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The iShares U.S. Real Estate ETF is distributed by BlackRock Investments, LLC. iShares®, BLACKROCK®, and the corresponding logos are registered and unregistered trademarks of BlackRock, Inc. and its affiliates (“BlackRock”), and these trademarks have been licensed for certain purposes by Great American Life Insurance Company. Great American Life Insurance Company annuity products are not sponsored, endorsed, sold or promoted by BlackRock, and purchasers of an annuity from Great American Life Insurance Company do not acquire any interest in the iShares U.S. Real Estate ETF nor enter into any relationship of any kind with BlackRock. BlackRock makes no representation or warranty, express or implied, to the owners of any Great American Life Insurance Company annuity product or any member of the public regarding the advisability of purchasing an annuity, nor does it have any liability for any errors, omissions, interruptions or use of the iShares U.S. RealEstate ETF or any data related thereto. The S&P U.S. Retiree Spending Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Great American Life Insurance Company. Standard & Poor’s®, S&P®, and S&P 500® are trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Great American Life. Great American Life’s annuity products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such products nor do they have any liability for any errors, omissions, or interruptions of the S&P U.S. Retiree Spending Index. 244% is the S&P 500 return from March 9, 2009 through February 13, 2017. Sources: S&P Equity Research and DQYDJ.com S&P 500 Return Calculator. Products issued by Great American Life Insurance Company®, member of Great American Insurance Group (Cincinnati, OH) © 2017 Great American Life Insurance Company. For producer use only. Not for use in sales solicitation. 5019-SP-2 (2/17)
IN THIS ISSUE
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APRIL 2017 » VOLUME 10, NUMBER 4
FEATURE
20 Just When You Thought It Was Over By John Hilton
We bring you four stories from agents, advisors and independent marketing organizations across the business. Each is impacted in a different way by the fiduciary rule, but all four are opposed to the industry’s overregulation.
INFRONT
42 H ow Will Annuities Help Americans Handle Longer Lives?
10 Industry Representatives Like AHCA But Await Deeper Reform By Susan Rupe The American Health Care Act does nothing to address agent compensation, but industry groups say the bill is a step in the right direction toward fixing the health care law.
LIFE
30 How an Income Stream Can Fill a Legacy Bucket Strategy By Randy L. Zipse Life insurance can diversify a retirement portfolio’s risk profile, can help create confidence when investing the portfolio’s principal and can provide a “bucket” of funds for a client’s heirs.
34 For Life Insurers, Transformation and Talent Go Hand in Hand
INTERVIEW
12 How Funny Makes Money
An interview with Kelly Leonard The Second City is known as being an incubator for some of the best comedians in the entertainment world. But did you know that it also is leading the way in applying the techniques of comedy to the business world? In this interview with Publisher Paul Feldman, The Second City’s Kelly Leonard tells how the principles of improvisation can be applied to business relationships.
4
InsuranceNewsNet Magazine » April 2017
By Doug French An industry survey reveals that insurers must plug the talent gap while speeding the pace of innovation and technology.
ANNUITY
40 H ow Annuities Can Be Structured to Be Medicaid Compliant By Rich Lane Immediate annuities are a good tool to use when assisting your clients with Medicaid planning.
By Anthony Domino Jr. Revised actuarial tables show a sharp upward curve in Americans’ longevity rates. How the annuity industry is responding to the need for assets to last a longer lifetime.
HEALTH/BENEFITS
46 H ow Finding Your WHY Finds Your Way to Your Ideal Client By David Contorno How one advisor adapted his practice to attract the clients with whom he most wants to work.
50 Emotional Currency: How Clients’ Money Stories Guide Their Decisions By Rick Bowers and Lisa Klingberg The stories your clients tell you about their experiences with money reveal how emotions such as fear, anxiety and stress influence their financial decision-making.
52 Women’s Longer Life Expectancy Comes at a Higher Health Cost By Ron Mastrogiovanni Women need to save even more money than men do to cover health care costs in retirement. But it’s not an insurmountable problem if a savings plan is devised early enough.
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IN THIS ISSUE
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APRIL 2017 » VOLUME 10, NUMBER 4
BUSINESS
INSIGHTS
54 Embrace Soft Skills to Reduce Rejection By Luke Brown The ability to listen, comprehend, express yourself and emote can be developed in such a way that you connect with prospects and clients.
online
www.insurancenewsnetmagazine.com
60 L IMRA: Bumpy Ride Predicted for Individual Annuity Sales in 2017
56 THE AMERICAN COLLEGE: Widows, Widowers and their Advisors: A Glass Half Full By Sandra Timmermann Research delves into the misconceptions and realities of what happens to the relationships between clients and advisors after a spouse dies.
By Joseph E. Montminy It is still too early to tell whether 2018 will be a transition year or a turnaround year for the annuity market.
58 MDRT: Retirement Planning the Millennial Way By Matthew T. Hoesly Millennials have different financial priorities and goals, especially when it comes to planning for retirement.
EVERY ISSUE 8 Editor’s Letter 18 NewsWires
28 LifeWires 38 AnnuityWires
44 Health/Benefits Wires 48 AdvisorNews Wires
59 Advertiser Index 59 Marketplace
INSURANCENEWSNET.COM, INC.
275 Grandview Avenue, Suite 100, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com NATIONAL ACCOUNT MANAGER Tim Mader NATIONAL ACCOUNT MANAGER Brian Henderson NATIONAL ACCOUNT MANAGER Emily Cramer SALES RELATIONSHIP COORDINATOR Christina Takach MEDIA OPERATIONS MANAGER Ashley McHugh EXECUTIVE ADMINISTRATOR Kathleen Fackler CORPORATE ACCOUNTANT Darla Eager SENIOR ACCOUNTANT ASSISTANT Bobby Mack Copyright 2017 InsuranceNewsNet.com. All rights reserved. Reproduction or use without permission of editorial or graphic content in any manner is PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford VP MARKETING Katie Frazier
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WELCOME LETTER FROM THE EDITOR
Looking for Right Side Up
D
OL — our favorite three-letter, four-letter word, no matter on what side of the fiduciary rule issue we stand. The Department of Labor is an overreaching, industry-flattening Godzilla for those who don’t like the rule or a compromising fumbler for those who favor it. We can trot out the usual quotes about gauging a rule’s success by the level of mutual dissatisfaction or about the odious sausage that the political/regulatory process usually grinds out. But this rule was a case of misapplied good intentions from the beginning. I should not be quick to say “was” because the rule is under reconsideration at the moment and who knows what form it will take when it pops back up. We can hope that it comes back in a way that actually provides consumers with transparency rather than tormenting agents and advisors for accepting commissions. One problem is that the agency is going after the goal of expanding the fiduciary duty through an awkward means. It targets where the money came from and punishes those who take commissions. Let’s not forget that the regulation’s name is the Conflict of Interest Rule. The thing is, many companies, and even some agents, were grudgingly accepting the legislation, until the inclusion of fixed indexed annuities (FIAs) in the same exemption class as variable annuities (VAs) ensured a bloody fight. The insurance industry already had won a tough fight to keep FIAs out of the VAs financial regulatory sphere. Courts and Congress backed the industry against the Securities and Exchange Commission’s Rule 151A, which would have placed FIAs under financial regulatory purview. When the DOL published its final rule, it had made that drastic change without the benefit of public review or comment. That rule and the subsequent class exemption for insurance intermediaries (IMOs) imposed layers of requirements that aren’t similarly expected of registered investment advisors to be considered financial institutions. For example, IMOs are required to have $1.5 billion of fixed annuity premium 8
InsuranceNewsNet Magazine » April 2017
ACA/AHCA
for each of three consecutive years and keep 1 percent of premium in reserve. As of early March, the DOL issued a 60-day delay of the rule’s April 10 applicability date. Policy insiders are betting the delay will be extended again to allow rule-making, if the department goes that route. So, we all have a bit of breathing room on rethinking this rule’s approach.
