N T EN T

standard has been ingrained in our DNA since our company’s inception. Q: What are your predictions for our industry in the post-DOL world? While no one knows for sure what the final ruling will impose, the initial outline is changing the mindset of our industry. The value of obtaining a Series 65 license has never been higher. I predict that more insuranceonly advisors will embrace securities as part of their practice, not only from a DOL compliance standpoint but also as a part of their continued business growth. Outside of being DOL compliant, having a securities license will make you the most enhanced asset gatherer possible. On the commission side of the business, I see level compensation becoming the standard in terms of commission payouts across all products, as well as innovation in product designs that will shorten surrender periods, enhancements to traditional fixed annuities and a suite of fee-based annuities that will be created. Q: Should advisors be worried? Will this rule live up to all the hype? With the right education, preparation and fiduciary partner, advisors can put themselves in a great position to ease their concerns. I don’t think it is fair to disregard the rule as hype, and those who do may find themselves in a situation that could negatively impact their business. Brookstone has taken all necessary measures to make sure our advisors are well-informed and prepared for this game-changing rule. For now, the best advice is to plan as if the rule will be permanent, and tweak your business and strategic partners accordingly so as to not be blindsided. •

Is Your RIA DOL Ready?

Learn the 7 Important Things to Consider at

www.BrookstoneDOL.com

September 2016 » InsuranceNewsNet Magazine

How to Manage the Seven Risks to Clients’ Retirement Income H elp your clients navigate these hazards to their retirement portfolio. By Brandon Buckingham

etirement income planning has changed drastically over the past three decades. Thirty years ago, most Americans were safe in relying on Social Security and a pension to provide the income they needed in retirement. That’s no longer the case. Today, our clients have much greater personal responsibility for creating their own retirement income plans. To help make sure that our clients’ retirement portfolio lasts a lifetime, we will have to prepare for and manage the following common risks to their retirement income. 70

1. Market risk: Market trends are one of the most important factors in portfolio longevity, perhaps second only to the retirement account’s withdrawal rate. Investors typically spend decades saving for retirement. Systematic investing in a fluctuating market, coupled with historically rising trends, has helped many Americans accumulate sizeable retirement accounts. However, when Americans retire, stop contributing to their retirement accounts and start withdrawing funds from those accounts, they become much more susceptible to market risks. Chances are, most retirees will have to live through at least one bear market. In fact, the average retiree will likely face three to five bear markets in retirement. Since 1945, there have been 27 market cor-

InsuranceNewsNet Magazine » September 2016

rections of more than 10 percent and 12 bear markets with losses that exceeded 20 percent. The average bear market lasts 14 months, with an average loss of 33 percent. Assuming no withdrawals are taken from their retirement savings, it will take an investor 25 months to recoup those losses. 2. Sequence of returns risk: Taking withdrawals during a bear market will accelerate the depletion of retirement savings, adversely affecting a portfolio’s ability to provide lifetime income. During the accumulation phase of retirement planning, the sequence of returns doesn’t matter much. The average rate of return is what’s important. However, during the income phase of retirement, the sequence of returns matters greatly.

September 2016 Âť InsuranceNewsNet Magazine

HOW TO MANAGE THE SEVEN RISKS TO CLIENTS’ RETIREMENT INCOME If your clients begin their retirement in a time of positive market performance, it increases the chances that their retirement savings will last a lifetime. However, negative market returns in the early years of your clients’ retirement will likely require them to liquidate more investments to provide the income they need. This, of course, will increase the likelihood of depleting their retirement savings sooner. Unfortunately, no one can predict whether clients will retire into a rising, a flat or a negative sequence of market performance. 3. Interest rate risk: Most agree that today’s interest rates are low. This creates additional pressure for the average retiree to create the income they need to live comfortably in retirement. In the past, many could rely on an interest rate of 5 percent or more. In fact, the interest rate on a 10-year U.S. Treasury note was above 5 percent from 1968 until 2002 and was more than 7 percent from 1975 to 1993.

