InsuranceNewsNet Magazine - February 2018 by InsuranceNewsNet

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You work hard to ensure your clients’ plans will hold through this uncertainty. An annuity with a living benefit can be a very valuable solution to help accomplish this goal. Living benefits can offer lasting income built on the interest or rollup rate that’s credited to a value commonly known as the benefit base. In the past, living benefits were only available with variable annuities, but now you can offer this feature for much less using fixed

and indexed annuities with similar retirement income options. No matter which type of annuity you choose, you can’t and shouldn’t consider roll-up rates alone when offering a solution to clients. These rates only present part of the picture when it comes to the value a single solution may provide. Here are five reasons why you shouldn’t be distracted by high roll-up rates on annuities with living benefits.

Withdrawal rates are important, too—While roll-up rates determine benefit base growth for a specified period of time, withdrawal rates define what percentage of the benefit base your clients will receive. If a particular solution offers a higher roll-up and a lower withdrawal percentage, your clients could end up with lower income payments.

Rules could leave clients with less—Some income solutions include certain rules or requirements such as a specified vesting period. If life happens and these rules aren’t followed exactly as stated in the contract, it could decrease the full roll-up potential your clients receive and leave them with less retirement income.

Illustrated income may not be guaranteed—Illustrations typically provide clients with an idea of how a solution might perform based on different scenarios. Defined roll-up rates aren’t offered with every product. So your clients may not get the retirement income they’re expecting—especially if the illustrated amount isn’t guaranteed regardless of performance.

Other fees can add up—It’s no secret living benefits are available with annuities for an additional cost. However some options such as variable annuities also include administration fees or fund expenses. Over time, these fees can add up to a less attractive payment when compared to the income offered by annuities that don’t have those extra expenses.

There is value beyond the roll-up rate—Clients purchase income solutions for a reason: because they don’t want to run out of money in retirement. That’s why many clients are looking for solutions that offer more flexibility like opportunities to get payout options that rise over time or access to their money if unexpected events occur.

THE BOTTOM LINE is that all retirement income solutions aren’t created equal and

meeting your clients’ needs requires a lot more than a flashy roll-up rate. When considering which retirement income solution is right for your client, keep in mind what they may really want: the highest amount of guaranteed income.

To learn more about how you can offer your clients one of the highest guaranteed income payments in retirement and calculate a sample income, visit MyProtective.com/MoreIncome.

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FEBRUARY 2018 » VOLUME 11, NUMBER 2

FEATURES 20 Are the First 401(k)s Ready for Retirement?

By John Hilton The 401(k) plan is coming of age, but is it ready for retirement? Baby boomers will need professional advice to turn that 401(k) into retirement income.

26 B righter Days By the Light of Perfectionistic Curiosity

By Steven A. Morelli As Robert A. Kerzner looks forward to retirement at the end of the year, he looks back at the challenge of turning around an institution vital to the insurance industry.

INFRONT

HEALTH/BENEFITS

40 D isability Management Helps Employees Return Successfully

10 Insurers, States Pick Up What the Feds Drop By John Hilton and Susan Rupe Some states begin looking at establishing their own fiduciary standards, while it doesn’t appear that the individual mandate repeal will undo the Affordable Care Act.

By Tom Foran Some carriers can help employers implement a comprehensive approach to disability management, and get workers back to their jobs faster.

44 Planning Starts With Emotions, Then Moves to Financing By Bill Nash Financial planning for long-term care carries a heavy emotional weight.

LIFE INTERVIEW

32 Why Indexed UL Transparency Is Vitally Important to Clients By Ron Sussman We need to stop relying on illustrations that are misleading as soon as they are printed.

12 Is Everything You Know About Leadership Just BS? An interview with Jeffrey Pfeffer There’s a big difference between what leaders say they do and what they actually do. Jeffrey Pfeffer, author of Leadership BS, tells InsuranceNewsNet Publisher Paul Feldman what’s wrong with leadership today and how to build strong, authentic leaders. 4

ANNUITY

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InsuranceNewsNet Magazine » February 2018

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FEBRUARY 2018 » VOLUME 11, NUMBER 2

INSIGHTS

online

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50 THE AMERICAN COLLEGE: Sexual Harassment Carries a High Price Tag

48 MDRT: A Narrow Focus Can Lead to Unlimited Growth Potential By Corry Collins Specialization gives you a competitive edge and makes you an expert.

49 N AIFA: Medicare Doesn’t Cover It All By Elie Harriett Clients must understand that they still face health care costs, even with Medicare.

By Jocelyn Wright Sexual misconduct has shaken a number of professions recently. How will this affect the financial services industry?

52 LIMRA: Pairing Prospects With Products By Jim Scanlon A look at the relationships between product types and coverage amounts.

BUSINESS

46 Should You Move From Direct Mail To Digital? By Chris Hooper The industry is experiencing a change in the way its target audience consumes information.

EVERY ISSUE 8 Editor’s Letter 18 NewsWires

30 LifeWires 34 AnnuityWires

38 Health/Benefits Wires 42 AdvisorNews Wires

51 Advertiser Index 51 Marketplace

INSURANCENEWSNET.COM, INC.

275 Grandview Avenue, Suite 100, Camp Hill, PA 17011 tel: 717-441-9357 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 MARKETING Katie Frazier SENIOR CONTENT STRATEGIST Kristi Raynor

AD COPYWRITER AD COPYWRITER CREATIVE DIRECTOR SENIOR MULTIMEDIA DESIGNER GRAPHIC DESIGNER CHIEF OPERATIONS OFFICER QUALITY MANAGER

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TECHNOLOGY DIRECTOR MEDIA OPERATIONS MANAGER NATIONAL SALES DIRECTOR NATIONAL ACCOUNT MANAGER NATIONAL ACCOUNT MANAGER EXECUTIVE ADMINISTRATOR CORPORATE ACCOUNTANT

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Copyright 2017 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 275 Grandview Avenue, Suite 100, Camp Hill, PA 17011, fax 866-381-8630 or call 717-441-9357. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 717-4419357, Ext. 115, or reprints@insurancenewsnet.com. Editorial Inquiries: You may e-mail editor@insurancenewsnet.com or call 717-441-9357, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.innmediakit.com or call 717-441-9357, Ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 275 Grandview Avenue, Suite 100, Camp Hill, PA 17011. Please allow four weeks for completion of changes.

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WELCOME LETTER FROM THE EDITOR

The Magic Equation: 5Y=X

he four W’s and H are what, when, where, why and how. The most powerful one is “why.” Any young child knows this. From around age 2 to 4, it is a child’s favorite question, much to the detriment of his or her parents’ sanity. Before Louis C.K.’s banishment from public life (and we know why), he had a famous bit about his daughters’ whys. In it, he described the abject fatigue parents feel when they endure relentless assaults of whys, leading them to snap at their kids in public: “Because it just is, OK? Now eat your *BLEEP*ing french fries!” He recounted a chain of whys that led from “Why can’t I go outside?” through an examination of his own childhood trauma to existential angst about the meaning of everything. Sorry, but you might have to watch it for that description to make sense. The author and speaker Simon Sinek put “why” at the center of a concept he called The Golden Circle. The idea goes like this: Draw three concentric circles, like a target with a bull’seye. The outer ring is “what”; the second is “how”; and the inner is “why.”

Sinek said most companies answer “what” first and then “how” and never get to “why.” For example, a company’s “what” might be “we make computers,” and the “how” is “we use the latest innovation at the lowest prices to bring the most value to consumers.” The how would be considered the unique selling proposition, and that drives the marketing. But Sinek said the best companies work from the inside out, putting the “why” first. In the case of Apple, the why would be “We 8

Toyota used this example to demonstrate the 5 Why tool. 1. “Why did the robot stop?” The circuit has overloaded, causing a fuse to blow. 2. “Why was the circuit overloaded?” There was insufficient lubrication on the bearings, so they locked up. 3. “Why was there insufficient lubrication on the bearings?” The oil pump on the robot is not circulating sufficient oil. 4. “Why is the pump not circulating sufficient oil?” The pump intake is clogged with metal shavings. 5. “Why is the intake clogged with metal shavings?” Because there is no filter on the pump.

want to change the status quo and think differently.” How: “We make technology intuitive, easy to use and liberating to the creator of content.” What: “We make computers and electronics.” That would lead to more-compelling marketing. “People don’t buy what you do,” Sinek said. “They buy why you do it.” All this “why” fixation came out of a reference that Jeffery Pfeffer made in this month’s interview with Publisher Paul Feldman. Pfeffer is a well-regarded Stanford business professor and author or co-author of 15 books. In the interview, he discussed what effective leaders actually do, as opposed to what they say they do. Pfeffer said, “The best way to produce change is for us to take the lessons of the quality movement very seriously.” That means using the true measures of improvement and proven techniques for management. One of those is the Toyota 5 Whys method. The expert from last month, Whitney Johnson, also mentioned it in her book, Disrupt Yourself. Toyota developed the concept to find the root cause of production problems. The company discovered that it usually took five “whys” to arrive at a process that is not working or needs to be developed. Anyone can use the tool to troubleshoot any problem in an organization and come up with not only a good answer for why something

InsuranceNewsNet Magazine » February 2018

happened but also an action step at the end. One key is that the final answer is only as good as the integrity of the previous answers. Throwing down the easy answer to each one leads to a defective conclusion. This method is sharply effective in personal matters as well. The tool can divine the real motivation for wanting to leave an agency and go independent. It can also help determine why you have trouble getting out of bed in the morning. But be aware that the answers to the fourth and fifth questions are often a little uncomfortable. Let’s take the example of having trouble getting out of bed. Why? I am getting to bed too late. Why? I’m usually involved in something unproductive such as watching TV or surfing the net. Why? Because I don’t want to go to bed. Why? I am worried my spouse will be awake. Why? Because we are fighting constantly. Obviously, that one doesn’t have to stop at five. A little more exploration is called for. But you could see that questions four and five might inspire a revelation. In fact, this process often yields surprising insight, not necessarily this dramatic. But it can be a way of getting to the real reason you want to do something and perhaps cut to that result in another way. Like with the example of leaving an agency and going independent — why is that important? Why? It will give me more flexibility with my time. Why? Because I will be able to work from home. Why? I will be able to spend more time with my children. Why? Because they are older and I am missing their best years. Why? Because I am working long hours. In this case, the real problem is the long hours. Perhaps that could be addressed with the agency. Or it could be that going independent is in fact the answer, although whether you would have more time might be debatable in that case. So, the next time you have a tough problem to crack, maybe it is time to call forth your inner child with the whys. Bring french fries. Steven A. Morelli Editor-in-chief

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INFRONT

States Pick Up Rules That the Feds Dropped Photo: Associated Press

As 2017 came to a close, New York Gov. Andrew Cuomo gave the OK to a state regulation establishing a best-interest standard for all sales of life insurance and annuities.

States cite Labor Department delay in establishing their own fiduciary standard.

By John Hilton

he Department of Labor started the regulatory tinkering with a best-interest standard — but the states may finish the job. Some aspects of the controversial DOL fiduciary rule took effect June 9. Those rules require anyone selling financial products into retirement accounts to make no misleading statements and accept only reasonable compensation, among other things. But the more onerous rules that accelerate legal liability are delayed until July 2019 and might never take effect. Since that delay was published in November, fiduciary proponents at the state level have stepped up efforts to pass their own rules. New York Gov. Andrew Cuomo announced a best-interest standard for anyone selling life insurance and annuity products in the state. The proposal would cover “all sales of life insurance and annuity products, beyond the types of advice covered by the DOL rule,” Cuomo said. 10

The proposed amendments are subject to a 60-day notice and public comment period. If adopted, New York would become the second state to pass its own best-interest standard. Nevada passed a law that Gov. Brian Sandoval signed in June. Both states cited the lengthy delays of the DOL rule. Politically, the issue is a big winner, said Howard Mills, global insurance regulatory leader for Deloitte. “Best-interest standard for consumers is, politically, a very powerful message for a state legislature to be saying, ‘Hey, you know, we’re really looking out for the consumer,’” Mills said. “So I think there’s almost a bit of a competition between the regulators and the legislators.” Products with more complex modeling are sure to attract the attention of state regulators, Mills said. “I think they’re going to get much more granular on what is a suitable sales practice, on insurers acting in the best interests of their consumers, particularly around products like variable annuities, long-tail products,” he said. “I think that’s going to be clearly a very strong focus going forward.”

InsuranceNewsNet Magazine » February 2018

California Fault Lines

There are plenty of rumors of other states working on similar best-interest standards. In particular, all eyes are on pro-fiduciary efforts in California. California is a crucial state because insurers do so much business there, said Kim O’Brien, CEO of AssessBest, an insurance software company. “Once California goes, many of the carriers decide ‘Well, we’re just going to do it nationally because to carve out one state in our processes isn’t efficient,’” O’Brien said. The biggest problem with states taking up the fiduciary issue is the likelihood of inconsistency. There are 50 states, plus the District of Columbia and five sovereign territories that could pass their own standards, Mills noted. “So while Washington, D.C., is talking about deregulation, that may very well be the case for environmental standards or a regulation on banks,” he explained. “But it has nothing to do with the insurance industry.” In fact, the Trump administration’s eagerness to neuter any federal regulatory body, which includes the Federal Insurance Office and the Financial Stability Oversight Council, might actually hurt the insurance industry. “States no longer have to compete with the FIO, the FSOC, any federal regulators or federal agencies trying to horn in on the insurance space, so they don’t necessarily have as Howard Mills much of an incentive to work together and uniform their standards,” Mills said. “So you might see a more challenging regulatory environment for insurers, while for other industries it’s getting less challenging.” 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. Follow him on Twitter @INNJohnH.

TIMELY ISSUES THAT MATTER TO YOU INFRONT

Mandate Repeal May Not Unravel ACA Analysts see insurer stability as most consumers will still sign up for coverage.

By Susan Rupe

hen President Donald Trump signed into law a sweeping tax reform bill that included repeal of the Affordable Care Act’s individual mandate penalty, many thought it marked the beginning of the end of the ACA. After all, without the penalty for not having health insurance, wouldn’t Americans decide to shed their policies? And with enough young and healthy Americans choosing to go without coverage, wouldn’t insurers be forced to hike premiums or even get out of the marketplace? Not so fast, cautioned analysts from A.M. Best. Best released a report in early January describing its outlook on the U.S. health insurance industry overall as stable. That’s an improvement over its 2017 outlook, when it termed the health insurance industry as negative. In upgrading its outlook, Best said that insurers overall have been able to adapt to the pressures from the ACA, and improve their earnings and risk-adjusted capitalization levels. In theory, the end of the individual mandate penalty should give consumers less incentive to buy health coverage. This would lead to a risk pool made up of greater numbers of older and sicker consumers, which would lead to higher premiums, which would lead to carriers exiting the marketplace. But the reality is different, said Doniella Pliss, A.M. Best associate director. “When we talked to the companies that we rate and that are active in this market, they are telling us that prices now are so high that they don’t believe the penalty plays a role in people’s decisions to buy coverage,” she said.

Penalty Relevant to Only a Few

The penalty is relevant to only a small percentage of the ACA marketplace’s consumers, Pliss said. “About 80 percent of those who buy coverage through the marketplace are eligible for a subsidy,” she explained. “And if policy premiums go up and your income stays the same, then you get more of a subsidy. So at that point, the penalty becomes irrelevant to this group.”

Doniella Pliss of A.M. Best says the individual mandate penalty is not a factor in consumers’ decisions to buy health insurance.

For the 20 percent of consumers in the individual marketplace who are not subsidy-eligible, some may find it’s more cost-effective to pay the penalty and go without coverage they have trouble paying for, Pliss said. The penalty repeal takes effect in 2019, which gives carriers time to adjust their pricing, she noted. Fewer carriers in the ACA market means less consumer choice, but from an insurer’s point of view, Pliss said, “they know who their customers are by now, who has a chronic condition, who is getting a subsidy.” In the earlier years of the ACA, when more carriers were in the marketplace, the risk pool was more split, Pliss said. “The reality now is that if you’re the only carrier in your area, you know who you’re getting as clients,” she noted.