What’s the goal?
Everybody wants assurance that rogue insurance agents are not preying on elderly clients and placing them in annuities that are not appropriate for them. This is still an issue but certainly less than it used to be — just as we don’t have many classic boiler rooms on the financial side these days. The suitability standard already covers that issue. Agents are sometimes charged criminally for violating that standard. Is it not being applied well enough by state commissioners? That is a question worth exploring, but, so far, the National Association of Insurance Commissioners has not been involved in this effort. Maybe it’s time for an initiative that synchronizes the state-based system with the federal financial one. Perhaps there can be some agreement on goals and requirements. Because transparency is a goal many agree on, a key requirement would be fee and commission disclosures. They should be accessible and clear to the average consumer. Other goals could be discussed, and mutually beneficially rules could be developed. Perhaps it is naïve to suggest these agencies could collaborate in this way, but we can dream, right?
Our InFront feature this month focuses on the American Health Care Act (AHCA), the Republican replacement for the Affordable Care Act (ACA). In the article, Managing Editor Susan Rupe tells us the organizations that represent insurance agents like the bill’s direction. That’s encouraging because the ACA is brutal on agents — nearly no commission for hours of work to enroll clients. Some agents said they ended up with less than minimum wage for their efforts. The ACA was another instance where the Obama administration and congressional Democrats went out of their way to cut commission-earning agents out of the market. But the part of the rule that punished agents was placing the commission in the 15 to 20 percent administrative portion of the medical loss ratio. So insurers cut commissions. That aspect has not been addressed yet because, apparently, that would require separate legislation. We can assume this is not the last on health care legislation. Otherwise the MLR and other unpopular parts of the ACA will stand. As we went to press, the nonpartisan Congressional Budget Office released its score on the AHCA, although President Donald Trump and other Republicans had minimized the CBO’s value. It said 24 million would lose insurance, largely from states’ changing eligibility. Rates would increase 15 to 20 percent in 2018 and 2019, but drop afterward as younger people enroll in larger numbers. Younger people would pay less in the new age-rate band, allowing carriers to charge five times more for the oldest bracket than the youngest. The ACA restricts that to 3:1. Older people would see a steep premium increase. It is still not a given, at press time, that the bill will get through the Senate. So a compromise might be in the making. Choices would be welcome in the market. The next step will be making sure that agents can exist in the market. Steven A. Morelli Editor-In-Chief
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INFRONT TIMELY ISSUES THAT MATTER TO YOU
Industry Representatives Like AHCA But Await Deeper Reform he American Health Care Act T does nothing to address agent compensation, but industry groups say the bill is a step in the right direction toward fixing the health care law. By Susan Rupe
H
ealth insurance representatives generally like the direction of the Republican health bill but are waiting for more legislation to address the issues that affect agents, such as commissions. The American Health Care Act (AHCA) could be passed by the House of Representatives and the Senate before their members leave Washington on April 7 for the spring recess. Highlights of this proposal include the removal of the individual mandate, allowing insurers to impose a 30 percent surcharge for not maintaining continuous coverage, providing tax credits based on age, eliminating cost-sharing subsidies, and making greater use of health savings accounts. About the only things that the AHCA has in common with the current law is that both bills allow young people to remain on their parents’ policies until age 26, and forbid health insurers from denying coverage to those with pre-existing conditions. How will health agents and brokers fare under the health care reform proposal? Because House leadership is using the budget reconciliation process to work around a potential Senate filibuster on the bill, some high-priority issues for agents such as reforming the navigator program or removing agent compensation from the Medical Loss Ratio (MLR) aren’t even on the table, Ronnell Nolan of Health Agents for America said in an analysis of the bill. That’s because these issues do not have a direct impact on the federal budget. In addition, the bill would permit people who are eligible for tax credits to purchase 10
InsuranceNewsNet Magazine » April 2017
House Speaker Paul Ryan shows off the GOP’s slimmeddown health reform as Rep. Kevin McCarthy looks on.
their health insurance either on or off the exchanges that were established under the Affordable Care Act. “We wish issues like reforming the navigator program or removing agent compensation from the MLR were included, but because the bill is being passed through the reconciliation program, those issues will have to be tackled through separate legislation,” she said. The agent compensation issue also was a concern of the National Association of Insurance and Financial Advisors (NAIFA), which submitted comment on the health care replacement proposal. “What we submitted was that future stabilization rule-making should include removing agent compensation from both
MLR/agent compensation issue could be handled in future legislation. The health care reform proposal essentially leaves employer-sponsored health insurance alone, which was good news for the National Association of Health Underwriters (NAHU), many of whose members serve the group health insurance market. “We are pleased that the new plan to repeal and replace the ACA does not include a tax on American workers’ employer-sponsored health insurance,” NAHU CEO Janet Trautwein said in a statement. “The continuation of the employer-sponsored tax exclusion will allow working Americans to receive high-quality coverage at the lowest cost.” The Cadillac tax on high-cost health
“While we are disappointed that the AHCA does not permanently repeal the ACA’s Cadillac tax, we are pleased that it will be delayed until 2025.” Janet Trautwein, CEO, National Association of Health Underwriters sides of the MLR — agent compensation doesn’t belong there,” said Diane Boyle, NAIFA senior vice president of government relations. Boyle said she believes the agent compensation issue possibly could be addressed through regulation. In addition, she predicted there will be additional health care reform legislation introduced to address the issues that can’t be handled through the reconciliation process, so the
plans — another concern of the agent/ broker community — is not permanently repealed under the AHCA, although it is delayed. “While we are disappointed that the AHCA does not permanently repeal the ACA’s Cadillac tax, we are pleased that it will be delayed until 2025,” Trautwein said. “This levy does nothing to rein in actual health care costs, the true driver of the cost of coverage.”