Investors often will get in and out of the market at the wrong time. This is evidenced by the fact that net inflows to equity funds tend to rise with stock prices, and net outflows tend to occur when stock prices fall. From 1996 through 2015, the S&P 500 Index gained an average of 8.19 percent, while the average investor earned only 2.11 percent. In order to benefit from any potential long-term market appreciation, the investor should consider remaining invested through difficult times. 5. Inflation risk: Inflation risk is purchasing power risk. It’s the chance that investment income will not be worth as much in the future. Inflation is typically measured by the Consumer Price Index (CPI) produced by the U.S. Department of Labor. The CPI program compiles monthly data on prices consumers paid for a representative basket of goods and services. Since 1981, prices of these goods and services have increased annually by 2.8 percent.

age 97. Of course, the challenge is how to generate income that will last 30 years or more. 7. Withdrawal rate risk: Retirees should be mindful of how much they withdraw from their accounts each year. A safe and sustainable withdrawal rate is defined as how much can be taken from a portfolio with little probability of depleting the account. The success of these withdrawal rates is dependent on several factors, including age of the client, length of retirement, asset allocation, market conditions and interest rates at the time. A 4 percent withdrawal rate, first made popular by William Bengen, was long viewed as safe and sustainable. In light of people living longer in retirement and a prolonged low-interest-rate environment, new research is suggesting a sustainable withdraw rate closer to 3 to 3.5 percent. Creating income security and ensuring a successful and happy retirement

Investors often are influenced by their emotions. These emotions — which can include fear, excitement, greed, euphoria or panic — can disrupt a long-term investment strategy. With interest rates at those levels, obtaining a decent return on retirement dollars was as simple as going to the bank and purchasing a certificate of deposit. However, with the 10-year Treasury hovering around 2 percent, retirees may be forced to withdraw more from their retirement savings to make up the shortfall caused by low interest rates, or may need to invest more aggressively in search of greater yields. 4. Investment behavior risk: Investor behavior has a profound impact on portfolio performance. Investors often are influenced by their emotions. These emotions — which can include fear, excitement, greed, euphoria or panic — can disrupt a long-term investment strategy. Investors also have an aversion to loss, which could affect their ability to stay in the market. 72

The Department of Labor also produces a consumer price index for the elderly, called CPI-E. The prices paid by the elderly for goods and services have increased by 3.1 percent since 1981. The reason inflation tends to be higher for retirees is due in large part to health care costs, which have increased annually by 5 percent since 1981. Inflation creates an increased demand on income and is most damaging in later years of retirement. 6. Longevity risk: Longevity risk is the risk that your client will outlive their money. When creating a strategy for transitioning savings to retirement income, the issue of longevity must be addressed. A 65-year-old married couple has nearly a 50 percent chance that one member will live to age 92 and a 25 percent chance that one member will live to

is no easy task. Many Americans have been saving and preparing for retirement their entire working life. As clients begin to transition into the longest vacation of their lives, you must guide them on the journey and make sure that their retirement income plan is structured to withstand these seven common risks. Brandon Buckingham, JD, LLM, is vice president, advanced planning, with Prudential Annuities. Brandon may be contacted at brandon.buckingham@innfeedback.com.

Like this article or any other? As seen in the

July 2012 issue

Life

Annuities

of InsuranceNewsN

et Magazine

Health July 2012

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

st e r e t n i t s e b r u O : t n e m t i comm s

nuitie n a d n a underst o t y s a E l

tentia o p e d i s up Strong

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September 2016 » InsuranceNewsNet Magazine

BUSINESS

The Blue Ocean Strategy to Growing Your Practice Tenfold B y putting the concept of “value innovation” to work, you can deliver an unparalleled client experience and render your competition obsolete. By Devang Patel

lue ocean strategy is the secret behind the tenfold growth of my practice, and I have shared this strategy with many of my fellow advisors. So what is the blue ocean secret, and how does it apply to the financial services industry? First, the concept of a “blue ocean,” as outlined in the book Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne, is the simultaneous pursuit of differentiation and low cost, creating value for both the client and the firm. This concept is known as “value innovation.” The aim of value innovation is not to compete, but to make the competition irrelevant by changing the playing field. 74