Insurers Showing Profitability

Insurers who serve the ACA marketplace

are showing “no sign of a market collapse,” according to Kaiser Family Foundation. The Kaiser report, issued in January, looked at the first three quarters of 2017, and showed insurers that serve that marketplace are regaining profitability as the market stabilizes. This is a shift from 2014 and 2015, as insurer financial performance worsened with the opening of the health insurance exchanges. But the market showed signs of improvement in 2016 and a return to profitability in 2017, Kaiser said. One question that remains is whether the Trump administration’s ending of cost-sharing reduction payments to health insurers will hurt carriers’ fourth-quarter 2017 profits. “Nonetheless, insurers are likely to see better financial results in 2017 than they did in earlier years of the ACA marketplaces,” Kaiser researchers wrote. Kaiser cited improving medical loss ratios in 2017 as one factor driving profitability in the ACA market. In the third quarter of 2015, insurers on average reported medical loss ratios of 97 percent — meaning they were spending 97 cents for every $1 of premium they collected to cover customers’ health costs. That dropped to 91 percent in the third quarter of 2016, and dropped to 81 percent in the third quarter of 2017. Premium hikes in 2017 also are driving the improved financial performance among insurers, Kaiser said. While premiums rose by an average of 17 percent per enrollee last year, per person medical claims grew by just 4 percent. However, those higher premiums do not appear to have driven significant numbers of healthy customers from the ACA marketplace, Kaiser reported. Despite this optimistic report, Kaiser researchers cautioned that what happens in Washington could upend the marketplace. “Policy uncertainty has the potential to destabilize the individual market generally,” the report said. Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback. com. Follow her on Twitter @INNsusan.

February 2018 » InsuranceNewsNet Magazine

IS EVERYTHING YOU KNOW ABOUT LEADERSHIP JUST

Jeffrey Pfeffer reveals to Publisher Paul Feldman the cold, hard truth about leadership 12

InsuranceNewsNet Magazine Â» February 2018

IS EVERYTHING YOU KNOW ABOUT LEADERSHIP JUST BS? INTERVIEW

FELDMAN: What’s wrong with leadership today? PFEFFER: I’ll give you three answers to what’s wrong with leadership today. What’s wrong with leadership today is that leaders are losing their jobs at unacceptably high rates. There’s a bunch of data that shows CEO turnover is higher than it’s ever been. It’s not just CEOs. People lower down in the organization also are facing many career challenges and job stresses and turnover, and having to leave their jobs. No. 2, the state of the workplace, around the world, is dire. The Gallup survey of employee engagement, The Conference Board survey of job satisfaction, asked people, “What would you rather have, a

substantial raise or fire your boss?” Thirtyfive percent said, “I’d rather fire my boss than have a big raise.” Measures of various kinds of workplace well-being show that most employees are not doing well. They’re unhappy, dissatisfied, and they don’t feel they’re being led well. No. 3 is when leaders are asked to think of their own leadership, most managers say, “We’re failing to build the leadership competencies we need. This has constrained our ability to grow. This has constrained our ability to perform well.”

nothing has changed over the past 40 or 50 years. The second problem is that the people chosen to do the training are often good entertainers, but have no particular expertise in the substance of what they’re doing. We go to these big auditoriums, and somebody gives an inspiring speech. Almost none of the speech is true, and that’s particularly true if they’re describing their own behaviors as a leader. Then, everybody leaves. Since people are told stuff that they know is not really consistent with what

So senior leaders think that leadership development is failing, leaders are losing their jobs, and the workplace is in pretty bad shape. That all suggests to me that leadership is a mess.

the person who’s told it to them has done himself, and it’s not consistent with their own observations, it produces an enormous level of cynicism. I turn on the news and look at leaders in political and corporate life who don’t bear any resemblance to what I’m being told to do. That produces a large level of skepticism and cynicism. That’s how I think leadership development is failing.

AP Photo/Eric Risberg

hat do you think of when you think of a great leader? Most likely you have a picture of those who exude virtues such as honesty and integrity, always putting their own people first as they bear their authenticity as an armor against the slings and arrows. Yeah, forget all that. Jeffrey Pfeffer says the most effective leaders don’t act that way. Jeffrey is the Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University, and he has been paying attention to the science of leadership for more than 40 years. Jeffrey wrote 15 books on business and leadership, but one book in particular — Leadership BS — caused a bit of a stir. In that book, he said everything everyone prizes in leadership is wrong. He came to understand this point when he saw so many talented students leave school and fall flat on their faces in the business world. That’s when he decided to examine what effective leaders actually do rather than what they say they do. Because when successful leaders stand in front of a crowd to talk about themselves, they are going to put on a suit of virtue and valor. Meanwhile, those who really know the leaders do not recognize who’s up there speaking. They know who really gets things done even when the going gets ugly. In this discussion with Publisher Paul Feldman, Jeffrey reveals what effective leaders actually do.

FELDMAN: What’s wrong with leadership training today? PFEFFER: What’s wrong with leadership training is almost everything. It’s evaluated in the wrong way. So as you go to one of these programs, at the end of the program, they give you a happy sheet and ask you how much you enjoyed this. Research shows this is irrelevant to whether you’re going to improve on any of the measures that we care about — employee engagement, turnover, organization performance, etc. We’re evaluating leadership development as a form of entertainment. That leads to, of course, giving very entertaining talks, but not necessarily talks that have changed anything, which is why

FELDMAN: What comes to mind is the servant leader. What are your thoughts on that? PFEFFER: A lot of the principles that many of these leadership programs espouse are, in fact, good principles. I think servant leadership is a great thing. I think the idea that Leaders Eat Last, the book by Simon Sinek, is a good idea. It would be nice if leaders were authentic and truthful. These would all be very desirable leadership qualities, but you have to ask why so few leaders have them. If we don’t understand the answer to that question and

February 2018 » InsuranceNewsNet Magazine

INTERVIEW IS EVERYTHING YOU KNOW ABOUT LEADERSHIP JUST BS? we don’t understand how we as people participating in an organizational life are complicit in producing the leadership that we now have, nothing will ever change. Yes, it would be nice to have a servant leader, and I know a few; there aren’t many. It would be nice if leaders told the truth, but — as I tell my students all the time — apparently the most important quality of a leader is the ability to lie with great effectiveness. It would be nice if leaders could be more authentic, but they probably can’t be and they certainly aren’t. It would be nice if leaders were modest, but narcissism, in fact, predicts who gets into leadership roles and who keeps them.

“Do you really want to know what your organization thinks about you, or would you like to be told, ‘Wow, you’re doing great! Keep doing this!’” I suspect most people would have said, if they’re being honest with themselves, “I would really like to be told how wonderful I am. I don’t want to be told that I have no chance of being promoted here.” If you tell everybody their real promotion chances, the place is going to empty out and you’re going to have more turnover than you want. That’s one example. People want to be told how wonderful they are. They want to be told how great their company’s doing. Nobody wants to

employees need from them. They don’t need to be authentic to their own needs. FELDMAN: Do you think we should, as leaders, be more honest with our feedback and the truth with our employees even though they don’t want to hear it? PFEFFER: Certainly, if you want to develop your employees, you need to tell them the truth. But you need to tell them the truth in a context in which they’re not afraid that they’re about to be fired. If they’re worried about every consequence, they’re not going to hear what you tell them because they’re so frightened that they don’t hear anything. Part of the question I think is implied in your last question, and in several of your questions. When I was writing this book, I gave it to a friend to read. He said, “This is all interesting, but what would you tell me to do if I wanted to be a better leader?” The reason why that question is interesting is we assume that leader effectiveness is unidimensional. How are we going to measure leader effectiveness? Is it your ability to stay in your job a long time? Your ability to make a lot of money? Your ability to improve measures of employee engagement, measures of organizational performance? All these measures themselves are relatively weakly correlated. My famous example would be Stan O’Neal. Stan O’Neal ran Merrill Lynch into oblivion, and it was sold to Bank of America. Stan O’Neal left with $140 million. Was Stan O’Neal a successful leader? If you’re Mr. and Mrs. O’Neal, he did great. If you’re a Merrill Lynch employee who faced the rounds of layoffs after Bank of America bought the company, he wasn’t such a great leader. Whether someone is a good or bad leader depends on one’s perspective. Is Donald Trump a good leader? Well, he won the presidential election. By some standards, he’s a good leader. There are some people who can’t stand him. The people who are making the most money are not necessarily having the highest levels of employee engagement. They may not even be doing the best for

IT WOULD BE NICE IF LEADERS TOLD THE TRUTH, BUT APPARENTLY THE MOST IMPORTANT QUALITY OF A LEADER IS THE ABILITY TO LIE WITH GREAT EFFECTIVENESS. We need to understand the realities of the world in which we live, as opposed to continuing to tell ourselves these stories, most of which bear no resemblance to reality. FELDMAN: So authenticity and telling the truth are not important qualities for great leaders? PFEFFER: People say they want their leader to be authentic and to tell the truth. No, they don’t. There was a survey done by a human resource consulting firm, and they asked HR professionals the following question: Some people in your organization are doing good work, but their odds of getting promoted are relatively low. You don’t want to lose them because they’re doing good work; it’s just that they’re not going much further in their careers. Do you tell the people who aren’t going anywhere the truth about their promotion opportunities? In about 75 percent of the cases, the answer was no. By the way, this is not part of the survey that they did, but if you had asked the people who aren’t going to get promoted, 14

hear a CEO tell them, “The company is having trouble. I and my top team frankly don’t know if and how we’re going to be able to fix this.” People want to hear, “We’ve got troubles; we know what to do. Do X, Y and Z and everything will be fine.” FELDMAN: People want confidence from their leadership. PFEFFER: They want confidence. I’ve had people come speak to my class who were running temperatures, having had crises in their personal lives or in their companies. When you show up in front of the students, the students don’t really care about whether your daughter is involved with the wrong person, or your wife has left you for somebody, or you’ve been told that you’ve got some disease or something, or your back is hurting, or all this other stuff. When you show up in front of your employees, they don’t want you to tell them your problems. They want you to be there for them, and they want you to be helping them with their problems. So leaders need to be authentic to what the

InsuranceNewsNet Magazine » February 2018

MARRIOTT MARQUIS SUCCESS CURVEDC OF DISRUPTION INTERVIEW 04.29 - 05.01.2018 THEWASHINGTON, MARRIOTT MARQUIS

T H E 6 1 ST ANNUAL MEETING

THE 61 ANNUAL MEETING

04.29 - 05.01.2018 WASHINGTON, DC MARRIOTT MARQUIS

C A T E |E E N GV A G EO | E XL E C UV T E |E EVOLVE E E D U|

www.aalu2018.org www.aalu2018.org

February 2018 Â» InsuranceNewsNet Magazine

INTERVIEW IS EVERYTHING YOU KNOW ABOUT LEADERSHIP JUST BS? their organizational performance, since we know CEO compensation and organizational performance are relatively weakly correlated. As we think about the qualities we want in leaders, we need to be much more precise and nuanced, and think exactly of the constituencies who we believe the leaders need to serve. FELDMAN: A lot of leaders do what you call sermons and pep talks. Does that produce change at a company? PFEFFER: The best way to produce change is for us to take the lessons of the quality movement very seriously, which is to measure your baseline levels of performance so you know where we are, how we are doing. That could be sales performance or service performance or some measure of manufacturing performance. Or, in the case of airlines, on-time performance or whatever. Because what we measure gets attention, and that’s true in organizations of any size. It’s just human nature that when something is measured, we pay attention to it. If it’s not measured, it gets ignored.

PFEFFER: The foundation of trust is honoring your commitments. But circumstances change, and promises that you may have made at one point you can’t honor if you want the business to survive at some other point. The easiest example of that is layoffs. Sometimes you don’t necessarily want to tell people exactly what is going on because they’ll be too worried, or depressed, or fearful or whatever. If you look at entrepreneurs — people starting companies of whatever kind — one of the things you need to start a company is to have people sign up with you and for you. You must have people who are willing to come to work for you. You must have people who are willing to invest in you. You must have customers who are willing to do business with you. Often, the only way you can get people to do that is to paint a picture about your chances of success that is not completely true. Who’s going to invest in a company if you say, “Most all businesses fail, so why don’t you put your money in and give me your business and come work for me?” Nobody’s going to do that.

you have to not be completely honest in doing that. FELDMAN: You wrote a book called Power: Why Some People Have It and Others Don’t. How does that work with leadership? PFEFFER: Leadership BS is the prequel to the book on power, even though Power was written before it. Because the Power book talks about how to become powerful, people would come up to me and say, “The principles in your Power book disagree with what I’ve been told about what good leaders do.” But the first job of a leader, as Machiavelli pointed out 500-plus years ago, is to keep your job because you will get nothing done if you’re not in a position of power. If you want to change the Army, you need to be secretary of the Army or a general in the Army. The day you get fired from that position, you’re not going to be able to get anything done. The first process in keeping your job is to understand that everybody has a boss. I don’t care if you’re the CEO. I don’t care if you’re the founder of the company. As a matter of fact, I see founders losing their jobs all the time. You may have outside investors. You may have a board of directors. You may have a chairman of that board. You may have whatever. Everybody has a boss. Keep your boss happy. If you don’t keep your boss happy, you’re probably not going to keep your job.

ENERGY IS CONTAGIOUS. IF YOU HAVE A LOT OF ENERGY, THE PEOPLE AROUND YOU WILL TEND TO WORK HARDER AND FEED OFF YOUR ENERGY. CONVERSELY, IF YOU’RE A LOWENERGY PERSON, THEY WILL FEED OFF THAT. Identify the most important dimensions of your operation. Measure them repeatedly, and try different interventions to improve them. That’s how you drive change. FELDMAN: Part of your book is about trust. I found it really interesting that having blind trust in your leader is not necessarily a good thing. Nor should leaders always have open trust in their people.

So you have to inspire people. You have to give them a sense that you’re going to be more successful than maybe you even think you’re going to be. But that then becomes a self-fulfilling prophecy because if everybody believes you’re going to be successful, then the best people come to work for you, and the investors invest money in you, and customers want to do business with you, and you become successful. I think we downplay the extent to which life is about creating this virtuous circle of the self-fulfilling prophecy, and sometimes

InsuranceNewsNet Magazine » February 2018

FELDMAN: Besides helping you keep your job, why else is power important? PFEFFER: Power is the ability to get things done against opposition. In most situations, what you want is not necessarily aligned completely with what everybody else in the situation wants. The

IS EVERYTHING YOU KNOW ABOUT LEADERSHIP JUST BS? INTERVIEW individual who has power is the individual who is able to get that decision to come out the way that he or she wants it to. That’s what power is. Power is the ability to get your way in contested decisions. Most decisions are contested, including simple decisions like what movie are we going to watch this weekend on Netflix, because Kathleen likes chick movies and I like movies with more angst. Simple things like that. Some of the disagreements are trivial and small; some of them are big. Where are you going to live? How much are you going to spend on a house? The person who has power, or unit that has power, is the unit that is able to get its way. Why is this important? Because these decisions are all important, and the ability to get things done is the fundamental task of leadership. Since decisions seldom will be agreed upon 100 percent by everybody, your ability as a leader is the ability to get things done, and getting things done requires power.

experiment. Maybe you put a bunch of dried grass outside, put a magnifying glass over it and lit the grass on fire. That’s about focusing the sun’s rays. When focused, the sun’s rays focused heat up a lot more than when they’re unfocused. So focus is clearly a very critical component of people being successful. The ability to tolerate conflict and not worry about how much everybody likes you. Most of the successful leaders I’ve seen, particularly the big senior leaders, don’t worry about being liked. In the words of one of my good friends: If you want to be liked, get a dog. Your job as a leader is not necessarily to be liked, but to make the tough judgments and decisions that will make the organization successful.

FELDMAN: What are some of the personal qualities that bring power?

PFEFFER: I think speaking and acting with power is very important in leadership. Even though she’s become quite controversial, I highly recommend people looking at Amy Cuddy’s TED Talk, which is the second most viewed TED Talk in the world. She talks about power posing. You want to take up space. You want to command the room. You want to look taller than you are. You want to speak with a strong voice. You want to make statements rather than ask questions. You want to make eye contact. You want to show people that you know what you’re talking about. You don’t want to be like poor Tony Hayward of BP at the congressional hearings. The first thing that happened when he started his testimony, they said, “Can you speak more loudly?” which is always a bad sign. You want to do things in your voice and in your posture that display power and confidence. That is standing up straight and taking up space, speaking loudly and not hemming and hawing. Not raising your voice at the end of a sentence, which turns the statement into a question.

PFEFFER: Energy. The ability to work long hours, which is related to energy. Emotions are contagious. Energy is contagious. If you have a lot of energy, the people around you will tend to work harder and feed off your energy. Conversely, if you’re a low-energy person, they will feed off that. A second quality that’s important is this ability to put yourself in the other person’s place. Empathic understanding. Understanding where they’re coming from so that you’re able to build relationships with them, and you’re able to see what moves them and what motivates them, and so on and so forth. Therefore, you’re able to take their interests into account as you formulate plans. Persistence and resilience. There is nobody who doesn’t face rejection and failure and setbacks. So, the question is, are you tough enough and resilient enough, persistent enough, to keep going? Focus. I think I’d much rather bet on somebody who’s not so talented but who’s focused on one thing than on somebody who’s more talented but whose efforts are more dispersed. What is a laser? A laser is focused light. In the olden days, you did a science

FELDMAN: Another key thing for leaders is speaking, both one-on-one and one-to-many. What are some strategies to speaking with power and how important is that in leadership?