INDUSTRY REPRESENTATIVES LIKE AHCA BUT AWAIT DEEPER REFORM INFRONT
Affordable Care Act vs. American Health Care Act: What Would Change? INDIVIDUAL COVERAGE
ACA: Provides tax credits based on income for individuals to buy plans through state or federal exchanges. Those who have low-to-moderate incomes receive the most generous financial assistance. AHCA: Tax credits are based primarily on age instead of income. Credits can be used to buy any state-licensed health plan — either on or off the exchanges. DEDUCTIBLES ACA: Cost-sharing subsidies assist those with low-to-moderate incomes to buy a standard silver plan on the exchange. AHCA: Eliminates the cost-sharing subsidies. Allows consumers to make higher contributions to health savings accounts to cover deductibles and copayments. Sets up a fund for states to use for cost-sharing assistance, among other purposes. PRE-EXISTING CONDITIONS ACA: Forbids insurers from denying coverage to those with pre-existing conditions or charging them more for coverage. AHCA: People with health problems are protected. Those who do not maintain continuous coverage are charged a 30 percent premium penalty for a year. States can use federal funds to create high-risk pools. GENERATIONAL COVERAGE ACA: Insurers can charge their oldest customers no more than three times what they charge young adults. AHCA: Insurers could charge older customers up to five times what they charge young adults. YOUNG ADULTS ACA: Can stay on parent’s insurance until age 26. AHCA: No change.
The delay of the Cadillac tax repeal means “we bought ourselves some time to revisit this issue,” Boyle said. But it still does not address the issue of affordability, which was another concern of the agent community. “We were concerned that the ACA wasn’t providing affordable rates for anyone,” Boyle said. The health care reform proposal takes a number of steps aimed at affordability. These include abolishing the “metal” tiered plans, as well as giving states and carriers more flexibility in the types of health plans that can be made available. In addition, under the AHCA, people will be able to make much higher contributions to tax-sheltered health savings accounts, to cover deductibles and copayments.
“One of the things we do like about this plan is that the tax credits, once they are put in place, will be available inside and outside the exchange or the marketplaces,” Boyle said. “Our argument all along was that if the creation of the marketplace was to create an enhanced offering, you shouldn’t tie someone to it. If it’s going to be a better option, let it occur naturally, but don’t force someone to go there. So that’s a positive result of this.”
Health Insurers — ‘A Lot to Like’
For the health insurance industry, “there is a lot in the bill to like” where the individual market is concerned, said Kristine Grow, senior vice president for communications with America’s Health Insurance Plans (AHIP).
She said the bill contains a number of proposals that would help stabilize the individual market during the 2018-2019 transition period. These proposals include continuing the premium tax credits through the transition, providing funding for states to help stabilize risk pools, giving states and carriers more flexibility in offering various types of plans, and ultimately offering more consumer choice. However, AHIP’s leadership cautioned that several long-term structural changes to health care reform are needed to ensure a stable individual market. “A stable market requires a good mix of all consumers to participate,” AHIP president Marilyn Tavenner said in a letter to the House Ways and Means Committee. “There is no question that younger adults are underrepresented in the individual market. Recalibrating and reforming the way in which the premium assistance is structured will encourage younger Americans to get covered.” AHIP supports a tax credit formula that factors in both age and income. That formula includes age bands based on a 5:1 ratio while providing higher contributions for individuals with incomes between 100 and 400 percent of the federal poverty level. AHIP also favored tax credits related to age as well as income, asserting that this would ensure that more people would remain covered and would be the most efficient way to allocated taxpayer funds. Is the AHCA an improvement over the health care law currently in place? Boyle of NAIFA said it is a step in the right direction. “We’re getting closer,” she said. “A lot will depend on how the carriers react and how long it takes to strengthen that individual market, because the individual market was decimated by the ACA. So the question becomes how long does it take to re-create that market and create some options and some competition?” 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.
April 2017 » InsuranceNewsNet Magazine
11
How Funny Makes Money Kelly Leonard tells how The Second City’s improv techniques can build relationships and business
M
any people know that The Second City in Chicago is a factory of funny, turning out some of the kings and queens of comedy since it opened in 1959. But did you know that funny makes money, too? This isn’t an invitation to hit the road as a stand-up comedian, but a different take on doing business. Kelly Leonard is helping lead the way in the application of comedy technology to business. That might sound funny, but 12
InsuranceNewsNet Magazine » April 2017
he really is the executive director of insights and applied improvisation at Second City Works, which is a new offshoot of The Second City theater. He co-wrote the book Yes, And with the CEO of Second City Works, Tom Yorton, to share some of the principles of improvisation and how they can be applied to businesses and relationship-building. Kelly had a nearly 30-year career at the theater as producer, creative director and the executive vice president, where he helped develop the programs to teach
mere mortals the magic of comedy. Why is that important? Because when you make people laugh, you earn a bit of trust and build bonds. Doors open with the right joke at the right time. But who hasn’t had an attempt at humor do the exact opposite and get the door slammed in the nose? Comedy is an art perfected by practice. In this interview with Publisher Paul Feldman, Kelly talks about how to develop your funny muscles and how to use the power responsibly.
HOW FUNNY MAKES MONEY INTERVIEW FELDMAN: How can improv help businesses? LEONARD: We teach people in improv to work and be successful in groups, making content. It is thoroughly applicable to anyone else, in particular to people in business, because human beings don’t often work well in groups. We are not taught to work in groups particularly well. Even in school, working in groups ends up being a lot of individual effort. Either you ended up doing all the work or someone else did. Rarely is it balanced. But improv teaches individuals to work well inside groups. It teaches you to weather failures. It teaches you to be agile and pivot inside moments of change. These are all things that are becoming vitally important. Second City has been working with businesses since the mid’80s, but in the last couple decades, it’s become its own business. I’m sitting here today at our offices at Second City Works, which is the B2B arm of Second City. We worked with 400 clients last year, many of which are Fortune 500 companies, to do a variety of things. But many of those things were coming in and working with their people to get them to be more innovative and more creative.
I’m going to sit here and watch TV — I’m going to do nothing. And we’re like that often at work. You know situations where people bring in some seemingly weird, crazy idea and our first instinct is “No. No, no, no, not interested.” In improvisation, you want to go on positive, but that’s not enough. You have to say, “Yes, and.” You have to affirm and contribute. And you do that in order to explore and heighten. FELDMAN: How do you integrate that into brainstorming sessions and into an organization? LEONARD: “Yes, and” is powerfully illustrated in brainstorming sessions. We’ve all been in those meetings where there are 10 people in the room and two people are speaking. One of them is probably the boss, and the other’s the loudest mouth in there. That person brings up kind of a crazy idea, and it gets shot down. That person is not going to bring up more ideas because those ideas just get shot down. Why would they put themselves at risk? And then everyone else has seen that the person got shot down, so they’re not going to bring up any sort of risky idea.