An excellent example of a well-known company using this strategy is Cirque du Soleil. Cirque du Soleil developed an exciting and entertaining show that commands a higher price than its competition (local or national circuses). It does this by differentiating itself from its competition by providing value at what the public considers low cost. In a similar sense, Starbucks offers coffee at a much higher price than the cost of making it at home, but again, it differentiates itself with perceived value that the public is willing to pay for. I first learned of the blue ocean concept through one of my strategic coaches. After fully absorbing the concept, I faced the challenge of how to implement the strategy in my financial services practice and create value innovation. How could I make the competition irrelevant and grow my practice tenfold when there were countless competitors out there? I realized I would have to rethink just about everything I was doing, so I asked myself the following questions:

InsuranceNewsNet Magazine » September 2016

» If you were to die today, is your firm the place where you would want your family to go for wealth management services? » Knowing what you know about your current staff, would you hire all of them again for the same positions? » Do you have the right balance between work and personal life? » Would you like to be married to someone like you? » Are you keeping the most important person in the world (you) happy? » Are your kids interested in joining your practice? » Are you happy with the amount of money you are making for the time you are putting in?

THE BLUE OCEAN STRATEGY TO GROWING YOUR PRACTICE TENFOLD BUSINESS When I honestly answered these questions, the unfortunate answer to each one was no. The changes I needed to make all would have to point to one thing — differentiation! I could not achieve the blue ocean strategy of value innovation by simply working harder or longer. Just because other advisors were successful doing it the “old” way didn't make it right. I needed to differentiate my practice from the rest of the financial services world in order to achieve my two objectives: balance my life and still grow my practice tenfold. I thought I already had differentiated myself from the competition by increasing my knowledge base. Education was to be my difference-maker. I hold eight designations in addition to my registrations with the Financial Industry Regulatory Authority (FINRA). But I realized being the smartest advisor around still wasn’t going to make the competition irrelevant. The next step on the journey to the wide-open blue ocean was to hire coaches. But not just any coaches. Like any great sports franchise, choosing the right coaches would be critical to my success. I needed to put together a “coaching staff” if I truly wanted to differentiate and grow my practice tenfold. I hired coaches with specific talents in a way similar to how a head football coach hires his staff. I started with my “head coach” Dan Sullivan for his strategic vision. Each coach thereafter gave me their perspective and shared their expertise. Each coach added more items to the growing list of things I needed to put into place in my practice. These coaches made me rethink almost everything: marketing (including writing a book), developing a “self-managing” practice, embracing and leveraging technology, and ultimately creating the differentiation I was seeking, which was creating an unparalleled client experience at a lower cost. That was the key to reaching value innovation. That was the good news. I knew where I wanted to take my practice. The bad news was, I realized I still didn’t know exactly how to create an unparalleled client experience. That led me to retain a few more coaches to sharpen my practice further. One of these coaches, John Bowen, showed me one critical piece of enhancing the client experience. It is called the “Wealth Management Process.”

The wealth management process can be expressed as an equation that looks like this: WM = IC + AP + RM, where IC = investment counseling, AP = advanced planning, RM = relationship management. None of these aspects of my practice were new to me, and they are likely not new to most who are reading this. What I hadn’t done was put all these aspects together in one consistent package for all of my clients and prospects. The questions I asked myself earlier were coming back into focus. I wanted to build a practice I would want to work with, and one that my children would want to join. I wanted to get my work-life balance in the right proportion, keeping myself and my family content while making the money I wanted to make.

or advisory platforms or annuities or life products were needed for the clients to reach their goals — it was about the process of getting them there. It was recognizing where the advanced planning was needed and what other aspects of the clients’ lives were important to them. It was about considering all aspects of the clients’ financial and personal lives and how they were intertwined. It was about how I would want to be treated as a client, and how to do it all for a reasonable fee. But I didn’t say “cheap” — there is a difference. Once you create the unparalleled client experience at a reasonable cost, you have achieved value innovation. Clients will be loyal and will refer you without you having to ask. Competitiors