FELDMAN: What are some good strategies for dealing with conflicts in leadership? PFEFFER: To use Sheryl Sandberg’s phrase, you need to lean into conflict. You can’t assume that your job is to avoid conflict. If people are disagreeing with you, you need to understand the basis of the disagreement, but you need to not back down. You need to be firm and strong, explain what your point of view is and why it is that way, and indicate to people that there are benefits from cooperating and collaborating with you, and there are costs if they don’t. FELDMAN: Is there a price to power? PFEFFER: Oh, there’s a huge price. Power takes time. Power makes you visible. If you become president of the United States or CEO of General Motors or General Electric or General Mills, or another company, you will be under tremendous public scrutiny. Everything you do will be watched and parsed. That, of course, exacts a huge toll. Other people are going to want a piece of you. People are going to want pieces of your time. If you’re a university professor like me, you can do whatever you want. But if you become dean, you can’t do anything you want. Now you have responsibilities to the school. You have to go talk to the alumni, and you have to go talk to the students, and you have to go talk to the various constituencies of the school. Many people other than yourself are keeping your calendar for you. In the words of a friend of mine, you can have autonomy or you can have power, but you cannot have both. Power takes a lot of work. One of the reasons why people lose power is that after a while, they get tired and they let their guard down. Then, somebody will take them out.

Listen to “the” podcast top advisors trust to acquire ideas to ignite exponential growth in their business. www.insurancenewsnet.com/ innpodcast

Listen to “the” podcast top advisors trust to acquire ideas to ignite exponential growth in their business.

This … February 2018month » InsuranceNewsNet Magazine JIM COLLINS reveals how advisors can make the

NEWSWIRES

QUOTABLE

Congress Deals Serious Hit to ACA The Affordable Care Act (ACA) isn’t dead, but

it’s on life support after Congress dealt the health care law a serious blow. The hit was written into the tax reform bill signed into law at the end of December. It ends the tax penalty for those who don’t have Repealing the penalty will cause: health insurance. This penalty was considered a prime motivation for many to comply with the ACA’s requirement that everyone have coverage. The nonpartisan Congressional Budget Office has said repealing that penalty would produce 13 million additional uninsured people and push premiums higher by an average of 10 percent. The number of uninsured people would grow mostly because fewer people would be expected to get coverage under Medicaid or by buying individual policies.

+13M more uninsured +10% premiums

LIFE EXPECTANCY DROPS FOR SECOND YEAR

Opioids continue to take their toll on American lives, leading to a drop in U.S. life expectancy for the second consecutive year. In 2016, drug overdoses claimed 63,600 lives, according to the Centers for Disease Control and Prevention’s National Center for Health Statistics. The age-adjusted overdose death rate rose 21 percent, to 19.8 per 100,000 in 2016 from 16.3 per 100,000 in 2015.

Anderson, chief of the National Center for Health Statistics’ mortality statistics branch.

VANGUARD SOUNDS ALARM ON 2018 STOCK MARKET

The stock market set records in 2017, but Vanguard issued a report that warns the good times might not last in 2018. Vanguard released a dour research note on prospects for the 2018 stock market, citing higher interest rates , increased inflation and stronger market volatility at the center of its argument. U.S. investors should be worried that a wage or inflation hike could lead markets to reprice a more aggressive path of policy rate normalization by the Federal Reserve. That would end a long period of low volatility, the note said. In fact, Vanguard said its outlook for global stocks and bonds is the “most subdued it has been in a decade.”

U.S. life expectancy dropped to 78.6 years in 2016 The surge contributed to life expectancy dropping to 78.6 years from 78.7 years, the first time that figure has declined two years in a row since the 1960s. If drug overdoses continue to increase this year, life expectancy could decrease again. If that happens, it would be the first time since the Spanish flu swept through the country a century ago, said Robert DID YOU

KNOW

The Trump administration is now estimating the Republican tax bill will generate about $1.8 trillion in new tax revenue over 10 years by boosting economic growth. Source: Joint Committee on Taxation

InsuranceNewsNet Magazine » February 2018

This number is higher than anyone expected, and has to be considered a success. — Larry Levitt of the Kaiser Family Foundation on the 8.8 million people who signed up for health insurance coverage under the most recent open enrollment period.

WHAT AMERICANS SPENT IN 2017

Americans shelled out more money in 2017 than they did the previous year. American consumers spent $130.6 trillion in 2017, a 2.7 percent increase from 2016, according to the U.S. Bureau of Economic Analysis. Higher spending was reported on everything from yachts to groceries. However, technology drove expenditures on some outdated services such as postal service and video rentals down to a fraction of what they were in previous years. Some interesting tidbits from the survey: Americans spent about 5.6 percent more on child care in 2017 than in 2016, spent 4.42 percent more on financial services charges and fees and spent 3 percent more on new cars. One expenditure that went down: insurance. Americans spent $1.09 trillion on life and home insurance in 2017, down 2.12 percent from 2016.

American consumers spent $130.6 trillion in 2017

+2.7% from 2016

Fueling the Fire of SUCCESS with …

FAILURE?

Fran Tarkenton, NFL Hall of Famer and financial industry trailblazer, explains how defeat can often lead to the biggest victory of your life. want to make sure you’re doing what’s right for them. I believe the mission of business is to help people. That’s at the core of our culture at Tarkenton Financial.

you don’t know Fran Tarkenton, you don’t know football. This Hall of Fame Minnesota Vikings quarterback revolutionized the position, and set records that stood for decades after his retirement in 1978. But he doesn’t pass the time basking in the glory of his years on the gridiron. Now 78, Tarkenton is bringing the lessons of a life well-lived to his insurance marketing organization, Tarkenton Financial, and teaching the next generations that some of life’s most satisfying victories actually begin with defeat.

Q: An exceptional athletic career, a successful business, yet you say failure has been one of your keys to success. How so? When I was playing football, if we would win, I would go out with the players and our wives to have dinner, celebrate and tell each other how great we were. But if we lost, I didn’t go out. I went back to my house, put on the film of the game, dissected it and asked myself, “What went wrong?” When we’re willing to learn from our mistakes, we get better. Everybody has losses. Everybody has disappointments.

The key to success is using those experiences to get better — and get smarter. Q: How do your advisors convey the significance of planning for retirement to potential clients? In football, you’ve got to have a plan. In business, you’ve got to have a plan. And in retirement, you’ve got to have a plan. Our retirement years are important to plan for because we want to feel secure. That’s why we handpick our retirement income specialists — to ensure they have the knowledge to help our clients develop a plan that’s right for them. But, just as important, we want to make sure they care about clients as much as we do. Q: You have said that educating prospective clients is key to being successful in this business. Why is that? People have said to me, “You’re a great salesman.” No, I’m not. I don’t want to be. I have no interest in telling anyone what they should do. I would rather listen to them and ask questions like, “What kind of retirement lifestyle do you want?” Once I understand, I can offer products and strategies that might be a good fit. But if the customer says, “No,” that’s fine. Because if you really care about your customer, you

Q: What makes the Tarkenton Financial team different, and why would an advisor want to make a home there? We’ve been in business about 15 years, and most of the people who came here 15 years ago are still here today. We have also made Tarkenton a family business. My son, Matthew, and my daughter, Angela, work here. But, most important, our people are great citizens and great neighbors. We get to know each other on both a business and a personal level, and have come to care deeply about one another. I think advisors will find a culture here that they can’t find anywhere else in the industry. Tarkenton Financial is a special place, and people can really feel that. •

FRAN’S MAXIMS FOR SUCCESS The mission of business is to help people. People have to talk to people. There are no silver bullets. Reinvent yourself every day. Have a sense of desperation. Learn more from your failures than from your successes. Nothing takes the place of hard work.

If you would like to learn more about the culture of caring at Tarkenton Financial and download a free chapter of Fran Tarkenton’s book, The Power of Failure, visit TarkentonCares.com. SPONSORED CONTENT

COVER STORY

Boomers might not have the pensions that their parents had, but they have healthy retirement accounts and a big need for advisors to help them make the right decisions.

BY JOHN HILTON 20

InsuranceNewsNet Magazine Âť February 2018

ARE THE FIRST 401(K)S READY FOR RETIREMENT? COVER STORY

ollovers have meant signifi- estimated $415 billion in 2016, according In particular, Roth conversions are likecant business for Bob Quinlan to the LIMRA Secure Retirement Institute. ly to be a “hot topic,” he explained. When since he first hung his shingle That number is projected to zoom past you convert from a traditional IRA to a in 2001. As accounts boomed, $500 billion by 2021. Quite simply, roll- Roth IRA, a process also known as creatso has his business. overs are where the investable dollars are, ing a “backdoor” Roth IRA, you generally He is seeing bigger balances than in the and that’s only going to increase. pay income tax on the contributions. past. That might portend good news or “The market hasn’t shrunk,” said Jamie “If we’re looking at people for whom the bad news, depending on what clients do Hopkins, Retirement Income Program top tax bracket is lower than we’ve seen in with the money. co-director at The American College of the past, that could be a good time to do “I think it’s because the baby boom- Financial Services. “The market is still some conversions and move some money ers are retiring now and they’ve had the there, the money is still there, and the de- over,” Hopkins said. “Especially if you’re 401(k)s for a longer time,” said Quinlan, owner of Quinlan Insurance and Financial Services in Winona, Minn. “So their 401(k)s seem to be larger.” The first 401(k)s began appearing in workplaces about 35 years ago. Since then, they have turned the retirement planning world upside down for both client and agent or advisor. Now that the first 401(k) baby boomer owners are retiring, those rollover decisions are crucial. And they are being made at a time of regulatory activism, inNote: Years 2013 through 2016 are estimates and years 2017 through 2021 are projections. Includes some IRA-to-IRA transfer activity. Sources: The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007–2014, Investment Company Institute, creasing longevity and a lack of 2016; and LIMRA Secure Retirement Institute analysis. client education. Some industry critics claim the migration from defined benefit to defined sire to do rollovers is still there. Keeping sitting there thinking this tax bill isn’t gocontribution plans is creating more finan- your money in an employer plan, that can ing to be there a decade from now.” cial problems because the contribution be just a complicated thing.” The tax reform bill cuts corporate tax plans lack a lifetime income component. LIMRA’s latest surveys yielded some in- rates from 35 to 20 percent permanently If agents or advisors push an annuity teresting data on behaviors and attitudes and cuts individual tax rates temporarioption, they risk running afoul of increas- on the rollover process: ly. It permanently removes the individual ing regulations. Something has to give, mandate, a key provision of the Affordable critics say, because advisors like Quinlan » Forty-seven percent discuss their roll- Care Act, which is likely to raise insurance are the primary source of retirement plan- over decision with a financial professional. premiums and significantly reduce the ning assistance. number of people with coverage. “The majority of them put it in my » Sixty-three percent roll funds over to a The highest earners are expected to hands,” said Quinlan, a broker/dealer with company other than their DC plan pro- benefit most from the law, while exa lifelong insurance background. “A lot of vider. perts say the lowest earners may actuthem say ‘Well, I’m retired now and I’m ally pay more in taxes once most indisupposed to be conservative.’ » Fifty-five percent select an IRA compa- vidual tax provisions expire after 2025. “I go back to them and say ‘Well, yes and ny to consolidate their funds. House Speaker Paul Ryan has said that no, because either you or your wife have a Congress will not allow the individual good chance of living 30 more years. You » The average rollover size from a DC plan provisions to expire. can’t be too conservative or else you’ll run to an IRA is $160,000. The average size of Likewise, Hopkins sees room for out of money.’” an IRA-to-IRA rollover is $97,000. growth in annuities with long-term care riders within the rollover market. Those A Big (and Growing) Market 2018 Rollover Trends “hybrid” products are marketed as a way Quinlan is seeing a steady rise in rollover Not all evolving rollover strategies are to create lifetime income, with some longclients, and estimates it now represents as being dictated by government regula- term care insurance built in. much as 50 percent of new business. tion. The $1.5 trillion tax reform package Annuities with long-term care and Rollovers continue to outpace even rosy signed into law by President Donald J. hardship riders are trendy developments prognostications. Rollovers into Individual Trump Dec. 22 will have a significant im- among manufacturers looking for creative Retirement Accounts (IRAs) reached an pact as well, Hopkins said. products that comply with the fiduciary

IRA Rollover Activity (in Billions)

February 2018 » InsuranceNewsNet Magazine

COVER STORY ARE THE FIRST 401(K)S READY FOR RETIREMENT? rule. Regardless of what happens with the DOL rule, the new annuity riders should remain a rollover option since they meet a market need, Hopkins said. Less than 7 percent of consumers over age 50 have long-term care coverage, according to LIMRA. Yet, the Department of Health and Human Services estimates that 52 percent of seniors 65 and older will require some form of long-term care. About 82 million Americans will be retired by 2040, LIMRA projected recently. Those demographic trends point to a need for LTC policies in retirement plans. For many, the rollover seems the logical place to handle that kind of planning.

‘There’s Increased Scrutiny’

While rollover business is off the charts, the process has been slowed by a number of factors. In particular, regulatory hurdles added by the Department of Labor fiduciary rule. “The process has been slowed down and there’s increased scrutiny there, so you might not be able to do as fast of a rollover,” Hopkins said. “Before, the assumption was if somebody wanted to do a rollover, then that was the default — you did the rollover. Now, really, the presumption is more on the other side. The presumption is you leave the money there until you go through the process of telling us why it’s a good thing.” The disruption wrought by the DOL fiduciary rule continues to be a storyline impacting the rollover market. One of the DOL fiduciary rule’s primary targets is investment advice accompanying rollovers from a 401(k) or IRA into another IRA. DOL regulators have insisted for years that investors are getting conflicted advice regarding retirement account rollovers. Before the DOL rule, an advisor’s recommendation to roll a company 401(k) or IRA into an IRA managed by the advisor was not generally considered to be fiduciary investment advice. The DOL rule turned that around and attached a fiduciary standard to that advice. New rules require the advisor to either avoid rollover recommendations, or seek one of two new “exemptions” provided by the rule. Entering 2017, the DOL rule was expected to have a major impact on the future of IRA rollovers — and it still 22

InsuranceNewsNet Magazine » February 2018

The History of the 401(k) The 401(k) has become a standard workplace savings feature, but it is actually a fairly new concept. And one that came about almost by accident after a group of high-earning individuals from Kodak approached Congress to allow a part of their salaries to be invested in the stock market and thus be exempt from income taxes. Congress followed up by passing the Revenue Act of 1978, which includes a provision that allows employees to avoid being taxed on a portion of income that they decide to receive as deferred compensation, rather than direct pay. The provision becomes Internal Revenue Code Sec. 401(k). It was intended to allow taxpayers a break on taxes on deferred income. In 1980, a benefits consultant and attorney named Ted Benna took note of the previously obscure provision and figured out that it could be used to create a simple, tax-advantaged way to save for retirement. The rest, as they say, is all employee benefits growth. Some key developments in 401(k) history since Benna stumbled onto the idea: 1981: The IRS issues rules paving the way for 401(k) plans to be funded through employee salary deductions. 1982: Companies such as Johnson & Johnson and Honeywell begin offering 401(k) plans to their employees. Within a year, nearly half of all large employers are either offering a 401(k) plan or are considering offering one, according to the Employee Benefit Research Institute. 1984: The Tax Reform Act of 1984 mandates “nondiscrimination” testing to prevent 401(k) plans from favoring highly compensated employees over rank-and-file workers. Congress was concerned that executives would take advantage of 401(k) plans more than lower-paid employees. 1992: The Unemployment Compensation Amendment of 1992 imposes a 20 percent mandatory withholding tax on lump-sum distributions that are not rolled over into another qualified retirement plan, annuity, or individual retirement account (IRA). 1996: Assets in 401(k) plans surpass $1 trillion, with more than 30 million participants. 2001: The Economic Growth and Tax Relief Reconciliation Act of 2001 provides for catch-up contributions for participants 50 and older (as of 2018, the max catch-up contribution is $6,000), as well as the creation of Roth 401(k)s, which let after-tax contributions grow tax-free. 2006: The Pension Protection Act of 2006 allows employers to automatically enroll employees in 401(k) plans, and offer target-date funds as a default option. 2016: In a comprehensive survey on retirement plans, the Department of Labor found that 62 percent of all workers had access to a defined contribution plan, most likely a 401(k). Of those, 72 percent participate. Meanwhile, just 18 percent of workers had access to a traditional pension plan. — John Hilton

Money in Motion ARE THE FIRST 401(K)S READY FOR RETIREMENT? COVER STORY

Qualified money in motion consists of asset transfers among defined contribution (DC) plans Qualified money inretirement motion consists of asset defined contribution (DC) plans and individual accounts (IRAs)transfers — likelyamong exceeding $600 billion annually. Qualified in motion consists of asset defined (DC) plans andmoney individual retirement accounts (IRAs)transfers — likelyamong exceeding $600contribution billion annually. and individual retirement accounts (IRAs) — likely exceeding $600 billion annually.