That makes saying “no” later so much easier for the individual because at least they’ve had their idea vetted and maybe even written down. It’s much easier for them to let go of an idea when they know, “Well, look, there are 75 ideas up there. Mine’s not necessarily going to be the one.” We use this expression in improvisation — “It’s important to find the idea rather than your idea.” And it’s very rare that one person alone has the idea. In fact, almost every great innovation that’s ever existed was not developed by one person. Many hands had their role in things like the iPod or the car or the airplane. I know in America we love this idea of the lone genius and the lone creative — but it is a myth. All these people had lots of different people, whether researchers or marketers or assistants or who knows what, helping out in making these great things come to life. FELDMAN: So we’re in a fairly conservative industry with a lot of compliance. What would you say to anyone who thinks “You know what? This can’t apply to us because we can’t use humor; we have to be compliant.” LEONARD: I have a great example of that. Four years ago, we partnered up with a
Second City has launched the careers of many comedy stars, such as Tina Fey, John Belushi, Amy Poehler, Steve Carell, Bill Murray and Mike Myers. FELDMAN: One of the primary tenets of improv is the use of “Yes, and” to keep the dialogue moving and more interesting. How is this important in a business environment? LEONARD: “Yes, and” operates at the front end of creativity and innovation. Most of us are oriented toward “No.” In behavioral science, they talk about the default setting of most human beings is to do nothing. Given the choice of going out for a run or sitting here and watching TV,
In improvisation, you want an abundance of ideas; you want seemingly bad ideas. So when you “Yes, and” for the first 10 minutes in one of these brainstorms, where no idea’s a bad idea, guess what happens? A lot of those ideas seem kind of crazy, but there’s good stuff in there, and they might connect with another idea that got brought up. Plus, you know you’re not going to keep every one of these ideas; you’re just letting them live in the brainstorm.
group that is now owned by the New York Stock Exchange. They were offering ethics and compliance training that was dull as dishwater, and people weren’t paying attention. And this stuff is hugely important, as you know. Lives are in the balance, and lots of dollars are as well. What they figured out, and science has backed us up on this, is that comedy is a very effective way to communicate. So we have a thing called RealBiz Shorts, which are these short videos that April 2017 » InsuranceNewsNet Magazine
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INTERVIEW HOW FUNNY MAKES MONEY tee-up ethics and compliance training. If it’s about not taking bribes from foreign companies or it’s about certain kinds of behaviors in the office, Second City does these really punchy, short, funny sketches that show you how not to do it, to reinforce the way to do it. And this has been just a multimilliondollar success for us because the issues are so important, they have to be laughed at because that is the way these messages and these ideas sink in. And, more and more, people are beginning to understand that comedy is an incredibly effective tool to communicate. The advertising industry figured this out years ago. The vast bulk of the ads that you see on television are attempting to use humor — I’m not going to say they’re funny; a lot of people practice comedy without a license. But the really good stuff — the stuff we remember — is funny. Especially right now with the rise of all the sort of humorous news outlets that we have, whether it’s “The Daily Show” or Samantha Bee or Trevor Noah, all those guys become truth-tellers for us, in part because they’re using humor to talk about things that are really troubling or really hard or very partisan. Somehow, through the lens of comedy, it allows us to really take these difficult topics and put them in a national conversation. FELDMAN: It definitely engages people at a different level with humor. It lowers their barriers. LEONARD: Yes, and there’s a little bit of science on this. Harvard recently did a study on status and humor inside organizations, and the interesting thing they discovered was that people who use humor in the workplace were considered to have higher status and higher confidence. They also studied people using taboo humor, humor that was inappropriate. The results were that not only were they also looked at as having higher status, but, conversely, they were looked at as having less confidence. Comedy is so effective that it really can up your chances of success in a business setting, and it can destroy you. And we all know this simply from the mass amounts of failed tweets that take down one corporate person after another corporate person, seemingly on a weekly basis — except 14
InsuranceNewsNet Magazine » April 2017
for certain people who may be in charge of our country. But everyone else seems to be affected by this level of tweeting that gets them in trouble. FELDMAN: In your book, you talk about some essentials of comedy. What are some essentials that might actually help businesses be funnier? LEONARD: Companies crave authenticity. They want to feel authentic and speak with an authentic voice. That means they’re going to have to be a little vulnerable. A lot of companies are not comfortable being vulnerable, but part of that is allowing yourself to be made fun of. Domino’s was an example of one of the great successes in the modern era. Domino’s, we all know, had this pizza that tasted like cardboard, and then they decided to make a change. They came out and said it — “Our pizza was terrible. We’re changing it. Try it out.” And they had a huge turnaround. I think too many companies are so invested in never looking like they made a mistake that they lose any sense of a sort of authentic connection with the customer base. As we’re understanding the way that the millennial and Gen-Z generations approach the world, we know that approach is a nonstarter. That is going to doom companies that don’t know their behaviors need to change. FELDMAN: Fear of failure is the enemy of improv. You talk about learning to “fail well.” How do you that? LEONARD: Fear of failure is what screws everything up. When we’re seeing 1,000 to 2,000 people audition at Second City over the course of an entire week, we can pretty much tell the people who are not going to make it within the first two or three minutes because they are petrified, and they show it. And, conversely, the people who are successful don’t have that sense at all — they walk on stage with a sense of ease. They’re making just as many mistakes as the person who’s so visibly scared. They just can sort of breeze through the mistakes. There are rules around failure and making it work for you. You can’t just say to someone, “Oh, by the way, it’s OK to fail.” It is, but it isn’t always. So, at Second City and in improvisation, when it comes to failure
Yes, And
These two words form the bedrock of all improvisation. Creative breakthroughs occur in environments where ideas are not just fully explored, but heightened and stretched to levels that might seem absurd at first. That is where the best comedy comes from, and that’s where invention is realized. It’s a mantra to apply at every level of your work. Work cultures that embrace the Yes, And are more inventive quicker to solve problems, and more likely to have engaged employees than organizations where ideas are judged, criticized and rejected too quickly. With Yes, And, you don’t have to act on every idea, but you do have to give every idea a chance to be acted on. This simple idea has amazing power and potency to improve interpersonal communication, negotiation and conflict resolution. In application, these two words are ground zero to creativity and innovation. 2015. Yes, And. Kelly Leonard and Tom Yorton, Harper Business.
— you need to fail fast; you need to fail together, and you need to fail in context. Failing fast is, essentially, not lingering on your mistakes. Recognize you’re going to make a lot of mistakes, get over it, get by it and move on to the next thing. Charles Limb is a neuroscientist at the University of California in San Francisco who has been studying the effects of the human brain when people improvise. He did an experiment with a bunch of freestyle rappers in an MRI, where he had them do rote written material and then improvise. When they were improvising, he noticed that the part of the brain that self-censors and has shame goes down. And what he thought was going to happen is the part of the brain that stimulates the English language would go up — that didn’t. That stayed the same as when someone was doing a written piece. And his thinking on that was, “Wow, it’s not that you need to stimulate the sort of language part of the brain to be able to improvise. You just have to get rid of the fear, and you have to get rid of the shame.”