Value Innovation =

Good Experience

e c i r P e l b a n o s a e R +

Once you create the unparalleled client experience at a reasonable cost, you have achieved value innovation. I wanted to make sure I had a top-notch staff, as I realized the client experience I envisioned would be profoundly impacted (good or bad) by how my staff interacted with my clients and prospects. So the last building block was to hire an A-plus staff. I needed a staff that reflected my vision of unparalleled client experience — a staff that would provide top-notch, timely service while I was delivering the wealth management experience my depth of education allowed. Only with the right support staff could I concentrate on putting the wealth management process in place as I now understood it. It wasn’t about what funds

will be irrelevant. Differentiation is the key; hiring coaches and an A-plus staff will allow you to deliver the client experience that will grow your practice tenfold and sustain it for decades to come. Devang Patel, CFP, ChFC, CLU, LUTCF, is a financial planner with Virtus Wealth Solutions, an office of MetLife, Iselin, N.J. He was a main platform speaker at the 2013 and 2015 Million Dollar Round Table annual meetings. Devang may be contacted at devang.patel@innfeedback.com.

September 2016 » InsuranceNewsNet Magazine

MDRT INSIGHTS

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

Protecting the Golden Goose S ome common client objections to buying disability coverage, and how you can overcome them. By Ann Baker Ronn

or more than a year, Jeff Murphy delayed signing up for a long-term disability insurance policy because of the monthly premium cost. Six months after he finally decided to sign up, Jeff was diagnosed with a rare form of cancer at the age of 32. He quickly started an aggressive treatment plan and was able to make a full recovery. Had Jeff waited to sign up for coverage, he would have been left uninsurable and unable to protect his stayat-home wife and their two children. Unfortunately, not everyone is as lucky as Jeff. Many people believe there is no chance they will become sick or disabled and unable to work. However, the Life and Health Insurance Foundation for Education has found that one in five workers will experience an illness or accident that will keep them out of work for at least a year before they reach age 65.

Are Your Clients Prepared?

Most advisors spend more time focusing on life insurance than on DI, but the fact is that DI protects the most valuable asset people own: their ability to earn an income. Without it, most financial plans will fail. However, as DI is the least-understood form of insurance, many planners leave their clients unprotected because clients have a misperception that DI is too expensive and too difficult to get. The loss of an income is the worst type of loss your clients can experience. How long can they go without an income? Do they have an emergency fund? What happens if they are unable to return to work for three, six or eight months or more? Remember the fable about the goose that laid golden eggs? One day the farmer got greedy and killed the goose so he could get all the eggs out at once, but then discovered there was nothing left and he had killed off his chance of getting any more golden eggs. To bring lightness to a serious conversation, I often ask my clients, 76

“If you had a goose that laid a golden egg every day, would you insure the egg or the goose?” For most clients, the center of their financial plan is the continuation of their income-earning ability, and this witty comparison seems to put things into perspective for them. Even so, you will have clients who question the importance of DI. Here are a few reasons clients believe they don’t need DI, and how advisors can reposition the conversation.

Coverage Through Work

Many of my clients tell me that they don’t need DI because they are covered through employee benefits at work. While that’s great, the conversation should never end there. It’s important to review what a client’s policy will cover, because it’s extremely likely that their group insurance is not enough and they will need the extra protection available through an individual policy.

Monthly Premium Cost

Many clients are hesitant to sign up for DI because of the monthly premium. The price will depend on factors such as the client’s occupation, income, waiting periods for benefits to begin and optional features such as cost-of-living adjustments. Because independent DI tends to become more expensive as clients age, you should always recommend that your clients buy a policy as soon as they start working, so they can lock in lower rates. If a client claims they can’t afford the premium, remind them that they definitely can’t afford a disability.

Young and Healthy

Younger clients often overlook DI. However, according to the Council for Disability Awareness, about one in four of today’s 20-year-olds will become disabled before they retire. Young clients are more likely to be living paycheck to paycheck, and a sudden disability could be a devastating loss. Educate clients on the long-term effects disability can create. Clients need to protect their golden goose, or they might not see any golden eggs.