Flows into IRAs* Flows Into into IRAs IRAs** Flows

Key Findings** ** Findings** Key Findings

Rollovers

DC Plans DC Plans

IRAs IRAs

Rollovers Rollovers

IRAs

$380 billion IRAs $380 billion billion $380 Of those doing rollovers Ofofthose doing rollovers those doing these rollovers

Transfers Transfers Transfers

IRAs

$135 billion IRAs $135 billion $135 billion Of those doing transfers those doing these rollovers Ofofthose doing transfers

• • • •

47% discuss the rollover decision with a

47% discuss the the rollover decision with a with financial financial professional. 47% discuss rollover decision a professional. financial professional.

63% roll funds to a company other than

the DC plan provider. 63% rollroll funds to a to company other than DC 63% funds a company otherthe than provider. the DC plan provider.

55% select an IRA company to consolidate funds. 55% select an IRA company to consolidate 55% select an IRA company to consolidate funds. funds. • 48% also do IRA-to-IRA transfers. 48% also do IRA-to-IRA transfers. • 48% also do IRA-to-IRA transfers. Average rollover size = $160,000 Average rollover sizesize = $160,000 Average rollover = $160,000 • • • •

44% discuss the decision with a financial

44% discuss thethe decision with with a financial professional. 44% discuss decision a financial professional. professional.

53% select an IRA company to consolidate funds; 51% make selection based onfunds. 53% select an IRA company to consolidate 53% select an IRA company to consolidate 53% selection on company company reputation or recommendations funds;make 51% makebased selection based reputation on or recommendations. company reputation or recommendations • 56% also do DC-to-IRA rollovers. also do DC IRA rollovers. • 56% 56% also do to DC-to-IRA rollovers. Average transfer size = $97,000 Average transfer size size = $97,000 Average transfer = $97,000

Flows Flows Into into DC DCPlans* Plans* Flows Into DC Plans* Reverse Reverse Rollovers Rollovers Reverse

IRAs IRAs

Roll-ins Roll-ins

Roll-ins DC Plans DC Plans DC Plans Rollovers DC Plans DC Plans DC Plans $28 billion billion $11 billion $11 billion $28 $28 billion $11 billion *Annual estimates for workers and retirees aged 40 to 75. **Of those aged 30 to 75 who did this activity within the past two years.

*Annual estimates for workers and retirees aged 40 to 75. **Of those aged 30fortoworkers 75 whoand did retirees this activity within *Annual estimates aged 40 tothe 75.past two years.

RECOMMENDED SIZE FOR FRONT

**Of those to 75 who did this activity withinasthe past twoConduct years. Standards might. But aged things30changed dramatically known Impartial products they say are key components of OF DOCUMENTS RECOMMENDED SIZE FOR FRONT once President Trump became a surprise and are already cutting off access to OF finanresponsible rollover planning. DOCUMENTS ABOUTDay THEwinner. RESEARCH Election cial advice for small savers who need it In particular, variable and fixed indexed The LIMRAthough Secure Institute conducted this research in 2016 to examine the dynamics in motion market. ABOUT THE Retirement RESEARCH Even Team Trump was solidly most, industry executives say. of the qualified money annuities will require a Best Interest opposed to the fiduciary rule, theMatthew adminsecond phase ofdynamics the fiduciary rule,money Contract Exemption in mid-2019. That Thelearn LIMRA Secure Retirement Institute conducted thisDrinkwater researchThe inat2016 to examine of the qualified in motion market. To more, contact the project director 860-285-7743 orthe mdrinkwater@limra.com. istration’s delay in actively opposing it gave which establishes restrictive exemptions means a contract signed by a financial inTo learn more, contact the project director Matthew Drinkwater at 860-285-7743 or mdrinkwater@limra.com. the lifeLLinsurance andSecure financial to sell annuities and products, along stitution with the client and legal liability ©2017, Global, Inc.TM • LIMRA Retirement industries Institute® • www.secureretirementinstitute.com 0182-other 04/17 (50700-10-408-23518) plenty of angst.TM with a class action right to sue, is delayed that must be assumed. ©2017, LL Global, Inc. • LIMRA Secure Retirement Institute® • www.secureretirementinstitute.com 0182- 04/17 (50700-10-408-23518) As a result, the initial phase of the rule until July 1, 2019. Hopkins is among the skeptics who went into effect June 9. doubt the rule will go into effect as curThat part of the rule requires advisors Companies Changing Processes rently written. and agents to act as fiduciaries, make no The remaining DOL rule requirements “I think what we have today is pretty misleading statements and accept only would change the way agents and advisors much what we’re going to get,” he said. “reasonable” compensation. Those are sell many of the annuity and life insurance “I think everything is going to be backed February 2018 » InsuranceNewsNet Magazine

COVER STORY ARE THE FIRST 401(K)S READY FOR RETIREMENT?

More than half of Gen X and Gen Y consumers do not own an IRA » Gen X consumers are more likely than Gen Y consumers to own an IRA, 49 percent versus 37 percent. However,

among consumers who own an IRA, Gen Y are more likely than Gen X to have contributed in the past 12 months (67 percent versus 58 percent) as well as to have rolled money from an employer sponsored plan into an IRA (32 percent versus 15 percent).

» Among non-IRA owners, Gen Y consumers are more likely than Gen X consumers to be considering contributing a portion of their incomes to an IRA in the next 12 months, 25 percent versus 15 percent.

» Although Roth IRAs are particularly attractive for Gen Y consumers since they are likely at their lowest lifetime income levels and thus the lowest tax rates, Roth IRA ownership is still somewhat limited.

Gen X

Gen Y 63% 51%

30%

Traditional/ rollover IRA

25%

Roth IRA

20% 4%

SEP/SIMPLE IRA

Other type of IRA

Do not own any type of IRA

Traditional/ rollover IRA

21%

Roth IRA

SEP/SIMPLE IRA

Other type of IRA

Do not own any type of IRA

Source: LIMRA Retirement Study Consumer—Phase, 2012. Note: Based on 884 nonretired consumers aged 32 to 47 (Gen X) and 720 nonretired consumers aged 20 to 31 (Gen Y).

out and watered down by the time we get there in a year and a half.” Still, if you’re in the industry, you cannot base future operations on what might happen, or on what is even likely to happen. Even after Trump was elected, the original Jan. 1, 2018, date of full compliance with the DOL rule was too close to ignore. So they made significant changes to their processes, Hopkins noted, in order to be prepared to serve rollover clients no matter what happened. “A lot of companies have new forms that they never had before that actually document the process of the rollover, why you’re doing the rollover, where the money is coming from and where it’s going,” he said. “They’ve added a lot of information that wasn’t there before. The process is definitely different.” There are some companies and some advisors who aren’t doing rollovers from 24

certain accounts, Hopkins said. “I talked to a company who, right now, is not allowing people to do rollovers from defined benefit pension plans,” he said. “They’re saying, ‘We want to hold on that.’ They’re still trying to build a process for that right now.” Documenting why and understanding the process a little bit better “seems to be one outcome now of the rule change,” Hopkins added.

Lifetime Income Needs

The two most common reasons for rolling traditional retirement plan assets into an IRA are not wanting to leave assets behind at the former employer (24 percent) and wanting to preserve the tax treatment of the savings (18 percent), according to an Investment Company Institute survey published in December. Another 17 percent of traditional

InsuranceNewsNet Magazine » February 2018

IRA-owning households with rollovers indicated their primary reason for rolling over was to consolidate assets. Clearly, 401(k)s and IRAs have taken over as the primary retirement vehicle — one that lacks lifetime income unless annuities are a part of the rollover plan. One of the first questions David Buckwald asks a prospective new client is “Do you have a written retirement income plan?” The idea is a written plan that accounts for longevity, income, inflation and spending for a person’s entire retirement time frame, said Buckwald, senior partner with Atlas Advisory Group in Cranford, N.J. “Less than 5 percent say they have,” he said. “That tells me people are out there all about gathering money and selling products as opposed to designing plans for the clients.”

ARE THE FIRST 401(K)S READY FOR RETIREMENT? COVER STORY Buckwald recently met a woman who “loves” her financial planner, has a written retirement income plan and was able to produce it. “Most people say they have a plan and then they can’t produce it. But she did,” he recalled. “And I said, ‘Well, this is great but do you know it only has you living to age 90?’ And she said ‘No.’ And I’m like, ‘You’re 68 years old and in perfect health. You’ve got a 25 percent chance you’re going to make it past age 90. At age 91, you’re broke.’”

The 401(k) Influence

The 401(k) was created almost by accident, the byproduct of a clause inserted in the tax code in 1978 to address the tax status of profit-sharing plans. Then it morphed into a savings plan when companies decided to get out of the defined pension business. Its strange origins give 401(k)s an arcane structure requiring legal consultation, fiduciary obligations by the plan sponsor, paperwork, filings with the IRS, recordkeeping and loan provisions for participants. Since the 401(k) plan has become the dominant retirement savings tool available to workers, many employers who previously couldn’t afford to offer a plan can now do so. But the 401(k) is different from the defined-benefit pension plans that dominated in the past. Employers hired professionals to manage those pension plans and determine savings rates to meet guaranteed benefits. With the 401(k), that responsibility is now on workers. Unfortunately, instead of guaranteeing payouts like fixed annuities and life insurance do, 401(k) plans can and do expose retirement savings to steep fees and major swings in the stock market, depending on the investment. While some workers may enjoy the added flexibility offered by a 401(k), many have a hard time getting ongoing advice and avoiding investment pitfalls. Sadly, regulators struggle to discern between “education” and “advice,” putting agents/advisors in the crosshairs if they stray too far during conversations with clients. “When I hear from advisors what they’re doing with education instead of advice, it makes me really uneasy,” Hopkins said. “You have to be very careful

One in 5 companies prefer that departing employees take their money out of their plan “What is your company’s preference toward departing employees leaving their money in the plan? Would you prefer them to... ?”

20%

No preference 26%

Leave in the plan if balances > $5,000 Leave in the plan regardless of amount

26% 28%

Take money out of the plan

About 3 in 4 DC plan sponsors express a preference as to what departing employees should do with their plan balances. Most sponsors expressing a preference would prefer that participants leave the money in the plan; of these, the majority would prefer to keep only balances of $5,000 or more. Only 20 percent of all sponsors prefer that all retiring and terminating employees cash out or roll over the entire balance.

about your wording and how you phrase things and how you address things. That’s really what’s going to count.”

Annuity Strategies

With the DOL rule partially enacted and uncertainty about the rest of it, advisors have backed off annuity sales. Ironically, annuity products can be the answer to a lot of questions in a rollover retirement income plan. “We’ve seen a decline of rollovers into annuity sales,” Hopkins said. “I’m of the opinion that we’ll kind of see that work its way back up next year. I think it will trickle up a little, but maybe not all the way back to where [sales] were before the rule.” Manufacturers responded to those advisors who are playing it safe with feebased products. Third-quarter sales of fee-based indexed annuities were estimated at $48 million compared with only $2.2 million in the year-ago period, LIMRA reported. Even with the big increase, fee-based indexed sales represent 0.4 percent of total indexed sales. Overall, LIMRA forecast sales of indexed annuities to drop by 5 percent to 10 percent in 2017 from the $61 billion in 2016 sales. Third-quarter sales of fee-based variable

annuities, meanwhile, rose 52 percent to $550 million compared with the year-ago quarter. However, fee-based VAs represent only 2.5 percent of total VA sales. Nevertheless, fee-based sales offered encouraging signs in a gloomy year during which VA sales are forecast to drop by 10 to 15 percent from the $104.7 billion in VA sales in 2016. Like many advisors, Quinlan relies on annuities for lifetime income. An insurance man in a commission world, he added fee-based products and services in order to be prepared to offer rollover clients anything they might need. “A lot of times, I might split it up,” he said of a typical rollover strategy. “We take this part and put it in an annuity and this is your income guarantee for you and your wife. I tell them that’s your pension, and a check will come every month. The other part we’ll put in a mixture of mutual funds or whatever for emergencies and growth and income needed down the road.” 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. Follow him on Twitter @INNJohnH.

February 2018 » InsuranceNewsNet Magazine

FEATURE

BRIGHTER DAYS BY THE LIGHT OF PERFECTIONISTIC

CURIOSITY

As Robert A. Kerzner looks forward to retirement at the end of the year, he looks back at the challenge of turning around an institution vital to the insurance industry. • by Steven A. Morelli

obert A. Kerzner came aboard as LIMRA’s CEO and helped the research association restructure, turn a loss into a large surplus in short time, merge with another association and start a new division devoted to one of the key issues in America today – retirement. He is not satisfied with any of it. Kerzner is not disappointed — he’s just a few clicks short of satisfaction. But dissatisfaction might be his happy place. “I wish we’d done so many things just a little better,” Kerzner said. “On so many fronts, I feel like the puzzle was started but it wasn’t finished. So across the board, I just wish that on 20 initiatives we had moved a little further than we did.” Relentless pursuit is perhaps Kerzner’s exercise program. To see him during 26

LIMRA’s annual meeting is to witness a man hustling from event to event, intent on the next thing, often with co-enabling perfectionist Public Relations Director Catherine Theroux in stride. But more than his drive to go is his quest to know, always asking why, said Theroux, who is also an assistant vice president of LIMRA. “Over the past year, as people talked about Bob’s future retirement, many mentioned his innate curiosity,” Theroux said of Kerzner’s retirement at the end of this year. “He likes to learn. No matter who he’s talking to — researchers, members, executive board. It’s not like an achievable goal. It’s an ongoing living experience.” That drive to know a little more, to push a little further and never rest served him well in his previous “retirement.”

InsuranceNewsNet Magazine » February 2018

From Hartford Into The Fire

In 2004, Kerzner had announced his retirement from The Hartford after 30 years of working his way up from agent to executive vice president in charge of the individual life division. That same year, the chief executive position opened at LIMRA, where he was a board member. Jose Suquet was a previous chairman of the board who served on the search committee for a new CEO. The committee members knew they needed someone who not only understood insurance marketing and distribution but also could run a profit and loss statement. In other words, LIMRA needed someone who could run a business. “It wasn’t just about the research that LIMRA put out, but it was about straightening the ship and getting it sailing in the right direction,” Suquet said. “We needed somebody who could do that. Bob checked all the boxes, as far as I was concerned.”

KERZNER LED LIMRA TO BRIGHTER DAYS FEATURE LIMRA has been around in some form since 1916, evolving from insurance marketing into more of an industry researcher. Its members are insurance companies with a vital interest in understanding consumers to keep the industry relevant and vibrant. But by 2004, the organization had become a sprawling academic institution. Kerzner knew his way around executive management, and he had significant experience expanding The Hartford’s individual life business, Suquet said. And healthy expansion was exactly what LIMRA needed in 2004. Besides stopping the hemorrhage of red ink, the new CEO would need to be able to scout out new opportunities, such as merging with another association. Kerzner was familiar with LIMRA’s problems from serving on its board. “A number of people approached me and said, ‘If you’re retiring, why don’t you think about CEO at LIMRA? Right now they could use you,’” Kerzner said. “Quite candidly, at that time, the board was having a discussion about how many years until lights out.” So he figured he would help out for a little bit, maybe six months. More than 13 years later, Kerzner was looking back at a second career that produced a larger, healthier LIMRA.

needed had changed somewhat, and we had not changed enough at that point to be viewed as the go-to institution at the time,” Kerzner said. All he knew was where LIMRA was and the perilous path it was following. He didn’t know exactly where the organization should be going. Like any good captain, he started with a chart. In fact, it hangs on his office wall to this day. The chart illustrates the principles that guided the association’s assessment of all its components. The operation had to pass three tests. It needed to have member value, be an enduring business model and provide a solid future for employees. That helped staff and members set the direction. “We had to get a lot of the companies to tell us what they thought we should

Kerzner quickly realized that although LIMRA was far smaller than The Hartford, it was complex. Besides the research, it had a constant stream of conferences, training, study groups, committees and other businesses. There was a flood of information to take in, while making decisions quickly to stop losing more than a million dollars a year. That effort led to a key part of Kerzner’s diagram — Fill the Buckets. That divided LIMRA into four quadrants: assessment, development, consulting and networking. “For each of those quadrants, what did we offer?” Kerzner asked. “There had to be this clarity of what our mission was, then ultrafocusing on where we could move revenue quickly and what wasn’t core, getting rid of those expenses. We were able to do it mainly by reallocating resources.

be doing. The chart was called Compass, with the idea that it would give us a direction for the future,” Kerzner said. The staff re-examined the member value of the research and other member benefits through the lens of the strategic direction. They also looked at operational improvement. That involved image, expenses and sales. “We really had to relook at every single expense, every dollar being spent,” Kerzner said.