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April 2017 » InsuranceNewsNet Magazine
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INTERVIEW HOW FUNNY MAKES MONEY It’s a fear of failure going on there. So, failing fast is all part of that. FELDMAN: What are some strategies that can reduce the fear of failure? LEONARD: You’d have to practice it. If you have a business that is reliant on people being able to survive lots of mini-failures and you need them to innovate, you have to give them practice. This is the thing that just astounds me, which is you would never say to a professional baseball team, “Oh, you guys have to go win the World Series, but we’re not going to have you practice your game.” People are going to their offices every day to make millions of dollars, multiple millions of dollars for companies, with zero practice. It’s ridiculous. At Second City, we have basically a failure module, and it’s called “The Second City Improv Set.” If you’ve ever come to Chicago and seen a Second City show on a weeknight, what you’ve done is come in at 8 p.m. and see a two-act review. There’s probably some improv in there, but it’s mostly scripted. Afterward, we bow and say goodnight, but we also say, “Hey, we’re actually going to do a little bit more. Do you want to stay?” We take a short break and then that third act is all improvised. There are many things going on there that make it a safe space to fail. We set this up to fail in context. It’s late at night. We’ve already let people know that it’s going to be a bit different. Often, the actors will change into more casual clothing. The improv show is free if anyone wants to come in and take a seat. The cast comes out and takes suggestions from the audience, and we just start making it up. Now the failure rate for the improv set is at least .500. But if you talk to people who come to Second City, it’s often their favorite part of the evening. So you wonder, “Why would their favorite part of the evening be the part that succeeds less?” Well, we’ve changed the rules, and they recognize that those successes have such a greater power. It’s comedy without a net. It’s authentic. You’re seeing the vulnerability on stage. The other aspect of it is we’re working inside an ensemble, so we’re failing together. We’re failing as a group. Harold Ramis 16
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used to talk about the fact that there’s no greater success than sharing success, doing it as a group. Similarly speaking, there’s no greater failure than sharing it with a group. If you think about the best storytellers in your life, the people that you just love when they tell stories, how many times are they telling stories about things going right? That’s never a funny story. The best story is when it’s a fiasco, an utter fiasco among a group of people. We love that because we connect to it. When failure becomes a dirty word, it means we’re not using something that is so essentially human and bonds us. FELDMAN: One thing I really got out of your book was the chapter about how to build an ensemble and not a team. Why is an ensemble more important? LEONARD: The late, great teacher Sheldon Patinkin said you always hear that “Your team is only as good as its weakest member.” But we say, “Your ensemble is only as good as its ability to compensate for its weakest member.” This is crucial because, at any given point, one of us is going to be the weakest member inside whatever group we’re operating in. Maybe we’re great at math. Maybe we’re terrible at math. But at some point, your group is going to have to do math, which means someone’s going to be good at it, someone’s not going to be. Do we want to be part of the ensemble that ostracizes the person who’s not good at it or be part of the one with the person who is lifted up and supported by everyone else in that moment because they’re going to do the same for us later? So we very much think that a much more healthy way to approach the kinds of groups that exist at work is thinking about an ensemble, rather than a team. FELDMAN: And you also take that to hiring. To hire well, you say, means hiring different. LEONARD: Yes. In baseball, are you going to hire a bunch of right-handed power hitters? No. You want one or two of those — that’s it. You need diversity to fuel your group; you want that difference. When we’re casting a six-member Second City cast, we’re looking at gender,
race, socioeconomic background. We’re looking at who are the strong writers, who are the strong actors, who are the strong comedians, who’s got a strong point of view. We’re taking differences into account first. Having a bunch of people with similar skills and similar POV will very quickly get you into groupthink, which means you ain’t going to get anything original. That is where the dull stuff comes out because everyone agrees, everyone thinks the same way.
Good Marketer vs. Fear Marketer
Here’s how this scenario plays out in a business setting, say at a brainstorm for the marketing of a new product. Good Marketer: OK, everybody, our client has introduced a new craft beer. It’s aimed at men ages 25 to 35, living in urban markets, and with disposable income. A clear initiative to start the brainstorm — naming the product and its audience. Fear Marketer: Well, who would actually buy that beer? Good Marketer has already established the audience for the beer. With this question, Fear Marketer undermines the validity of the information already put on the table. Good Marketer: The demographic is pretty specific: young men who live in the city. But you’re right, we don’t need to pigeonhole our creative ideas to sell the product this early in the brainstorm. Any idea is a good idea at this point. The Good Marketer has restored order to the meeting without challenging the negativity of the Fear Marketer, and the room has been reopened to all ideas. Fear Marketer: Really? I only want to hear great ideas. And all paths to open and honest creativity are shut down. Fear Marketer is usually using questions to hide his fear of not being creative enough and being unable to provide the idea. 2015. Yes, And. Kelly Leonard and Tom Yorton, Harper Business.
HOW FUNNY MAKES MONEY INTERVIEW We want people who are going to challenge each other in a complementary way, which is what improvisation does because it encourages you to have a personal point of view that is strong, different — that can stand up in the face of adversity. But, at the same time, you have a skill set that teaches you how to incorporate that strong point of view with other people who have similarly strong points of view that might be diametrically opposed to yours.
Turns out, a whole lot. You can’t successfully improvise a scene on stage if you’re not responding completely to what was just said, because the audience is listening to the end of that sentence. So you need to listen to the end. That’s one part, but, like any muscle, you can’t just do it once and think that it’s going to work forever. You don’t go to a gym and lift some weights and say, “OK, I’m done for the year. My muscles are now just fine.”
The Seven Elements of Improv 1. Yes, And • The bedrock of all improvisations. Answering with “Yes, And” allows ideas to flow. 2. Ensemble • People who become stars don’t get there but working solo. They spring from high-functioning ensembles. 3. Co-Creation • Dialogues push stories further than monologues. 4. Authenticity • When people laugh, they’re often laughing at a shared truth in the room. Use irreverence to own up to faults and grapple with truths. 5. Failure • The biggest threat to creativity is fear, especially fear of failure. It is vital to give failure a role in your process. 6. Follow the Follower • This principle gives the group the flexibility to allow any member to assume leadership for as long as his or her expertise is needed, and then to shuffle the hierarchy again once the group’s needs change. 7. Listening • Listening keeps you in the moment — not looking backward or jumping three steps ahead. Adapted from Yes, And: How Improvisation Reverses “No, But” Thinking and Improves Creativity and Collaboration, by Kelly Leonard and Tom Yorton
FELDMAN: You’ve said listening is extremely important to improv and it’s also a muscle that you can develop. How do you develop that? LEONARD: You practice it. One of the great exercises that we’ve got is one in which you have to use the last word that I say as the first word of your sentence. Simply doing that requires you to listen to the end of the person’s sentence. When you do this, you realize you don’t listen to the end of people’s sentences. You get the gist, usually about halfway through, and you start formulating your response. What are we missing when we’re not listening to the end of people’s sentences?