InsuranceNewsNet Magazine » September 2016

Social Security Has Disability Coverage

Social Security disability covers most workers after they reach a certain age. It is capped at a maximum monthly payment regardless of the worker’s salary. On the contrary, private DI can cover about 70 percent of a worker’s salary at any age when a disability arises. Even if your client qualifies for Social Security disability, we know that the benefits are usually not sufficient for most people. According to the Social Security Administration, the average monthly benefit is $1,004. DI may not be the first thing our clients think about, but the truth is that a client’s most valuable asset is the ability to go to work each day and earn an income. The loss of their income undermines their ability to cover all of their other financial needs. Disability causes nearly 50 percent of all mortgage foreclosures and 350,000 personal bankruptcies each year. Let’s give our clients the peace of mind of knowing that they won’t be out on the street if they become disabled. Ann Baker Ronn, LUTCF, CLU, ChFC, launched her business, Income Protection Solutions, in 2013. She is an 18-year Qualifying and Life MDRT member and a three-time Court of the Table qualifier. Ann may be contacted at ann.ronn@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.

4 Steps to Turn a Prospect Into a Customer S tart by becoming a discussion partner and earning your prospect’s trust. By Troy Korsgaden

t’s no secret that the insurance marketplace has changed drastically over the past 10 years. Prospects have a number of avenues for buying insurance — call centers and mobile applications, for example — that didn’t exist until recently. As the options available to potential customers have increased, so have their expectations. While there always will be some “price only” consumers, there remains an enormous segment of individuals who want to finalize their purchase with someone they know and trust. This second group of prospects is looking for a discussion partner. In an increasingly impersonal world, you have the opportunity to be a personal connection to potential customers.

From Prospect to Customer

Despite all the changes in our industry, no sale is truly complete until your prospect signs on the dotted line, submits a payment and shakes your hand. But to get to this point, we need to know how to ask people to buy. Here are four steps to turning your prospect into a customer. [1] Market your product to the right prospect. It’s best to avoid the price-only prospect. Sure, everyone wants a competitive and fair price, but if price is your prospect’s only motive, you’re in a fight with one hand tied behind your back. To identify the kind of prospect you are working with, probe to find out what their goals and objectives are in purchasing protection for their family. The price-only prospect will stick out like a sore thumb. Their responses tend to paint insurance as a necessary evil or something they “have to get.” We like doing business with people who understand that by purchasing insurance, they are protecting their families and hard-earned assets, while at the same time

looking out for those whom they may accidentally injure or whose property they may damage. Although these prospects are looking for a fair price, they generally will pay more for the value of your service. [2] Don’t bring up price until you begin to close. If you don’t want price to be the focus of the conversation, keep from talking about price throughout your presentation. Start by introducing your agency and communicating the benefits of working with you. Help your prospects understand why they should buy into the brand you’re selling. Also, talk about coverages and discounts. People like to know their bottom-line price will be favorably adjusted. All this takes time, but make the effort to explain what makes you and your brand different. Keep in mind that you should never run down or demean your competition when pointing out the benefits of working with you. [3] Sell prospects what they need and want. This often means offering your prospects coverages that are higher than what they currently have. When you do this, use power sentences such as “Most people in your position will pay more to be with my agency because we give the proper price and coverage.” This means that they will pay more because they know they are receiving valuable coverage at a reasonable price, and they will be taken care of during a claim. Another power sentence we use is “The worst time to find out what type of insurance you have is when you have a claim.” Tell your prospects stories of real-claim

experiences. Paint a picture of what coverage they will need and what that coverage looks like when they have a claim. Great salespeople probe and disturb others into action, but remember that your prospects want to be true discussion partners. As an advisor, you need to make them feel comfortable during the discussion and hold the conversation in a manner in which every concept and idea you are presenting is understood. [4] Close the deal. Once you’ve marketed to the right prospect, steered the focus of your conversation away from price, and sold them what they want and need, you’re ready to seal the deal. Lead your prospect to the “buy” as you say, “Now that I’ve shown you the value and strength of my agency and brand product, all I need to put the coverage in place is to finalize this application — which I’ve already filled out as much as possible to save you time. I also will need to get your signature and secure payment.” Does this close guarantee the prospect will buy? Of course not. But when you differentiate yourself by offering proper coverages and acting as a discussion partner, you are sure to earn trust. More often than not, you will turn a prospect into your customer. Troy Korsgaden is the founder of insurance consulting firm Korsgaden International. The author of numerous insurance how-to books, Korsgaden recently wrote Success & Sanity to help others seeking a life characterized by balance, peace and purpose. Troy may be contacted at troy.korsgaden@innfeedback.com.