That allowed people to do different jobs but not make tremendous changes in our staffing, although there were some senior management changes.” In the first year, 40 percent of the employees held a substantially different job than what they had previously. And the bottom line turned black. The association went from a $1.7 million loss to a $1 million surplus in that year. The image problem was going to take more than a year to fix. But realigning the

360 Again and Again

The first step was to look at the state of LIMRA. “There was some broad perception in the industry that we had become somewhat irrelevant,” Kerzner said. “That LIMRA had become a little too academic and not as current as it needed to be. Some of the core products had not been modernized. Sales and margins were declining quite rapidly. Frankly, LIMRA had not been run enough like a business. It hadn’t changed enough during a period of rapid change similar to what we’re experiencing now. And it needed to be looked at very differently than it had been.” Simply put, the industry needed a more modern market scout. The pace of change was accelerating every year, and LIMRA was not keeping up. Insurance companies needed better intelligence on consumers and their products’ impact in the marketplace. “The mission of what the industry

February 2018 » InsuranceNewsNet Magazine

FEATURE KERZNER LED LIMRA TO BRIGHTER DAYS operations toward member value went a long way. So did ambitious projects. One of those projects was a merger of LIMRA with LOMA, an association that focused on training. “When I was at The Hartford, I was very involved in a $1.1 billion acquisition, and it taught me a lot about synergies,” Kerzner said. “There really can be synergistic mergers, acquisitions that can be game changers.” As Kerzner scouted other organizations for merger candidates, he got to know the CEO of LOMA. This organization focused on training, while LIMRA was all about research. After some discussions, both leaders created committees to consider merging their organizations. Kerzner used some of what he learned from the The Hartford acquisition to examine synergies. “Sixty-five to 75 percent of mergers and acquisitions fail,” Kerzner said. “So we felt if it was going to work, we really needed to figure out how to make it synergistic and not just talk about it.” They identified more than 100 areas where the merger would make the result greater than the individual parts in the two associations. They took the result to their boards, and they officially merged in 2008. Suquet said the merger helped not only the members of LIMRA and LOMA, but the industry overall. “Even before I became chairman of LIMRA,” Suquet said, “there was a real interest from the industry perspective to merge the two organizations and reduce the number of industry organizations overall.”

saved for retirement or that the baby boomers need to reallocate,” he said. “And how do we get to be a bigger player in the distribution of assets in retirement? The income space. And that certainly is where it must play out in the next decade.” Those areas are among many Kerzner said that LIMRA will have to take up with its next CEO. Looking back at his LIMRA career, Kerzner pointed with pride to the association’s turnaround and key initiatives, however unfinished he believes they are. But his most fulfilling memories come from how free a rein he was able to give his curiosity. “I tell people all the time I’ve really led a charmed life,” Kerzner said. “Thirty years with one employer, 14 years at LIMRA and LOMA that were never expected to be a second career. I’ve gotten to work with so many senior executives in North America and globally. I’ve gotten to see inside companies and understand how different executive management teams come to different conclusions. Few people ever get a view into so many companies, so many cultures and so much strategic thinking. There are not a lot of people who have been able to have this much fun in their jobs.” Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. Steve may be reached at steve.morelli@ innfeedback.com.

The Retirement Convergence

The other key advance was the Secure Retirement Institute. LIMRA had been angling more of its research toward retirement for a decade, but even its own members were not recognizing the effort, much less the financial institutions in the retirement field. So the association created the institute in 2013 to refine the focus and to distinguish it from the insurance research organization. The effort brought a new type of member under the LIMRA/LOMA roof — financial companies such as Black Rock, LPL Financial, T. Rowe Price and Charles Schwab. “When you look at how much it’s become recognized in a short period of time as a go-to for retirement research, it’s really been a good success story,” Kerzner said. “We’re recognized now and quoted in governmental publications. We weren’t previously. So I think it’s really, as we talked about that transition of our image, that now we’re seen much more broadly as credible across an array of both life insurance and retirement.” The effort not only brought more credibility to LIMRA, but also it solidified the greater convergence of insurance and finance. The life insurance industry cannot remain an island, Kerzner said. “Life insurance has seen steady growth, but slow growth,” he said. “Companies have to be diversified in other parts of the business, and they recognize that. They have chosen different areas, from pension transfer to others very much in the plan space. They all are making bets in other parts of the business, too, but two clearly stand out.” Those two are asset accumulation and distribution businesses, Kerzner said. “Because there’s so much money out there that needs to be 28

InsuranceNewsNet Magazine » February 2018

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Visit IULStressTest.com to download my groundbreaking report. February 2018 » InsuranceNewsNet Magazine

LIFEWIRES

In-Force Life Policies Increase For the Fourth Year The life insurance industry is playing a greater

291M policies in 2016

role in protecting Americans’ financial futures, +3.6% from 2015 according to the annual industry snapshot compiled by the American Council of Life Insurers (ACLI). By the end of 2016, 291 million life insurance policies were in-force, an increase of 3.6 percent from the previous year, according to the ACLI Fact Book. This is the fourth consecutive year that in-force life insurance policies have increased. The total amount of in-force life insurance coverage in the U.S. is $20.3 trillion. Life insurers paid $76 billion to beneficiaries of life insurance policies in 2016. The industry employed 2.6 million Americans.

QUOTABLE There’s a fairly close correlation between employment, economic growth and the group insurance business. — Steven A. Kandarian, MetLife chairman, president and CEO

Forty-four law firms were the primary filers of 1,826 TCPA suits examined between August 2015 and December 2016, according to a TCPA litigation white paper published by the U.S. Chamber Institute for Legal Reform.

percent growth in premium. Following three years of considerable growth, LIMRA expects whole life premium to rise 2 percent in 2018 and 4 percent in 2019. In 2020 and 2021, LIMRA is predicting whole life to grow 3 percent each year.

POSITIVE GROWTH SEEN ON THE HORIZON

LIMRA looked out at the life insurance horizon and predicted four years of growth. LIMRA foresees overall new annualized premium to grow 2 percent in both 2018 and 2019. Because of the anticipated slowdown in the growth rates of disposable income and bond rates, LIMRA forecasts growth to dampen to 1 percent annually in 2020 and 2021. LIMRA predicts premium will increase from $14.1 billion in 2016 to $14.4 billion by the end of 2017 and to $14.7 billion in 2018. In 2019, 2020 and 2021, LIMRA expects total premium to be $15 billion, $15.2 billion and $15.4 billion, respectively. Universal life premium increased 3 percent in 2017, a result of growth in indexed UL premium coupled with a decline in UL products with lifetime guarantees. LIMRA predicts 2018 to experience 4 DID YOU

KNOW

AGENTS AT GREATER RISK WHEN COLD-CALLING

Cold calls are an essential part of an agent’s sales repertoire, but agents who contact prospects from lists generated by thirdparty vendors can get themselves and the insurers they represent in big trouble. That’s because the Telephone Consumer Protection Act of 1991 (TCPA) shields consumers from unsolicited calls, texts and faxes made without their consent. With TCPA protections expanded in 2015 by the Federal Communications Commission, the law has become a favorite engine for plaintiff lawyers filing class-action lawsuits against purveyors of unwanted calls.

$153,000 was the average face amount of individual life insurance purchased in 2016. Source: American Council of Life Insurers

InsuranceNewsNet Magazine » February 2018

LIFE INSURANCE EXECS OPTIMISTIC ABOUT TAX REFORM

Lower corporate tax rates in the $1.5 trillion tax reform package signed by President Donald Trump are expected to help the life insurance industry in at least two ways, industry executives say. One way is that group life insurance sales will see a boost as Americans join payrolls in an expanding economy. The other way is that those lower corporate tax rates will lower riskbased capital (RBC) ratios for insurers. The tax reform bill will lower RBC ratios by an estimated 65 to 100 basis points, executives said. RBC ratios are considered a key measure of a company’s capital strength to support business operations and limit the amount of risk an insurance company can take. The GOP-sponsored tax reform bill slashes the corporate tax rate from 39.5 percent to 21 percent. In addition, life insurers would no longer face an 8 percent surtax on taxable income.

A More Balanced Approach to Comparing Policy Illustrations Factoring in non-guaranteed elements adds objectivity By Tom Doruska, FSA, MAAA

ife insurance il lustr ations are designed to provide clients some perspective on how their policy may perform over time, based on unchanging assumptions. However, assumptions are inherently variable. Let’s take a look at indexed universal life insurance policies and some of the factors involved, including how you might level the playing field. THE ART OF THE ILLUSTRATION Since interest crediting is a selling point and a concept most clients understand, it’s commonly used as a way to compare carriers and as a differentiator on illustrations. We run illustrations using assumptions based on the current environment. However, assessments of the environment and appropriate assumptions are open to interpretation. In reality, no one knows what the future holds. Crediting rates are not guaranteed and will vary unpredictably over the long term. But interest crediting is not the only non-guaranteed element of a policy. Policy fees and charges can also vary. In fact, several carriers have recently taken to raising non-guaranteed charges on in-force blocks. You just don’t know how long current charges will apply or how often they will change. What we do know are the charges today and maximum charges allowed by the policy. As a result of these factors, illustrations are required to contain various scenarios to help paint the picture. Every illustration shows policy performance based on: • Interest rate assumptions and current charges • An alternate scenario of level fixed account crediting with current charges • Mid-point values between current and guaranteed charges and credits • Guaranteed minimum crediting and maximum charges

Year

Current – Baseline (A)

Guaranteed (B)

Mid-Point (C)

Alternate (D)

Guaranteed Score (B/A)

Mid-Point Score (C/A)

Alternate Score (D/A)

Cumulative Score

Lifetime Builder Elite 10

399,287

273,940

330,648

326,595

234

1,135,730

385,175

723,427

699,018

320

Total

554 146

Product B 10

429,162

112,908

208,210

303,547

1,226,216

247,084

498,230

122

Total

268

Product C 10

388,676

220,029

295,113

333,309

219

955,538

205,654

496,151

628,625

280

Total

499

Product D 10

425,419

243,836

324,300

353,917

216

1,109,480

316,540

617,205

697,977

296

Total

512

Product E 10

378,199

239,707

273,567

322,731

220

964,129

317,675

427,604

695,873

298

Total

518

This comparison isolates certain features of the products depicted and is believed to be current as of 1/2/18. Clients should always examine all features and limitations of products they are considering.

Clients need you — their agent — to help interpret it all and compare their options. With interest crediting volatility and charges that are not locked in, how can you be sure you are comparing apples to apples? A MORE BALANCED APPROACH Comparing cash surrender values over time to current account values could be a tool to help level the playing field and provide a more objective comparison of products, given the nature of non-guaranteed elements. To devise a scale and formula: 1. Assume a cash surrender value that equals the current ledger’s account value earns a score of 100. 2. If the surrender value is half that of the account value, it earns a score of 50, and so on. 3. Using a weighted average at both 10and 20-year durations, available in illustrations, add scores for guaranteed, alternate and mid-point scenarios. S P O N S O RED CO N T EN T

4. Combine the cumulative results of the two durations for a total score for comparison. Take a look at the accompanying table to see how it looks using different products on the market today, starting with Global Atlantic’s Lifetime Builder Elite. The higher the score, the less susceptible cash surrender values will be to changes in non-guaranteed assumptions. Next time you’re presenting an IUL product to a client, try this little experiment for a more balanced approach to comparing policies. For more information please visit www.GlobalAtlanticLife.com. Tom Doruska, FSA, MAAA, is Senior Vice President, Life Products, at Global Atlantic, and Chair of the ACLI IUL task force.

LIFE

Why Indexed UL Transparency Is Vitally Important to Clients To represent our clients properly, we must understand exactly how indexed universal life products work, what assumptions were made by the issuer and how close those assumptions are to the issuer’s ability to make them come true. By Ron Sussman

n a previous article, I invited readers to entertain the notion that using life insurance products to create or enhance retirement income is fraught with difficulties related to “illustration noncompliance” and carrier-related policy management shortcomings. Based on the responses I received, it seems clear that life insurance agents understand these issues and are frustrated by the lack of tools available for properly analyzing and managing products that have nonguaranteed and unreliable return assumptions and expense factors. I could not agree more. A number of agents told me they were disappointed they could not get in-depth, in-force product information from their brokerage general agencies or carriers. Some said their frustration with trying to get policy service representatives to even understand their questions has undermined their confidence in selling these products. Apparently, and this should come as no surprise, the life insurance industry is much more focused on selling products then they are on properly managing them. Identifying a problem is the first step to solving it. Yet these products always have been marketed without independent analytics that would allow both agent and client to evaluate policies based on their internal pricing and validation of the illustrative assumptions with proper benchmarks, or even an industry-endorsed 32

methodology for doing so. In my view, all products with nonguaranteed components, including traditional and indexed dividends, that are sold to create a future “defined benefit” require much more rigorous analysis. Yet when discussing this topic with carriers, we are most often met with blank stares. Every carrier executive understands this issue and almost none wants to spend the money to solve it. Even worse is the prevalent attitude that no carrier wants to be the first to do anything for fear of losing their perceived competitive position! This is why

in a mutual fund, the fund manager is required to tell us how our money will be invested, how much they will charge us and what guidelines are in place to assure us that the investment strategy will be adhered to. This data is easily accessed and can be sliced, diced and compared to other strategies using a plethora of third-party software. When making long-term investment decisions that have a significant impact on our ability to retire, nothing less will do. Add to that a fiduciary standard to “walk in the client’s shoes” when making recommendations and you have a system that at least makes a credible effort to be transparent.

Blessed and Cursed

positive change is so difficult to achieve. Any carrier actuary will tell you they use stochastic/probabilistic analysis to make product pricing decisions, price options and pay dividends. They all know the benefits and limitations of the products they design, but they never share this information with the public. While I understand that there are huge legal and competitive obstacles to disclosing the “secret sauce,” I would argue that the buying public’s right to know supersedes any compliance posturing. After all, when we make an investment

InsuranceNewsNet Magazine » February 2018

We in the life insurance industry are equally blessed and cursed in this regard. Blessed because indexed universal life (IUL), a complicated investment product in all aspects, is beyond the purview of the Securities and Exchange Commission and the Financial Industry Regulatory Authority. Cursed, because this allows manufacturers to wall off their products and hide their pricing assumptions, features, and implicit loads and risks. Imagine the uproar if a newly introduced mutual fund was allowed to hide management fees from prospective investors. How many registered reps would sell that fund without knowing the impact of nonguaranteed fees? How many broker/dealers would allow that? Yet the majority of life insurance agents are selling IUL without the slightest inkling of how the carriers pricing assumptions compare and/or conflict with what is illustrated. From a marketing perspective, we are now witnessing a whole subculture of IUL abuse by invitation-only seminars that encourage participants to stop investing in qualified plans and annuities and use IUL

WHY INDEXED UL TRANSPARENCY IS VITALLY IMPORTANT TO CLIENTS LIFE policies as the cornerstone of their retirement plan. Someone even is advertising in the life industry trade magazines touting the huge commissions agents will earn using his “technique,” while at the same time telling seminar attendees that the product they are buying is the most cost-effective way to retire! Only one of those statements can be true, and I am pretty certain it isn’t the one about cost effectiveness. This is a slippery slope, and one the industry should address quickly. If historical patterns prevail, mass seminar selling presages the beginning of a process that will conclude in class action lawsuits. What’s a responsible professional to do? Obviously, we aren’t going to walk away from selling IUL. What we need to do is stop relying on illustrations that are severely misleading and wrong as soon as they are printed. To represent our clients properly, we must understand exactly how IUL products work, what assumptions were made by the issuer and how close those assumptions are to the issuer’s ability to make them come true. We need industry benchmarks for mortality assumptions, expenses, investment strategy, options pricing and every other aspect of indexed policies that might affect our clients’ outcomes. We need to make the industry come clean about nonguaranteed and often nondisclosed “black box” bonuses. We’ve seen this before, and the ending is always the same — our clients are disappointed and lawyers sue. We are better than this! But the nature of the insurance industry and its patchwork of state regulators allows and, in some cases, encourages carriers to resist disclosure of their policy assumptions.