There are other exercises, but I think the key is simply to understand, without shame, that you probably are a lousy listener to begin with. Don’t worry; everyone is. If you really just focus your attention on trying to listen deeply throughout the day in, let’s say five conversations, you’re going to experience a significant change in the way you’re relating to other people. And that’s going to be a positive change because people know when you’re listening to them. FELDMAN: How do you see leadership evolving into the future? LEONARD: More and more people are
looking at empowering their workforce. And they have to because it’s so decentralized. Many people work from home. The whole idea of needing to have this office where everyone’s coming in every day — that doesn’t exist in the same way it used to. I was talking to Jason Fried, who runs Basecamp. He has a great TED talk and has written some books about work. I host a podcast, and he came in for it because he’s based here in Chicago. And he actually says the worst place to get work done is the office because it’s so filled with distractions. He was talking to me on a Wednesday afternoon, and I asked, “Well, how many people are in the office right now at your work?” He said, “I don’t know; I didn’t go in.” So he called over and there were three people there — and he has about 47 who work for him. And I asked, “Well, how do you manage the control?” He says, “I hire really good people whom I trust. We have ways to communicate with each other, online and in other ways. We can Skype each other; we can talk all the time. And we have very specific jobs to do. I know when those jobs are getting done, and I know when they aren’t.” It’s just different now because we are able to communicate and work in a whole other manner with our connectivity. And that’s not to deny the importance of human beings getting in a room together — that’s absolutely essential for a lot of business but not all of business. I think enlightened, good leadership is constantly evolving. It’s important to recognize it’s not changing the value system. It’s not saying, “Oh, I don’t believe in hard work. I don’t believe in education. I don’t believe all these sort of hallmarks of things that we think are important to good leadership.” What it is saying is “I need to recognize that human beings all operate differently.” In fact, a lot of human beings operate irrationally. So if I’m using a rationality marker, that’s my first mistake, because that’s not the way people behave. So, better to understand the way people behave and the way human beings are and then operate from that place. And you probably will be a lot more successful getting the best out of individuals who work for you. April 2017 » InsuranceNewsNet Magazine
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NEWSWIRES
Popular Tax Breaks Could Be On the Chopping Block The last time Congress made major changes to the U.S. Safe Deductions tax laws was 30 years ago. With Republicans calling for lower taxes and closing up loopholes, it seems that 2017 will be • Retirement Savings the year tax reform will be taken up again. And some of the • Capital Gains • Dividends most popular tax breaks enjoyed by Americans could be in • Earned Income Credit jeopardy. • Child Care Credit When Republicans say they want to lower taxes and get • Mortgage Interest rid of loopholes to make up the lost revenue, they're talking about eliminating some popular tax breaks enjoyed by milAt-Risk Deductions lions of people. • Employer Health Insurance The nonpartisan Joint Committee on Taxation listed some of the tax breaks that could be up for repeal and others • State, Local, Property Taxes that could be safe. On the list of tax breaks that could be in danger: employer-provided health insurance as well as income tax deductions for state and local taxes, including property taxes. The “safe” list of tax breaks include retirement savings, capital gains and dividends, earned income credit, child care credit and mortgage interest.
NATIONAL HEALTH SPENDING REACHED $3.4T LAST YEAR
Spending on health slowed down a bit last year but is expected to gather steam over the next eight years. N ation a l h ea lt h spending reached $3.4 trillion last year and is expected to increase by an average of 5.6 percent annually through 2025, according to a 1 in 5 dollars will be report by the Centers spent on healthcare for Medicare and by 2025. Medicaid Services. At that rate, $1 out of every $5 spent in the U.S. will go toward health care by 2025. The pace will run ahead of the national inflation rate for all goods and services by an average of 1.2 percentage points, according to the report. The analysis does not factor in possible effects of a planned repeal of the Affordable Care Act, which the Trump administration intends to replace with new legislation. DID YOU
KNOW
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In 2018 and 2019, health spending growth is expected to average 5.9 percent, "driven primarily by faster growth in Medicare and Medicaid," according to the report. Then, from 2020 through 2025, health spending is projected to grow by an average rate of 5.8 percent
GEN Y: MORE SAVING, LESS SPENDING
Generation Y could become known as the saving generation. A LendingTree survey found that 89 percent of Gen Yers would rather save $50 than spend it on a pair of jeans; more than 86 percent would rather save than get a massage, and nearly 72 percent would opt to save rather than eat out with a friend or partner. So what is Gen Y saving for? Nearly 15 percent said they're growing an emergency fund, while 12.5 percent said they're saving for a house or apartment, with nearly 9 percent pinching pennies for a vacation. More than 6 percent said they're saving for retirement.
Tom Perez, who was secretary of labor in the Obama administration, was chosen to head the Democratic National Committee. Source: Associated Press
InsuranceNewsNet Magazine » April 2017
QUOTABLE
We want to get this done by the August recess. We've been working closely with the leadership in the House and the Senate and we're looking at a combined plan. — Treasury Secretary Steven Mnuchin, on tax reform
Gen Y may be a long way from retirement, but they are taking retirement saving seriously. This generation started their careers during or in the wake of a historic financial crisis, and they watched their baby boomer parents struggle with debt. "[Generation Y’s] parents struggle in 'sandwich generation' situations, where many seniors can't care for themselves financially so they've become the burden of their adult children who are still parenting their own children — adult and minor," said April Masini, relationship expert and author. "[Gen Yers] see what their parents are going through and want something different for themselves, so they save."
SENIOR FINANCIAL ABUSE COSTS $2.9B ANNUALLY
More seniors are falling victim to financial abuse. A recent MetLife study showed that an estimated 3.2 million Americans were hit by elder financial abuse in 2014, with about $2.9 billion lost to financial abuse each year. The average victim loses $30,000 in scams or abuse, and one in every 10 victims loses more than $100,000. Many more victims never even report their losses, due to embarrassment or fear of retribution. Elder financial abuse isn’t new, but it is becoming more common as the U.S. population ages. As seniors experience diminished physical and cognitive decline, they become vulnerable to financial abuse. In addition, many seniors are targeted for financial abuse or exploitation because of what they own. They may have retirement savings accounts, equity in a home, other investments, a steady cash flow of "mailbox money" from Social Security, annuities, pension income or all of the above.
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How agents, advisors and IMOs are dealing with the DOL nightmare By John Hilton
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InsuranceNewsNet Magazine Âť April 2017
JUST WHEN YOU THOUGHT IT WAS OVER FEATURE
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uccess was arching upward year to year for Bob Phillips’ firm, but the dotted line for the future of the independent marketing organization is looking less like an arc and more of a question mark. Because that’s where the line collides with the Department of Labor’s fiduciary rule. Fewer producers are working with the 4-year-old Alternative Brokerage, a trend that’s only deepened with the uncertain future of the rule. The perfect havoc the rule and the fight over the regulation are wreaking on the industry is encapsulated in this small IMO operating in the heartland, very near the annuity capital of Des Moines. “There have been so many deadlines, lines in the sand that have come and gone, and lawsuits and appeals,” Phillips said. “There’s been so much going on, most of our agents are just dizzy. Some of them have a deer-in-the-headlights look. “Some of them are terrified that with April 10 looming, they’re not ready, we’re not ready, nobody’s ready, so…” Phillips trails off, as if unintentionally summing up where the industry is just weeks and days before the hated fiduciary rule is slated to begin taking effect. That was before the DOL published the Trump administration’s intention to delay
DOL to do what’s in the clients’ best interest.” The DOL is giving itself time to review the regulation against new standards issued by President Donald Trump. The department is likely to reshape rather than rescind the rule, industry analysts say. “My suspicion is we’ll see a regulation in place, but perhaps substantially modified, with some additional exceptions and perhaps a cutback on what actually constitutes investment advice,” said Bruce L. Ashton, partner with Drinker Biddle & Reath. The bottom line is we’re no closer to knowing what the regulation will actually be than we were one year ago, when the DOL published its fiduciary rule. And the relentless ambiguity is taking a toll up and down the industry chain. This month, we bring you four stories from agents, advisors and IMOs across the business. Each is impacted in a different way and all have nuanced opinions about the fiduciary rule. But all four are definitely opposed to what they see as overregulation of the industry.