September 2016 » InsuranceNewsNet Magazine

THE AMERICAN COLLEGE INSIGHTS

With over 89 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Mentors and Sponsors: We Are Our Sisters’ Keepers M entoring and sponsorship are terms that sometimes are used interchangeably, but they both work toward the same result: helping you reach your career goals. By Jocelyn D. Wright

s we explore strategies to address the scarcity of women in the financial services profession, the need for mentorship and sponsorship must be an important consideration. Mentors and sponsors differ in many respects, but both work toward the same result: helping you reach your career goals. Carla Harris, vice chairman of global wealth management at Morgan Stanley, wrote Expect to Win: 10 Proven Strategies for Thriving in the Workplace. She explains that a mentor is someone you trust to share the good, the bad and the ugly. This person does not have to be in your organization or even of the same gender. However, the mentor should be able to understand the environment in which you operate in order to provide tailored advice. Communication and trust are important aspects of the relationship, because dealing with disappointments as well as accomplishments is part of the package. Professional organizations, such as Women in Insurance and Financial Services (WIFS), have developed mentoring programs to support and encourage women already in the profession. In addition, the Certified Financial Planner Board of Standards’ Women’s Initiative (WIN) recently launched a mentoring program to pair women pursuing the certification with a current professional to help them throughout the process. In a newly released video, Sheryl Sandberg, author of Lean In: Women, Work and the Will to Lead, encouraged women to become mentors no matter where they are in their careers. She said, “It will take 78

all of us to get to a more equal world, and we’ll get there faster by working together.” Her words are especially important because women often hesitate to take on a mentoring role if they have not achieved a certain level of success. However, Sandberg explained that it is never too early to start. If you are a young woman with only a few years in the profession, you can pay it forward by participating in a school career day and exposing a young high school or college student to the profession. Senior-level women, although their number is small, can reach back and guide a high-performing woman through the ranks. Even peers can be effective mentors by sharing their experiences and offering their perspectives. A sponsor, on the other hand, is someone with whom you share only the good. Your sponsor is the person with a seat at the table, who is advocating on your behalf. Sponsors provide you with opportunities and connections designed to help you succeed within the organization. The sponsor’s purpose is to raise your visibility as a capable member of the team and make sure you are aware of available

InsuranceNewsNet Magazine » September 2016

promotions and leadership opportunities that will maximize your potential. A 2011 Harvard Business Review Research Report, “The Sponsor Effect,” found that women with sponsors are more likely to ask for stretch assignments, promotions and pay raises than women without sponsors. There is little doubt that sponsorship is crucial to career growth and success for women. Harris pointed out that you can survive for a long time in your career without a mentor, but you will have a hard time moving up in an organization without a sponsor. Oprah Winfrey once said that if you want to be an empowered woman, you have to empower women. To be a mentor or a sponsor is one of the most effective ways for us to help accomplish this goal. Each of us has a responsibility to give back and to be a resource for other women. We are our sisters’ keepers. Jocelyn D. Wright, MBA, CFP, is director of The American College State Farm Center For Women And Financial Services. Jocelyn may be contacted at jocelyn.wright@ innfeedback.com

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In last month’s issue, our editorial staff had more inspiration than we could fit into the magazine! But we’ve saved it all for you and posted it online.

The expanded version of our feature article “Finding Inspiration in the Wake of Life’s Storms” includes... Don Speakman finds that his work with Haitian children helps him put things in perspective.

David O’Malley’s experience as an intern taught him that everybody starts somewhere.

Mehran Assadi is inspired by the experiences of the many people he has encountered in his career.