Probability of Success

In our practice, we use a composite of carrier-provided software and proprietary stochastic/probabilistic modeling to attempt to get as close as possible to the real probability of success. Although each of these programs provides valuable data, none is 100 percent correct. However, this creates output that compares products, predicts the probability that each policy will deliver the desired result and shows the differences in internal cost structures. It’s a start, but definitely not what we regard as the finished product. That would require industry participation

Obviously, we aren’t going to walk away from selling IUL. What we need to do is stop relying on illustrations that are severely misleading and wrong as soon as they are printed. and product disclosures that are currently being withheld. To understand and properly recommend a product that will be used to provide a future income stream, you need to know the answers to the following questions: 1. What gross rate of return does the selected index need to achieve in order to validate the AG 49 or another illustrated rate? 2. Is the carrier’s maximum AG 49 rate too aggressive? Unlike investments in true market indexes, life insurance policies limit the client’s ability to affect the outcome, and therefore the AG 49 rate needs to be scrutinized to account for this limitation. 3. How are cap rates determined? Is there a direct correlation to external interest rates? Can changes in cap rates be benchmarked? What is the carrier’s history with cap rates? 4. How are participation rates determined? How much latitude does the carrier have in determining the rates? Can they be benchmarked? 5. Is the illustrated cost of insurance rate achievable, and what is the carrier’s history with raising cost of insurance rates on older blocks of business? 6. Are there persistency bonuses? Are they guaranteed? If not, what factors could change the calculations? 7. Is the client willing to participate in regular evaluations (at least once every five years) and amend the pattern of premium payments according to the policy performance over time?

With the exception of No. 7, these are hard questions that carriers struggle to answer. However, if producers, banks, wire houses and B/Ds were to convince carriers that this data is required before any product can be recommended, their bad attitude toward full disclosure might dissipate. We are involved in an industry project to make stochastic forecasting and product benchmarking available as an adjunct to, but not a replacement for, illustrations. This project would also include the ability for clients to access their policy data, obtain policy-specific probability analysis and make changes as necessary to their policies for as long as they own them. All of this is sorely needed and at the current time not on the list of carrier things to do. We could really use some help with this project. The only way to make it happen is for those involved with distribution, from carrier marketing executives to agents, to say they can’t continue selling black box products without responsible evaluation and management tools. Call your BGA, independent marketing organization or carrier(s) and tell them that IUL product disclosures are inadequate and that participating in promoting independent, third-party tools to evaluate products responsibly is of vital importance. With these tools, we can elevate our game, help our clients succeed and maybe even save the reputation of an industry desperately in need of some positive publicity. Ron Sussman is founder and chief executive officer of PolicyAudits.com and CPI Companies. He counsels highnet-worth individuals through risk management analysis and life insurance planning strategies. Ron may be contacted at ron.sussman@innfeedback.com.

February 2018 » InsuranceNewsNet Magazine

ANNUITYWIRES

Voya Exiting Most Annuity Business

QUOTABLE

Voya is moving out of all of its closed block variable annuity (CBVA) segment and its individual fixed and fixed indexed annuity business. The company is changing its focus to its retirement, investment management and employee benefit businesses. Voya is divesting its annuity business through an agreement with a consortium of investors led by affiliates of Apollo Global Management, Crestview Partners and Reverence Capital Partners. Voya will retain some of its annuity business, including approximately $6 billion in investment-only products. The firm will divest Voya Insurance and Annuity Co. (VIAC), the insurance subsidiary that has primarily issued Voya’s variable, fixed and fixed indexed annuities. VIAC will be acquired by Venerable Holdings, an investment vehicle owned by a consortium of investors led by Apollo, Crestview and Reverence.

NEW TOOLS HELP ADVISORS GIVE ACCURATE FIA PROJECTIONS

FIA MARKETING TIDE SHIFTS TO ACCUMULATION

The tide is turning in the world of fixed indexed annuity (FIA) marketing, and that turn is toward accumulation, according to one industry executive. “Independent agents continued to shift their emphasis from guaranteed income to accumulation products focused on upside potential,” said John Matovina, CEO of American Equity Investment Life, one of the nation’s largest sellers of indexed annuities. Why the shift in emphasis by agents? Volatility control indexes have offered agents an opening to talk about higher returns and better accumulation, according to industry experts. Participation rates and spreads on volatility control indexes are considerably more attractive than those offered on plain vanilla indexes like the Standard & Poor’s 500 index, said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc.

Advisors looking for guidance in a fiduciary world can get help from new analytical tools dedicated to FIAs, the annuity pricing platform CANNEX Financial Exchanges announced. The comparative illustration tools — CANNEX VA Analysis and CANNEX FIA Analysis — allow independent broker/dealers (IBDs), independent marketing organizations (IMOs)and retail advisors to compare FIAs with income guarantees and those without. Advisors will be able to see how FIAs perform compared with other product categories such as deferred income annuities and immediate annuities, said Gary Baker, president of CANNEX USA. The FIA tools can run as many as 10,000 scenarios through each product to test an annuity’s internal mechanics and performance, Baker said. Accurate product comparisons are critical as the new fiduciary regime — which raises investment advice standards into retirement accounts — gradually takes hold.

DID YOU

KNOW

InsuranceNewsNet Magazine » February 2018

are 11 companies ItThere is likely that — after offering QLAC (qualifying longevity annuity investing in a home — annuities contract) products. While this is are the second-largest purchase a small and new part of the DIA people make in their lifetime. market, we expect to see an uptick —inTodd Giesing, director, sales in 2016. Annuity Research, LIMRA Secure Retirement Institute

IT’S ALL ABOUT THAT INCOME

What are investors doing with the premium they put into annuities? Using it for income, of course! LIMRA research found that half of the money ($84.5 billion) invested in annuities in 2016 was used to purchase products that offer guaranteed income — either immediately or for the future. The research identified annuity buyers having one of three investment objectives when purchasing an annuity: market accumulation, principal preservation or creation of guaranteed income. In addition to those seeking guaranteed income, more than a third of the 2016 annuity premium was invested in annuities that provide principal preservation with growth opportunity, and 15 percent went toward market accumulation products. Yet, a booming equities market may be shifting buyers’ priorities. In 2016, annuities purchased with an investment goal of principal preservation and growth rose 17 percent, compared with 2015 ($52.1 billion to $58.7 billion). In contrast, new premium received in guaranteed income for later investment objective declined 16 percent from $89.8 billion in 2015 to $75.3 billion in 2016.

$84.5B invested in annuities in 2016 was used to purchase guaranteed income products

Lincoln Financial plans to increase its 240-strong annuity wholesaler force by about 15 percent in 2018. Source: Lincoln Financial Group

ANNUITY

Delay of DOL Rule Expected To Spike Annuity Sales in 2018 LIMRA analysts say a combination of rising interest rates and a delay in the fiduciary rule will help annuity sales rebound this year. By Cyril Tuohy

he 18-month delay in the Department of Labor fiduciary rule will drive a healthy annuity sales rebound this year, analysts say. New sales of individual fixed and variable annuities are forecast to grow 5 percent, LIMRA analysts said. In the spring of 2017, before the delay was announced, LIMRA forecast up to a 15 percent drop in fixed and variable annuity sales. Companies sold $222.1 billion worth of annuities in 2016, and analysts predicted sales would drop 5 percent to 10 percent in 2017, LIMRA reported, mainly due to the DOL rule uncertainty. In November, the DOL officially delayed the fiduciary rule until July 1, 2019. “That’s great news for some of the fixed annuity carriers out there,” said Todd Giesing, director, Annuity Research for LIMRA. Parts of the fiduciary rule went into effect in June, requiring only “reasonable compensation” among other impartial conduct standards. Still, the legal liability is part of the second phase of the rule. The delay gives the Trump administration time to remove the class action right to sue from the rule altogether, analysts say. With that in mind, distributors face a simpler, more defined annuity sales process than if the entire rule had gone into effect on Jan. 1 of this year, as originally planned. The delay shifted industry forecasts for 2018 as a result.

Drop in VA Sales Forecast Narrows

Variable annuity sales are now forecast to dip no more than 5 percent in 2018, an improvement over spring 2017, when 2018 variable annuity sales were forecast 36

to drop an estimated 10 to 15 percent from year-end 2017. New sales of variable annuities for 2017 were expected to dip below the $100 billion mark for the first time since 1998, Giesing said. Variable annuity sales dropped 21 percent to $104.7 billion in 2016 from 2015. Variable and fixed indexed annuities became more difficult to sell under the fiduciary rule, so the delay is good news for those product lines. Lower variable annuity sales are also due to companies managing their annuity

The biggest shift in the forecast came from the fixed indexed annuity (FIA) subsegment, which LIMRA now expects to grow by 5 to 10 percent. The spring 2017 forecast called for a 15 to 20 percent decline in 2018 FIA sales. Thanks to the delay, FIA distributors can sell their products without worrying about meeting the requirements of the best interest contract exemption until July 1, 2019. That could mean record 2018 FIA sales in the range of $60 billion or more, Giesing said.

How the DOL Rule Delay Will Affect 2018 Annuity Sales Fixed annuities — The rule would have significantly disrupted the independent marketing organization channel, which represents a large portion of the indexed annuity sales. With the DOL rule delayed, LIMRA projects indexed annuity sales to rebound 5 to 10 percent in 2018, compared with 2017 sales results. Variable annuities — The decline of VA sales accelerated once the fiduciary rule was published in 2015. LIMRA believes the delay in implementing the rule, and thus the best interest contract requirements, will reduce some of the pressure on the VA market in 2018 and help improve sales. While there will be positive progress, LIMRA still forecasts a decline in 2018 VA sales, albeit smaller than predicted when the rule was expected to go into effect on Jan. 1, 2018.

business mix and their mix of products sold with and without guaranteed living benefits. “They are managing their business and the risk they take on in their new sales, and we see that has an impact on our forecast,” he said. Still, the pressure on the variable annuity market has eased, and some segments of the variable annuity market even showed robust growth in 2017.

After a record $61 billion in sales in 2016, FIA sales had a lackluster first quarter in 2017, and sales for the year were expected to shrink by 5 to 10 percent. Other FIA market experts say FIAs could still show strong sales thanks to the rule delay. Key insurance marketing organizations find themselves with more breathing room to help independent advisors face the challenges imposed by a fiduciary standard.

Forecast for Fixed Annuities Turns Positive

Income, Fixed-Rate Deferred Annuities Forecasts Revised Downward

New fixed annuity sales are expected to increase between 5 and 10 percent from 2017 to 2018. Previous forecasts called for a drop of up to 5 percent, LIMRA reported.

InsuranceNewsNet Magazine » February 2018

Not all annuities projections were revised upward. Sales of fixed-rate deferred annuities

DELAY OF DOL RULE EXPECTED TO SPIKE ANNUITY SALES IN 2018 ANNUITY are projected to rise by 5 percent in 2018. LIMRA’s original forecast had fixed-rate deferred annuities growing by 10 to 15 percent. In the spring of 2017, analysts figured fixed-rate products with guaranteed living benefits provided the “path of least resistance” for money flowing out of the FIA subsegment. But since the anticipated disruption to FIAs never quite materialized due to the rule delay, flows out of FIAs aren’t what analysts predicted six months ago, Giesing explained. Similarly, for income annuities, the new forecast is for sales to rise by 5 to 10 percent in 2018. Previously, LIMRA projected new sales of income annuities to rise by 10 to 15 percent. Fund flows that were forecast last spring to go into income annuities in 2018 dried up as investors have stuck with FIAs with income riders, or variable annuities. With a stock market that hit a record high in 2017, it’s hard for income annuities to compete with indexed products — for the moment.

LIMRA Individual Annuity Sales Forecast 2016 Sales

2017 Forecast

2018 Forecast

Variable Annuities

$104.7B

20%

10-15%

0-5%

Fixed Annuities

$117.4B

14%

0-5%

5-10%

Indexed

$60.9B

12%

5-10%

Fixed-Rate Deferred

$38.7B

25%

0-5%

Income

$21.0B

5-10%

$222.1B

5-10%

0-5%

Total U.S. Individual Annuities

Source: LIMRA Secure Retirement Institute. LIMRA individual annuity sales forecast reflects the anticipated decision to delay the DOL fiduciary implementation until July 2019.

Interest rates have gone up but are still low by historical measures, which makes fixed annuities less attractive than equity-linked annuities. But LIMRA analysts see rates rising in 2018, which will make fixed annuities more attractive — and perhaps attractive enough to eventually begin drawing pools

of money into income and fixed-rate deferred annuities and away from FIAs. 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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For more information, please visit home.fglife.com/landing-pages/FGLIFE-Convenience.html For Producer Use Only – Not For Use In Solicitation to Consumers “FGL” when used herein refers to Fidelity & Guaranty Life, the marketing name for Fidelity & Guaranty Life Insurance Company issuing insurance in the United States outside of New York. Annuities and life insurance issued by Fidelity & Guaranty Life Insurance Company, Des Moines, IA. 17-1192

February 2018 » InsuranceNewsNet Magazine

HEALTH/BENEFITSWIRES

QUOTABLE

U.S. Health Care Spending Tops $3.3T In 2016 Overall U.S. health care spending slowed in 2016

+5.1% +5.8% but still topped $3.3 trillion for the year, the Centers 2014 2015 for Medicare & Medicaid Services reported. +4.3% Although that $3.3 trillion figure is a whopper, 2016 health care spending actually grew at a slower pace than it did the two previous years. Spending grew by 4.3 percent in 2016, compared with 5.1 percent and 5.8 percent growth in 2014 and 2015, respectively. Health care spending Health care spending heated up in 2014 and 2015 as continues to grow more people gained insurance coverage through the Affordable Care Act and expanded Medicaid in many states, CMS officials said. Increased spending on prescription drugs also fueled the spending fire. CMS attributed the slowdown in 2016 to people using medical goods and services when initially added to Medicaid and private insurance.

The problem is ... the healthiest people are the ones who don’t sign up when enrollment drops. — Caroline Pearson of the health care consulting firm Avalere Health

around, but people who have high-deductible health plans (HDHPs) apparently never got the message. A University of Michigan study suggests that despite the rise in HDHPs, most Americans who have them aren’t saving, shopping around for better prices, or talking to their doctors about costs.

‘BIG 5’ INSURERS DEPEND ON MEDICARE, MEDICAID

HUMANA MOVING INTO HOME HEALTH BUSINESS

Another major health insurer is getting deeper into health care delivery. Humana will pay about $800 million to buy a 40 percent stake in Kindred Healthcare’s home health business, which includes hospice care. Kindred serves about 130,000 patients daily. This is the latest example of a health insurer getting more involved in the delivery of care on top of handling the bills for it. In one of the biggest such deals, CVS Health said it would pay about $69 billion to buy Aetna in a deal that will expand the role of its drugstores in managing patient care. UnitedHealth Group said it would spend nearly $5 billion in a deal to buy hundreds of clinics from DaVita. UnitedHealth’s Optum segment runs more than 1,100 primary, urgent and surgery care centers.

DID YOU

KNOW

The nation’s major for-profit health insurers may have retreated from the health insurance exchanges, but they have become increasingly dependent on Medicare and Medicaid for both profits and growth. Medicare and Medicaid accounted for 59 percent of the revenues of the “big five” U.S. commercial health insurers — UnitedHealthcare, Anthem, Aetna, Cigna and Humana — in 2016, according to a Health Affairs study. The combined Medicare and Medicaid revenue from those insurers ballooned from $92.5 billion to $213.1 billion between 2010 and 2016. That revenue growth helped off$92.5B $213.1B set the financial losses 2010 2016 that drove the firms to reduce their presence in the individual Medicare and Medicaid revenue from the Big 5 insurers increased marketplaces.

PEOPLE WITH HDHPS AREN’T SHOPPING AROUND

My mama told me you’d better shop

Employers often encourage people enrolling in HDHPs to put away money for when they need it, research costs at different health care facilities, talk with their doctors and other providers about costs, and negotiate prices for services they need. But the study found many HDHP enrollees aren’t pursuing these “consumer” activities. The researchers suggest that health care providers, insurers and employers could do more to help people with HDHPs. For example, providers could help people with HDHPs understand their possible future medical needs so they can try to save for them. In addition, health care facilities could make prices available so that patients and providers can talk about cost.

Health care spending represented about 17.9 percent of the U.S. economy in 2016.