‘Hit with a Shovel’
Flashback to early 2016 — Phillips and his producers were feeling good about the DOL rule. Sure, it was going to mandate more annoying paperwork, raise the liability stakes and even require a written
“There’s been so much going on, most of our agents are just dizzy. Some of them have a deer-in-theheadlights look.” Bob Phillips the rule by 60 days. The department will collect public comment during March and the delay is expected to take effect well in advance of April 10. “Sixty days pushes out all of the problems for a short amount of time,” Phillips said. “We’ve kicked the can down the road, but not long enough to fix anything or get
contract to sell variable annuities. But fixed indexed annuities escaped rigid regulation under the rule, remaining within the 84-24 Prohibited Transaction Exemption. That exemption was tightened to require agents and advisors to abide by an “impartial conduct” standard that puts the client first.
But Phillips and his colleagues could live with that. Keeping FIAs in the 84-24 was significant because those annuities were selling like seat cushions at a rodeo cowboy convention. In the second quarter of 2016, FIA sales totaled $16.2 billion, 30 percent higher than the prior year and surpassing prior quarterly sales records. Although the stock market performed well over the past six months, the memory of the 2008 crash is fresh on the minds of many investors. As such, safe-money FIAs look to have a bright future for both clients and agents/ advisors. The worry that FIAs would be added to the restrictive and costly Best Interest Contract Exemption seemed to be for naught. Then the final rule was published on April 6, 2016, and FIAs were listed alongside variable annuities in the BICE. It hit the industry with a jolt. “It was almost like getting hit with a shovel in the face, like, ‘What happened?’” Phillips recalled. “And since then, it’s been just a battle.” Alternative Brokerage has about 1,000 producers. The IMO offers back-office and distribution support for sellers of fixed, indexed and alternative products. The adjustment to a strict regulation that only affects part of the market — retirement funds — and includes fixed annuities proved to be a difficult undertaking for many producers, Phillips said. The move surprised Phillips, since the Harkin amendment included in the DoddFrank legislation established indexed annuities as insurance products. “It was troubling more than anything, and it caused a lot of panic among the agents who were looking for answers that, frankly, we couldn’t give, nobody could give,” he said.
More Bad News
While the harsh treatment of FIAs sent the industry reeling, Phillips found a silver lining of sorts for IMOs: the DOL considered an exemption allowing IMOs to serve as financial institutions (FIs). FIs assume the liability for producers who sell annuities. The rule grants FI status to four entities: banks, insurance companies, broker-dealers and registered investment advisors, but not IMOs. And with a blanket exemption, IMOs like April 2017 » InsuranceNewsNet Magazine
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FEATURE JUST WHEN YOU THOUGHT IT WAS OVER Alternative Brokerage would remain in business. Then the DOL released its criteria for the exemption. In order to qualify, an IMO must have generated an average of $1.5 billion in annual fixed annuity premium over each of the three previous fiscal years. In other words, only the very biggest IMOs will qualify. “When that came out, I think it was a little shock at what the requirements were, because it was a lot more than some of the smaller broker-dealers out there,” Phillips said. Now he had to adjust yet again. As of this writing, Alternative Brokerage will join with a larger financial institution if needed to continue selling annuities. “What happened is these (larger IMOs) invested a lot of money in technology and people and resources, and they were talking to a lot of us smaller groups about coming under an umbrella,” Phillips explained. If the Clive, Iowa-based business teams up with a larger IMO, it will come with a cost. “Well, our spreads would decrease, probably depending on who we talked to,” Phillips said. “A few of them weren’t even sure on the pricing. But we’d give up a pretty good portion of our override.” On the plus side, the larger partner would alleviate the liability risk. And with increased size come greater technology capabilities. Whether it all translates into a win remains to be seen, Phillips said. “I’d like to think there’d be a tradeoff, that we could, with new technology and new marketing and not having to assume any liability, that we could grow enough to compensate for the amount of override that we’re losing,” he added. For now, Phillips is focused on reducing the stress level of his company’s team of producers, for whom uncertainty has given way to fear. Larger IMOs are poaching good producers where they can. “We’ve lost some of our producers to larger groups,” Phillips said. “There was a bit of a fear factor, especially early on, with things like, ‘If you don’t come to us, we might not have room for you later.’”
The Retiring Kind
Joe Super started out in the insurance business as a regulator for the former 22
InsuranceNewsNet Magazine » April 2017
National Association of Securities Dealers. A self-regulatory organization of the securities industry, NASD became the Financial Industry Regulatory Authority (FINRA) in 2007. By that time, Super had long moved to the other side. In 1972, he started selling insurance and investment products and never stopped. Super, 76, is still selling product from his Paoli, Pa., office. And he isn’t bashful about his commitment to a commission-based model. “I’m a commission person. Pay me for what I do,” Super said. “I don’t have to go out and collect your check for $100,000 and send it to some money managers and
new DOL rules, he would still have paperwork headaches. “I have a lady who runs my computer three days a week and gives me all the information that I need or want — or more,” he said. “But it just means I have to pay her for more hours of work to keep up on the computer. It’s just not worth it.” Health issues prevented Super from making his regular numbers in 2016, so Woodbury came with an offer to buy his book. Under the deal they made, Super can continue to sell products as long as he doesn’t solicit. He wants to keep working the business for three more years. Super considered
“My suspicion is we’ll see a regulation in place, but perhaps substantially modified, with some additional exceptions and perhaps a cutback on what actually constitutes investment advice.” Bruce L. Ashton, partner with Drinker Biddle & Reath forget about it forever and collect 1 percent whether you’re happy or unhappy. “And if you moved it, well, fine. I got 1 percent for seven or eight years. I never believed in that.” To call Super old school would be an understatement. He works alone and sells product through Woodbury Financial Services, a broker-dealer. Super recently sold his book of business to Woodbury, but he retains his license and continues to work. “I’m kind of walking away from it because it’s time,” he said. “But where the industry is going, especially with the new rule … it’s just not worth it.” Super sells a lot of variable annuities, one of the products in the crosshairs of the DOL rule. He owns two VAs in his personal portfolio, he pointed out. The rest of his business is mutual funds, some insurance and fixed annuities, and a little bit of individual stocks. While Woodbury would serve as the financial institution and do the heavy lifting if Super continued selling VAs under the
the industry “overregulated” when he left NASD in 1972 and his mind hasn’t changed. “I’m still doing the kind of business that I always did and so is everybody else,” Super said. “But I’m a believer that if you’re only going to like fee-based business, then a lot of small investors are going to be hurt. You’re not going to go after $40,000 when you can go after $250,000 to send somewhere and get 1 percent forever.”