Reignite your passion and purpose. Read all 6 inspiring tales now at innmb.com/lifestorms September 2016 » InsuranceNewsNet Magazine

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

Grow Your Practice While Helping Clients Shrink the Protection Gap T hree in five households have no life insurance or not enough coverage. Which households hold the most opportunity for advisors? By Eric T. Sondergeld

he recently released LIMRA 2016 US Ownership Study shows that 70 percent of U.S. households own life insurance. This study is released every six years, and the 2016 results are essentially the same as ownership levels in 2010. After a decades-long decline in life insurance ownership, this leveling off is encouraging news. Yet we still must ask: Do the people who need life insurance own it? If so, do they have “enough”? These are tough questions, but the answers help us better understand the protection gap. Although there are many ways to figure out the size of the gap, LIMRA estimates there is a $16.5 trillion total gap in coverage, just accounting for traditional uses such as income replacement, debt repayment and burial expenses. Our model suggests that two-thirds of the gap comes from the 34 million households who already own some, but perhaps not enough, life insurance. Those who don’t own life insurance but should — according to our model — represent another 39 million households. Combined, this means that three in five households are uninsured or underinsured. Efforts to shrink the protection gap are good for society and create opportunity for financial professionals. So which households hold this opportunity? While the odds are already high (three in five) of randomly finding households with a gap, the LIMRA model considered family status, career stage and income levels, the last of which are described in this chart. Not surprisingly, the larger dollar opportunities are among higher-earning households, and the larger number of households with a need is made up of 80

those with more modest incomes. The that can adapt to their changing needs, industry is still developing strategies on few products are designed to do so. Finanhow to approach the middle-income cial professionals who have periodic conmarket, but there are plenty of segments versations with their clients can meet this financial professionals could focus on need by making course adjustments, raiswithin this group. For example, our mod- ing or lowering coverages, or selling addiel identified 7.5 million middleTotal Households Average Protection Gap income house32 million $56,000 holds — married Low Income (under $35K) couples with no Middle Income ($35K–$100K) 29 million $188,000 children — with a 12 million $757,000 life insurance gap High Income ($100K+) of $2 billion. tional policies over time. The opportunity Look at Younger Households to help those already insured should not Try taking a different look at young, be underestimated — their average estilower-earning individuals (who may not mated gap in coverage is $317,000, more have a need for a large policy now but than twice that of those without any likely will have other financial needs coverage. over time) or older individuals who simIn recent decades, many financial proply may need insurance to cover final ex- fessionals who perhaps sold primarily penses. Can you create a turnkey process insurance products earlier in their cafor getting large numbers of these types reers have benefited by diversifying their of individuals covered? offerings. These advisors now offer a Taking the view that “some insurance wide array of insurance and investment is better than none,” consider offering a products, and increasingly may help clione-size-fits-all approach to those with- ents with retirement planning. out any existing life insurance. For exYou undoubtedly have heard of the ample, a simple $50,000 policy may not new Department of Labor fiduciary rule seem like much, but compared to noth- related to retirement plans, including ining, it’s a lot of money. You then could de- dividual retirement accounts. If the new cide which clients to follow up with to rule impacts only a relatively small porhave a more in-depth conversation about tion of your business, you might decide to their needs and the appropriate coverage refocus exclusively on insurance and othfor them. er nonretirement products to avoid havLife insurance is a long-term so- ing to modify your business practices sigcial contract, yet the initial needs anal- nificantly in order to comply with the ysis may have a short shelf life as situa- new rule. tions change. The level of coverage that This new rule, combined with the sheer was “right” at the time of purchase may volume of people with an insurable need, not be appropriate as children age, debt suggests this may be a great time to refoobligations fluctuate and income lev- cus on life insurance. els change. Indeed, the coverage amount may be outdated as soon as a year or two Eric T. Sondergeld, ASA, CFA, is corporate vice president, after purchase. strategic and technology reLIMRA research shows that although search, for LIMRA. Eric may seven in 10 consumers are at least some- be contacted at eric.sonwhat interested in more flexible products dergeld@innfeedback.com.

InsuranceNewsNet Magazine » September 2016

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