InsuranceNewsNet Magazine » February 2018

Source: U.S. Centers for Medicare & Medicaid Services

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HEALTH/BENEFITS

Disability Management Helps Employees Return Successfully condition with their direct supervisor and 49 percent said they felt they were treated differently by their direct supervisor because of their health condition. However, of the employees surveyed who engaged their HR manager, only 29 percent said they were scared to bring up their condition and 32 percent said they felt they were treated differently because of their condition. This inconsistent experience potentially could hinder an employee’s ability to work through a health condition or return to work after a disability leave. As part of your counsel, discuss how some disability carriers can help implement a consistent process for identifying and supporting employees in need of workplace assistance. This process should be communicated across an organization to ensure employees are receiving the same resources and assistance regardless of whom an employee first reaches out to for help.

Recent survey findings link disability management to increased employee productivity and getting people back to work faster. By Tom Foran

any employers think that all disability carriers are created equal. That’s because they see a disability carrier only as a benefits provider for when an employee needs to take a disability leave. However, what many employers don’t know is that some disability carriers can help them implement a comprehensive approach to disability management. This type of support can go above and beyond the traditional disability program to identify and support a worker’s specific health condition. This can have many positive results for an organization, namely helping increase employee productivity and potentially reducing the chance an employee would need to take a disability leave. Recently, a survey conducted by Standard Insurance Company (The Standard) examined the link between disability management and employee productivity. The results suggest that employees who receive support from their employer for physical injuries, chronic conditions, mental health conditions or similar disabilities are more likely to resume productive roles in the workplace. You can be the trusted advisor your clients need as they put together an effective disability management program. By providing important insights that help demonstrate the need for comprehensive disability management, you can ensure your clients are doing everything possible to help their employees be successful at work. Employees often take different paths to receive health-related assistance. As part of our survey, we asked employees with health conditions who they went to for assistance in the workplace. Their 40

responses were mixed. While 38 percent of employees went directly to their human resources manager, another 38 percent first engaged their direct supervisor. Nineteen percent said they engaged both their HR manager and their direct supervisor together. For many employees, disclosing a health condition can be intimidating. This apprehension can be magnified when you consider how an employee’s experience could vary based on who they first reach out to for help. Consider that 53 percent of surveyed employees were scared to bring up their

InsuranceNewsNet Magazine » February 2018

Employees frequently are out on leave longer when they work with their direct supervisor. As mentioned previously, the type of support an employee receives in the workplace can increase productivity and often aid in a quicker return to work. We found this to be true when analyzing the breakdown of how quickly an employee returned to work after taking a disability leave. According to our survey results, employees who worked with their HR manager were able to return to work 18 days sooner than employees who worked with their direct supervisor. This may be due in part because HR managers see more instances of employees with disabling conditions than direct supervisors do, thereby having a better understanding of all the services available to workers. This understanding and support also translates into workers having positive feelings about their employer. Seventythree percent of workers said their HR

DISABILITY MANAGEMENT HELPS EMPLOYEES RETURN SUCCESSFULLY HEALTH/BENEFITS

manager knew how to support them, while 67 percent said they felt more valued by their employer because they received accommodations assistance. As part of your disability management conversation, remind clients that their direct supervisors should be well-versed in available resources and trained on how to assist an employee who has a health condition. Disability carriers often can facilitate training to shore up their knowledge. This training often includes how to identify an employee in need, ways

to initiate a health-related conversation and when to appropriately communicate with an employee during leave. This will help create a consistent process no matter who an employee asks for healthrelated assistance. Workplace accommodations can have a large impact on employees, and don’t have to be complex.

One of the most common ways employers can support workers with health conditions is by providing workplace accommodations. Our survey findings showed that this approach also can be one of the most effective and doesn’t have to be costly. For example, 61 percent of employees surveyed were given the flexibility to attend doctors’ appointments, 58 percent were allowed to work a modified schedule and 40 percent received workstation modifications. After receiving accom-

modations, 93 percent of employees believed they could perform their job more effectively. You can help clients in this regard by reassuring them that a disability carrier can determine appropriate accommodations. While many HR managers are concerned that finding and sourcing accommodations would fall squarely on their shoulders, disability carriers can help

create return-to-work or stay-at-work plans that include tailored accommodations for an employee’s specific condition. Working collaboratively with a disability carrier can result in a supportive environment not just for your clients, but for their employees as well. These survey findings can showcase how a disability carrier can employers implement a comprehensive approach to disability management, which can help employees get back to work sooner and increase their overall productivity. Tom Foran is the vice president of underwriting and product development for Standard Insurance Company (The Standard). Tom may be contacted at tom.foran@ innfeedback.com.

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February 2018 » InsuranceNewsNet Magazine

NEWSWIRES 3 of 4 Investors Fear a Stock Market Correction

The long-running bull market is spurring investor fears that a stock market correction could disrupt things. Seventy-four percent of investors age 40 and older are concerned about a stock market correction, according to a Global Atlantic Financial Group study. Virtually all investors (97 percent) said the market at its current levels has risks, with 37 percent saying the risk was significant. Investors are particularly worried about the impact a stock market correction would have on retirement. Fifty-nine percent of employed investors said that a significant stock market drop would inhibit their ability to retire when they want, while 25 percent of those already in retirement said it would disrupt their retirement. Asked how the 2008 financial crisis and stock market decline impacted the value of their savings and investment portfolio, about one in 10 investors reported a loss of more than half in value, about a quarter said they lost between 25 and 50 percent in value, and a third said they had a reduction of 10 to 25 percent in value.

HOME OFFICES HELP ADVISORS GET READY TO RETIRE

Slightly more than a quarter of financial professionals are age 55 or older. For many of those who are considering retirement, their clients expect a seamless transition from one financial professional to the next. In fact, 99 percent of clients believe the financial professional they work with has a succession plan in place, according to LIMRA. But in reality, only half of financial professionals report that they are prepared for a transition. Financial services companies are stepping into this gap to help smooth the succession path for those who sell their products and services, LIMRA found.

Sixty-three percent of financial services companies surveyed have developed or are in the process of developing formal succession planning programs for financial professionals who sell their products and services. Another 18 percent offer services to help financial professionals develop a plan themselves. Succession planning can be financially rewarding. LIMRA found that having a formal succession plan in place may lead to higher client retention rates.

WHAT PUSHES ADVISORS TO GO INDEPENDENT What moves an advisor to seek the independent route for their practice? Regulation, changing compensation and the erosion of public trust were named as the top reasons, according to a TD Ameritrade survey. In addition, nearly half — 46 percent — of brokers and registered representatives said they expect the

50% already have a plan Home office 13% in process of developing approach to helping FPs 18% offer some services with succession 13% haven’t decided planning 6% think it’s an FP issue DID YOU

KNOW

1 in 3 Americans believes a major Source: Allianz Life recession could occurSource: in 2018. LIMRA

InsuranceNewsNet Magazine » February 2018

QUOTABLE

There is an undercurrent of discontent as disenchanted brokers navigate the second half of their careers. — Scott Collins, director of brokerage independence at TD Ameritrade

brokerage industry to deteriorate. When citing reasons for leaving a captive channel, 34 percent of respondents pointed to independence and flexibility, 26 percent said it was to earn more money, 16 percent said for more control over day-to-day decisions. Twelve percent said it was for equity ownership.

FEE-BASED MODELS PUSH DEEPER INTO THE INDUSTRY Here’s a sign fee-based compensation models are pushing deeper into the industry. Revenue from managed or fee-based accounts were responsible for 51 percent of financial advisor revenue last year, research found. In 2013, only 41 percent of financial advisor revenues were generated by fee-based accounts, said Chip Roame, managing partner of Tiburon Strategic Advisors. Wirehouses, big firms, consumer advocacy groups and regulators helped boost $1.7 T $4.5 T revenue from fee-based in 2007 in 2017 accounts over commission-based accounts, he said. Fee-based accounts hold about $4.5 trillion in assets under management, more than twice the $1.7 trillion in assets under management they held in 2007, according to Tiburon research. Advisory fees range from 0.66 percent to 1.26 percent of assets under management, with fees dropping as account assets grow. The average fee is about 1.02 percent, Roame said. Source: University of Chicago

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Planning Starts With Emotions, Then Moves To Financing Emotions can run high over the issue of financial planning for longterm care. Advisors should help guide clients and their families through a conversation on the dynamics of caregiving and their financial implications. • Bill Nash

inancial planning historically has been based around the “logical” conversations — those dealing in accumulation, returns and the numbers. That advice model has helped millions of people secure their financial future. But today, one of the biggest risks, long-term care, to a retirement portfolio, requires an additional type of conversation — one that also appeals to emotions. The likelihood of needing long-term care is becoming more prevalent because Americans are living longer. In fact, the U.S. Department of Health and Human Services estimates that those turning age 65 have a 50-50 chance of requiring some form of long-term care services in their lifetimes. When there is a long-term care need, that need affects more than just the care recipients. It also impacts family members, sometimes for generations to come. Our industry has struggled to make the connection to the next generation. Planning for long-term care is a family event that must include a family dialogue involving the children. 44 44

When you think of married couples, there’s a good possibility that at least one spouse will need care. Without a plan, could the other spouse become the caregiver to assist with everyday activities? Alternatively, children often become the caretakers. Today a number of middle-aged Americans are sandwiched between the responsibilities of raising children and caring for aging parents. This often creates stressful situations, financial burdens, or time out of work resulting in lost wages, benefits and retirement savings. While number-crunching absolutely has a place in long-term care planning, numbers alone do not get at these types of planning dynamics.

Long-Term Care Emotions

A recent Lincoln Financial Group caregiving study found that 59 percent of parents who were asked about their child’s involvement in their care said they did not want their children to become their primary caregivers. Many, however, had no alternative plans. It’s only natural for

InsuranceNewsNet Magazine Magazine »» February February 2018 2018 InsuranceNewsNet

parents to want their children and grandchildren to prosper; so when parents avoid long-term care planning, most likely they aren’t considering the consequences. Participants in the study had a wide range of emotional reactions when asked about the prospect of suddenly becoming a caregiver. While 52 percent expressed feelings of compassion, 44 percent said that they’d be overwhelmed. Some other emotional responses included 38 percent who would feel needed, and 27 percent who would feel either anxiety or a sense of obligation. Many individuals said they are willing to help their family members with caregiving tasks, particularly those related to personal needs or daily tasks. For example, 79 percent would assist with cooking and feeding, and 75 percent would help with cleaning and transportation. However, when it comes to making more significant sacrifices, people are more reluctant about providing assistance. Just 35 percent said they would cut back work hours or quit their job to provide care. Similarly, only 35 percent would pay to place someone in a home or facility. Even though relatives may have good intentions about helping someone in need, they’re often unprepared to do so. They may not be able to perform some of the

PLANNING STARTS WITH EMOTIONS, THEN MOVES TO FINANCING

more strenuous activities, such as lifting the patient or helping with incontinence. Another reality is that family members may not have the option to take time off from work to provide the assistance that’s needed.

Starting the Conversation

Unfortunately, when a loved one needs long-term care, it’s often an unanticipated event. Without a plan in place, this can lead to very rushed care and medical choices if family members do not know the care recipient’s preferences. It can also lead to expensive financial decisions. To help avoid that, advisors should work with clients on their long-term care strategy as part of their retirement plan. Start by getting the family together and asking spouses, parents and adult siblings “what if” questions. When a family meeting isn’t an option, help clients get conversations started with their loved ones. Encourage them to think about what longterm care actually involves. Ask parents who haven’t planned what they would expect of their children. Do the children live nearby? Can they afford to take off from work or quit their jobs to provide care? How would this affect their families? Ask wives and husbands questions about maintaining a healthy relationship with their partner should they need care. Would they want to enlist the help of professionals? Ask adult children questions like: What if your dad needed care? Would you be able to take time to shop for him or clean the house? What about helping him bathe?

Also encourage family members to start thinking about the financial realities of long-term care. It’s not uncommon that people believe they’re protected with Medicare, Medicaid or health insurance. But these options offer minimal to no coverage, or come with stipulations. Often individuals underestimate the costs of care and expect to pay out of pocket. Help your clients gain an understanding of long-term care costs where they live in order to determine whether this is realistic. For those clients who opt to self-insure, ask them which assets they would bring to bear or sell in order to pay for care and how that might affect a surviving spouse or legacy plans. Today there are many different types of long-term care funding solutions available in the market that can help clients mitigate the costs of long-term

care and potentially preserve these assets. Solutions gaining particular traction today are life insurance/long-term care combination products. These dual-purpose products provide a benefit to clients or their family whether long-term care is needed or not. According to LIMRA, that is one of the reasons why life insurance/ long-term care combination products have climbed to $3.6 billion in premium sales in 2016, up from $2.4 billion in 2012. An unplanned long-term care event can have a far-reaching impact on care recipients and their families. Much of that impact is financial, but there is much more to consider, especially when it comes to family caregivers. The considerations include stress, physical well-being and career aspirations, to name a few. As long-term care continues to come to the forefront, we as an industry need to continue developing ways to discuss this risk with clients by having both an emotional and logical conversation with clients and families together. Bill Nash is vice president of MoneyGuard Distribution, Lincoln Financial Distributors. Bill may be contacted at bill. nash@innfeedback.com.

Like this article or any other? Take advantage of our awardwinning journalism, licensure and reprint options. Find out more at innreprints.com. February 2018 2018 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine February

45 45

BUSINESS

Should You Move From Direct Mail To Digital? Digital marketing is taking the lead from “snail mail” as boomers are becoming more comfortable communicating in the digital world. By Chris Hooper

igital marketing has revolutionized the process of getting people to attend client prospecting events. A few years ago, direct mail was the only option. However, over the past two years, the retirement planning industry has experimented using digital marketing and social media as alternatives to direct mail. And now, digital is poised to replace direct mail completely. I started working in the insurance and financial industry in early 2015. While new to this industry, I came with more than 20 years of experience in creative marketing services, with a strong focus on social media and digital promotions. Upon arrival at my new position, I found a box full of seminar postcard and letter invitations waiting for me at my desk. As part of my training, I was asked to review the stack of direct mail in order to get a better understanding of what independent insurance agents and financial planners were using to attract new prospects to their events. “Direct mail?” I asked, “Really? You’re still using direct mail?” I quickly found out that in this industry, everyone was still relying on postcards and letters for inviting people to register for seminars and workshops. When I asked about developing digital marketing campaigns, I typically got these three answers: 1. The people we’re trying to reach aren’t on Facebook. 2. I t’s a compliance issue. We can’t do this on social media. 3. W e tried it once before, and it didn’t work. 46

And as far as I could tell, that’s about as far as this industry had journeyed into the digital world. This was at a time when many of my new creative marketing peers were beginning to explore digital marketing as a way to supplement or even replace traditional direct mail campaigns. Independent marketing organizations across the country were beginning to experiment with Facebook Ads Manager, Google AdWords, and other digital platforms to see whether they could make them work. At first, many of the campaigns failed. I ran several disastrous campaigns myself. Each time a campaign failed, I had to explain to my superiors why I was spending time and money on initiatives that weren’t working. But as we continued making corrections and adjustments to fix the broken campaigns, our industry was experiencing a sea change in the ways our target audience was consuming information. In early 2016, the digital campaigns finally were beginning to work. Baby boomers had become the fastest-growing population on Facebook, and they spent more time on it than any other age group did. All of a sudden, people were registering online for events. And while the number of registrations for each campaign began to increase, the cost per registration plummeted.

What does it look like today?

Over the past two years, two digital marketing models have become the most

InsuranceNewsNet Magazine » February 2018

popular ways to drive registrations to seminars and workshops. Both cost per household (CPH) pricing and flat rate pricing (FRP) have proven to be effective ways to get people signed up. Determining which model is best will depend on the financial professional’s experience and sophistication.

Cost Per Household

Some digital vendors offer a CPH campaign package, where the advisor pays a fixed fee for every household that attends the workshop. The vendor does all the heavy lifting for setting up and promoting the event, including booking the venue, running the social media ad campaign, and managing the registration and confirmation processes. Essentially, all the advisor needs to do is show up and give their presentation. Because the vendor is doing all the setup work and taking the risk on how many people actually attend, they charge a hefty fee for each household that shows up to the workshop — often $175 or more per household. This is an appealing option for advisors who are new to the industry and looking for a way to begin doing workshops. Although the overall cost of the event can be high, the planning and the setup are all taken care of, making it easier for an inexperienced advisor to learn the workshop process. The downside of this model is the price unpredictability. If the vendor is charging $175 per household for a two-evening campaign, and 25 people show up each

SHOULD YOU MOVE FROM DIRECT MAIL TO DIGITAL? BUSINESS night (approximately 30 total households), the advisor will be charged $5,250 for the campaign. But what if 40 people show up each night? Having a larger-than-expected turnout could cause serious strains on an advisor’s budget. In addition, some advisors complain about the quality of the prospects that show up at the workshops. While the vendor did a great job filling the room (again, at $175 per household), they might not have done as good a job in attracting the right people. This is because they often are able to target attendees based only on age and where they live.

Flat Rate Pricing

Experienced advisors likely will find greater success from using the FRP model. Instead of paying a fee for each household attending the event, the advisor will pay a simple, fixed amount for the campaign. Vendors who use this model are taking fewer risks on the front end of the campaign, and because of this they have greater flexibility on how they target their audience. Now, instead of only targeting

based only on age and address, the vendor can micro-target their audience by filtering age, address, household income, investible assets and total net worth. This ensures that the only people who see the ads are the same people the advisor wants to meet. Campaigns using the FRP model typically cost anywhere between $1,400 and $4,200, depending on how many total registrations the advisor is looking to receive. I recently talked to an advisor in Florida who held a one-day Social Security workshop. He paid $1,400 and had a total of 101 people register, costing him only $22.22 per household. Another advisor in Maryland recently held a two-day campaign for $2,700 and received 66 household registrations. She ended up setting 10 appointments from the events. The main drawback to FRP is that the advisor is responsible for doing more of the work. The vendor manages the actual social media ad campaign and the advisor will need to take care of details such as booking the venue and making

confirmation calls. But at a savings of often $2,000 or more per campaign, a wellstaffed practice should be able to handle these tasks.

Which model is best?

Using an FRP model for your prospecting campaigns is clearly the strongest option. The combination of cost savings and increased lead quality more than make up for a few additional hours of booking venues and making confirmation calls. I’ve seen advisors employ this model in order to vastly expand their client base. Advisors would be well-served to look into implementing FRP campaigns to promote their events. Chris Hooper is director of seminar services with M&O Marketing, Southfield, Mich. He has more than 20 years of experience in event management and digital marketing. Chris may be contacted at chris.hooper@ innfeedback.com.

As a special thanks for being an InsuranceNewsNet Magazine reader, Paul Feldman wants to give you a FREE copy of his new book: IGNITE! The Burning Secrets of Exponential Growth from the Greatest Experts on the Planet. This book is written specifically for financial and insurance advisors who want to become better leaders, marketers, influencers and closers.

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MDRT INSIGHTS

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

A Narrow Focus Can Lead To Unlimited Growth Potential Identifying and targeting your niche market can set you apart from your competition. By Corry Collins

or the winning edge in a local insurance market, advisors must differentiate themselves from the competition. When I first set out to open my own practice, I chose two distinctions that give me a unique selling proposition: I limit my pool of prospective clients and the type of products I offer — identifying a niche target market. This narrow focus and direction of efforts accelerated my success and uncovered a client base with unlimited growth potential. Advisors who hope to expand their practices’ reach in their local communities can adapt and implement my steps for their own success. Identify a niche specialty product. Focus on one or two key products to establish and identify a unique offering, rather than offering advice on multiple products, investments and financial services. I, for example, focus on disability insurance policies designed for physicians and medical students. While the number of products I offer is more limited than those offered by most advisors in my area, I’m more informed about disability insurance than the average local agent. Specialization gives you a competitive edge and makes you an expert on whom your clients can rely. Focus on key client demographics. Identify a single profession or industry to build a referral pipeline and further understand the unique needs and concerns of this group of clients. This method offers a streamlined way to build your client base and hone your specialization. For disability insurance especially, high-income professionals easily see value in income protection products and can readily afford to solve the problem. It’s relatively easy to reach your identified group of professionals at their workplace, 48

especially if they all work in the same location, such as a hospital or office building. A few ways in which you can do this is to include advertisements in office elevators and features in internal company newsletters or local papers. These methods are an excellent precursor to lunch-and-learn presentations or one-on-one meetings. Reap rewards: industry growth and referrals. Once you’ve established a client base in a target industry, you’ve tapped into potential for unlimited growth as clients’ wealth increases year over year. It is best to get in on the ground floor with professionals while they’re economic growers. Just as some life insurance sales strategies focus on young families who have the potential to become high-net-worth clients, start reaching out to clients when they’re at the early stages of their careers. For example, I approach physicians while they’re in medical school or completing residency programs. Professionals in other industries can be onboarded as they complete other degrees and programs, such as law school, MBA programs and others. These are the future brain surgeons, lawyers, department heads and CEOs. If you can build a relationship with them while they’re at the beginning of their careers, you won’t have future issues getting past administrative obstacles such as busy schedules and receptionists. As clients move up in their industries and potentially start their own businesses, the amount of coverage they need will change, too. Some policies, such as key disability insurance products, offer future income options or a guaranteed right to be able to buy more coverage as income increases. A good client management system can build alerts for these deadlines and options into your communications to streamline processes. Clients with high income potential generate their own new business for an advisor over time, as more products are needed to match rising salaries as time goes on. They also serve as strong referrals to high-earning

InsuranceNewsNet Magazine » February 2018

colleagues with similar financial needs. As you become recognized as an advisor within the local community, you’ll be contacted by referrals at every level — from the junior to senior level. You’ll be able to speak directly to these new clients’ key concerns, because they’re similar to those of their colleagues and within your specialization. Develop a personal passion and connection to core products. As with any career, the real secret to success is a deep passion and personal connection to the work you do. If you’re inspired to help improve your clients’ lives with the products you offer, you’ll be motivated each day to reach your goals and objectives. My personal passion and family history led me to disability insurance. As a child, my family experienced the risks associated with permanent disability firsthand. My father — an insurance advisor himself — was unable to return to work after he suffered a heart attack and subsequent health complications in his late 30s. Because I personally felt the financial effects we warn clients against, I’m able to help clients understand how their lifestyles will shift if they’re unable to support their families as a result of lost income. High-income individuals realize what it would mean for their families to lose that income, as it provides peace of mind and stability. Clients sometimes don’t want to know all the intricate details surrounding products, but they do want to make sure they’re covered against the “what ifs.” Help them understand that products protect families from divorce, bankruptcy and foreclosure in the event of an income loss due to disability. Corry Collins, CLU, ChFC, CHS, is a financial advisor and partner with Maritime Wealth Management, an investment advisory firm in Halifax, Nova Scotia. He is a 15-year member of the Million Dollar Round Table. Corry may be contacted at corry.collins@ 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.

Medicare Doesn’t Cover It All Clients must understand that Medicare does not cover longterm care and does not eliminate the need to set aside funds to pay medical bills.

“Medicare DOES NOT cover 100% of all medical expenses!”

By Elie Harriett

edicare does not cover 100 percent of all medical expenses. I’m going to repeat this sentence until you have memorized it because, as a financial planner working with your retiring clients, you need to make sure that you’re preparing them for their upcoming retirement costs. Although there is much that Medicare covers, Medicare doesn’t cover everything. And when Medicare does cover something, it leaves deductibles and coinsurance for most participants.

What Medicare Does Not Cover

Medicare does not cover 100 percent of all medical expenses, and that includes premiums. Medicare Part B has a premium. Some clients will pay more in premiums than others. For clients turning 65 this year, you can expect they’ll need about $1,600 a year per person; two people need twice as much. And you can expect that amount to go up each year. If clients collect money from Social Security, premiums will come out of their monthly checks. If not, they’ll be billed. Each of your clients on Medicare must be prepared to pay it. For your higher-networth clients, that annual amount could be significantly more. There is no wiggle room with this premium — it will be paid. Additionally, many clients choose Medicare Supplements, which also have premiums. If a Medicare Supplement is right for your client, double the premium set aside. In some states, clients will need more; in others, clients will need less. Call around and find out what an average annual premium is in your state. Even though this amount can be a burden for some, many choose to pay that premium. This is because Medicare does not cover 100 percent of all medical expenses — and that includes co-insurance. Co-insurance is the percentage that Medicare makes your

client or a Medicare Supplement owner pay. In other words, it is 20 percent of many services, although it is deeper than that. If a person has a Medicare Supplement plan, these charges are fully paid, making the premium a bargain for many. However, if a person chooses to selfpay the co-insurance, or has a Medicare Advantage plan, what they save in premiums they’ll need to have in the bank in case of large medical expenses. Make sure they have a fund set aside to pay these. If they already have a health savings account with a balance, they cannot contribute once Medicare begins (IRS Publication 969, Page 6); however, they can use the proceeds to pay many of these co-insurances.

It’s Tough To Calculate Drug Costs

Medicare does not cover 100 percent of all medical expenses — and that includes prescription drugs. Whether your client has a stand-alone plan or part of a Medicare Advantage plan, they will need to be able to pay part of their drug costs. This is hard to calculate as every drug costs differently on every plan, it changes every year, and it changes based on how many drugs your client is taking. A worst-case annual scenario for most people would be about $5,000, although a person with average drug needs will spend significantly less while they are healthy. Just make sure they can pay reduced drug costs if they arise. Medicare does not cover 100 percent of all medical expenses — and that includes dental, eyeglasses and long-term care. Don’t be fooled by dental offerings that are out there. With certain plans, a limited amount of dental is offered, which is

usually preventive only. If your client needs dental work, it is generally not covered by these plans. It is almost never covered by Medicare. As far as vision goes, except after cataract surgery, Medicare also doesn’t cover glasses or contact lenses. It does cover treatment for conditions of the eye. An extra financial buffer for these services is usually enough. We have not seen many clients who have consistent, year-over-year, high expenses with dental and vision. But long-term

Medicare is very clear about the fact that it will not cover long-term care. care is another matter. It is a much more significant discussion. For now, be aware that Medicare is very clear about the fact that it will not cover long-term care. Have a discussion with your clients about the best way to fund this. Medicare does not cover 100 percent of all medical expenses. The more you can do to get this message out to your clients, the more prepared they will be, and the more they will be grateful for your help in preparing them to pay their share. Elie Harriett co-owns Classic Insurance & Financial Services, an independent agency specializing in individual Medicare-related insurance. Elie may be contacted at elie.harriett@innfeedback.com.

February 2018 » InsuranceNewsNet Magazine

THE AMERICAN COLLEGE INSIGHTS

With over 90 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

The list of industries rocked by sexual harassment allegations keeps growing. Will the financial services industry be next? By Jocelyn Wright

ver the past several weeks, it seems that every day brings another story. Stories of sexual harassment and, in some cases, assault have been in the headlines since the allegations against celebrated producer and co-founder of Miramax, Harvey Weinstein, surfaced in early October. Since then, other rich and powerful men from coast to coast have been accused of inappropriate behavior in and out of the workplace. With each breaking news headline, I can’t help but wonder who will be next. Some of the men embroiled in these allegations are people I have admired for many years. Correction, I have admired their work. I do not know any of them personally. Nevertheless, it disappoints me to learn that their behavior is being called into question. Stories like these are not new, only the individuals associated with these stories are new. Sexual harassment as defined by The American Association of University Women is any “unwelcome sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature.” Harassment was classified as discrimination based on sex under Title VII of the Civil Rights Act of 1964. The U.S. Supreme Court began recognizing claims for sexual harassment more than 30 years ago. Probably the first and most widely known case of its kind was that of Anita Hill against then Supreme Court Justice nominee Clarence Thomas. It seems for the first time in my generation women have found their voice and are unafraid to speak their truth. The resurgence of the #MeToo Movement has given countless women the courage to

Since 2010, nearly $700 million has been Since 2010, nearly $700 million has been paid to employees who have filed harassment paid to employees whoEEOC’s have filed harassment claims through the administrative claims through the EEOC’s administrative enforcement prelitigation procedure. enforcement prelitigation procedure.

come forward with their stories of harassment. So much so that Time recognized The Silence Breakers as the 2017 Person of the Year. Our country has a long history of not confronting the uncomfortable. Now we have no choice but to address this issue and have the necessary conversations. As my aunt would say when I was growing up, “Everything that is done in the dark will come to light.” And what a spotlight it is!

have a financial impact on the employers. For example, according to the EEOC, it is conservatively estimated that “as a result of sexual harassment, job turnover ($24.7 million), sick leave ($14.9 million), and decreased individual ($93.7 million) and workgroup ($193.8 million) productivity had cost the government a total of $327.1 million,” as reported in 1994 by the independent federal agency, U.S. Merit Systems Protection Board (MSPB). MSPB was created to protect the rights of federal and civil service employees. Keep in mind, these numbers do not include financial settlements. Since 2010, nearly $700 million has been paid to employees who have filed harassment claims through the EEOC’s administrative enforcement prelitigation procedure. Finally, according to Emily Martin, general counsel and vice president for workplace justice of the National Women’s Law Center, women experience high levels of harassment in male-dominated industries. Next month, we’ll examine how this impacts the financial services industry.

“Everything that is done in the dark will come to light.”

The U.S. Equal Employment Opportunity Commission (EEOC) released a report, “Select Task Force on the Study of Harassment in the Workplace,” in June 2016, where they concluded that “anywhere from 25 percent to 85 percent of women report having experienced sexual harassment in the workplace.” That means that at a minimum, one in four women has been harassed. It is important to point out that workplace sexual harassment does not happen only to women. Men experience harassment as well. The EEOC reports that incidences of men claiming sexual harassment have increased nearly twofold — from 8 percent to 16 percent of all claims over the period from 1990 to 2009. Workplace sexual harassment does not impact only the accusers; it also can

InsuranceNewsNet Magazine » February 2018

Jocelyn Wright is the chair of The State Farm Center for Women and Financial Services at The American College. Jocelyn may be contacted at jocelyn.wright@innfeedback. com.

Steve Crisp/REUTERS/Newscom

Sexual Harassment Carries a High Price Tag

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February 2018 » 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

Pairing Prospects With Products Finding consumers who need coverage is not the most significant challenge. The challenge is matching them with the right coverage for their needs.

PRODUCT PURCHASED BY REASON FOR BUYING █

Replace income Burial/final expenses

By Jim Scanlon

he market for life insurance is huge. LIMRA’s 2017 Individual Life Insurance Consumer Survey estimates 9 million Americans purchased individual life coverage over a 24-month period. While the market is large, it is also very diverse. The need for life insurance does not discriminate along socioeconomic dimensions; thus its consumer base contains a broad cross-section of American households. Yet market diversity is not limited to demographic dimensions (such as age, income, gender and race). Consumer diversity includes different motivations (such as life events), different reasons for buying (such as income replacement and final expenses) and different levels of need (such as coverage amounts). LIMRA estimates more than 60 million American households have a life insurance need gap. So finding consumers who need coverage is not the most significant challenge. The real challenge is pairing the right products with the right prospects. The idea of pairing products and prospects is not new, so why is it such a challenge? Two reasons: 1) Synchronizing consumer and product segmentation with marketing and distribution operations is not easy. 2) Research on consumer choice behavior informs us that having too many choices can often result in consumers selecting the “no-choice” option. LIMRA’s research can help the industry with both issues. Study findings indicate reliable relationships between product types and coverage amounts, with life events and buying reasons and buyer types. If used properly, this information can help get the most appropriate product in front of the best prospects, which 52

Wealth transfer To guarantee mortgage payoff Funds for a college education Replace another policy Supplement group coverage Pay estate taxes/estate liquidity Tax-advantaged way to save/invest Business purposes Charitable gift

Term Life

Permanent Life

40% 29% 43% 29% 34% 27% 18% 16% 12% 11% 9% 10% 9% 9% 11% 7% 11% 4% 5% 3% 5% What and Why?, LIMRA, 2017

reduces the number of choices they need to review and increases the likelihood they will select one of the options presented. For example, the most common reason people buy life insurance is to replace the income of a household wage earner. This is a traditional reason for life coverage, but is significantly more common among term life buyers (51 percent) than among permanent life buyers (40 percent). Consumer life events and buying reasons are not only related to product types purchased; they are also related to coverage amounts. One buying reason associated with higher coverage amounts ($200,000 or more) is “replacing income of a wage earner” (50 percent); some buying reasons associated with lower coverage amounts (less than $200,000) are “burial costs/final expenses” (23 percent) and “transferring wealth to the next generation” (16 percent). As for life events, 29 percent of those who purchased a permanent life product had recently experienced the death of a friend or family member. Permanent life buyers are also more likely than term

InsuranceNewsNet Magazine » February 2018

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51%

life buyers to have started a new job or to have been offered life insurance at work. Among term life buyers, common life events include marriage and the birth or adoption of a child. The LIMRA analysis demonstrates that there is more to market segmentation than socioeconomic characteristics. By understanding consumer life events and the buying motivations they generate, industry markets and distributors can anticipate the type of product solution consumers are likely to want. By presenting a smaller set of solution options, each tightly aligned with buying reasons, we can simplify the process for the consumer and increase the level of protection they own. Jim Scanlon is senior research director, insurance research — markets, LIMRA. Jim may be contacted at jim. scanlon@innfeedback.com.

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