Small-Town Clients
Randy Kaufmann’s insurance office would fit perfectly along Main Street in Mayberry, N.C., perhaps squeezed in between Floyd’s Barbershop and the Mayberry Security Bank. For those of a certain age, the fictional Mayberry, setting for “The Andy Griffith Show,” has come to represent small-town life and its associated values. An independent insurance agent with 40 years of experience in the business, Kaufmann shares those values. And he
HEALTH AGENTS BETTING ON BENEFITS FEATURE
April 2017 » InsuranceNewsNet Magazine
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FEATURE JUST WHEN YOU THOUGHT IT WAS OVER does it from the small Kaufmann & Associates office in Camp Hill, Pa. Kaufmann’s office is the first one inside the door. The unassuming workspace is dominated by Kaufmann’s dark brown desk. Two framed pictures of Kaufmann with NASCAR rides hang on the walls. He is a huge racing fan. Father of five — with 10 grandchildren — Kaufmann and his wife spearhead an annual family vacation getaway to Ocean City. The clients have become a second family of sorts, he said. “I think that the number of people that need this help is greater than ever,” he said, alluding to the retirement crisis. “We’re going to do it right.”
fixed indexed, but only when appropriate. Variable and fixed indexed are two products in the crosshairs of the DOL regulators. “I think we have a fiduciary responsibility to make sure they have that guaranteed income stream,” Kaufmann said, adding of VAs: “It’s not for all assets. It is not a onebucket-fits-all approach.” Kaufmann’s broker-dealer took the lead on establishing the network needed to comply with the rule. “We are already taking our fact-finding approach to another level,” with clients, Kaufmann explained. “It requires us to get a little more detailed.” “The product itself becomes somewhat incidental to the overall planning process
“I’m kinda walking away from it because it’s time. But where the industry is going, especially with the new rule coming in March … it’s just not worth it.” Joe Super Kaufmann works with small business retirement plans. He has between 60 and 70 clients that average about 35 employees. They are the crane operators and landscapers in his community. When people leave a client company, they often meet with Kaufmann to do a plan rollover. Kaufmann deals in managed money, life insurance and annuities. Kaufmann has added younger agents in recent years to connect with millennial and GenX clients. When the proposed DOL fiduciary rule was released in April 2015, Kaufmann took note. He is active in the Pennsylvania chapter of National Association of Insurance and Financial Advisors, and is also a member of the Million Dollar Round Table. “I looked at it as not concerning, but definitely something that I wanted to monitor as we went forward,” he said. “It was really just a matter of monitoring.” He sells more variable annuities than 24
InsuranceNewsNet Magazine » April 2017
for the client’s wants and needs,” he said. “I have become more intimate with my clients than ever before…” Kaufmann gets emotional talking about the hundreds of clients who pass through his office, each relying on the advice, information and investment picks that he can provide. “And I’ve always cared,” he said after a long pause. The industry is too heavily regulated, Kaufmann said. Having said that, he thinks the fiduciary push would come from someplace else had the DOL not taken the reins. “It reinforced for me what we’ve always done and if it can take that to another level, then it’s a good thing,” he said. “It’s made me aware of the good things we do with our clients. “Has it hurt me? I don’t think so. Has it created more expense for me? Perhaps from a time perspective.”
Kaufmann’s broker-dealer is the financial institution and has established the compliance network required by the DOL rule. But compensation has been reduced as a result, so those costs are passed down to some degree. “We don’t really have much choice on it,” Kaufmann said. “We have to accept where we’re at.” The rule will eliminate some of the bad actors who give the business a bad name, Kaufmann said. “It is going to push some of those out of the market,” he said. “Those of us who are left are going to have to adjust and amend accordingly.” After a pause, he added: “I’m not changing our business model in terms of how we do business.”
A Fee-Based View
Many fee-based firms and trade associations threw their weight behind the DOL rule. Fee-based firms and advisors seek what they call a level playing field in which everyone dealing with retirement investing is compensated the same. “We have all watched the industry change over the years — moving to feebased services already with many investment professionals already acting in the best interest of their client,” said Mary Anne Durall, senior vice president of strategy and corporate planning for SE2, a leading third-party administrator for the life insurance and annuity sector. For many companies who are working to comply with the rule, it isn’t practical to turn back now, she added. They “have spent the last half of 2016 developing and implementing the rules requirements, making extensive system changes and developing practices and procedures in support,” Durall said. “The additional investment to undo that work seems inconsistent with sound business practices.” Many are calling the fiduciary rule the biggest change to retirement investing since Congress passed the Employee Retirement Income Security Act of 1974. The advice world is split into two camps: salespeople (stockbrokers and agents) operating under a suitability standard, and licensed advisors serving as fiduciaries. Rule supporters, many of whom live in the fiduciary world, say it is long overdue for the industry to operate under one
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April 2017 » InsuranceNewsNet Magazine
25
FEATURE JUST WHEN YOU THOUGHT IT WAS OVER standard. The stakes are large — an estimated $14 trillion is held inside IRAs and 401(k)s. Registered investment advisors say a uniform fiduciary standard will sharply reduce conflicts of interest and establish
white hats, or because we are social workers, but because it most effectively serves the interests we had when we went into business,” he said. While it might be a quixotic vision to some, Rogers said regulators and the in-
“We are already taking our fact-finding approach to another level. It requires us to get a little more detailed.” Randy Kaufmann greater credibility at a time when millions of baby boomers are entering retirement. Still, some in the fee-based world say the DOL rule is like using a sledgehammer to crack a nut. The DOL rule has no impact on Hal Rogers, an advisor and president of Gold Tree Financial in Jacksonville, Fla. A certified financial planner, Rogers is going on 35 years advising clients on retirement strategies via the fiduciary standard. He doesn’t like the rule for three reasons: » It leaves out non-retirement funds. “We can’t find any reasonable justification for requiring an advisor to function in a client’s best interest on a retirement account, while, by obvious omission, not applying the same standard for all the client’s other accounts with that advisor,” Rogers said. » It offers no mechanism for measuring the “value” advisors bring. Rogers equates the DOL rule to passing a law that requires a hotel owner to “charge the same rate in his five-star property as the ‘No Tell Motel’ at the edge of town, where you can rent rooms by the hour.” » The market is the best way to regulate advisors. Gold Tree has survived and thrived for three decades because it puts clients first, Rogers said. Advisors that don’t will not be in business long, he added. “We take the best care of our clients we know how to take, not because we wear
dustry ought to be more focused on the value an advisor brings to a client relationship. When value is the focus, cost is not a consideration, he said. In a candid admission, Rogers agreed that the fee-based model costs clients more in the long run. “While it is true that with a fee-based account there is no motivation or even any
to change how products are produced, how they are distributed and how advisors and agents are paid, said Patterson, a principal in E&Y’s Financial Services Advisor practice. “There are long-term trends here and long-term changes that the rule may just be pushing along,” he said. “Even if it is largely reshaped or repealed, I think a lot of this is going to continue.” The focus on regulation and rules will change how products look, he explained. Basic supply-and-demand principle will lead to products that are less opaque and do not come with compensation plagued by conflicts of interest. “The distributors are closer to the customer so they’re going to be more demanding about what product sets are best for their customers in terms of fee structures, and clarity of fees,” Patterson said. Many firms are creatively energized by the transformation of the industry, he added, and see the impending regulation as a challenge. Those are the firms, and agents/advisors, who are going to thrive in the future.
“The distributors are closer to the customer so they’re going to be more demanding about what product sets are best for their customers ...” Michael Patterson advantage gained to ‘churn’ an account, the truth is that fee-based accounts are almost always more costly to the client,” he explained. “In addition, instead of paying once, up front, the client will pay for as long as the account is in place. The advisor will pay, and the client will pay, multiples of what would have occurred with a commission-based account.”
Headed for Fiduciary
Michael Patterson monitors the fiduciary rule for Ernst & Young’s Regulatory Compliance Services team. DOL rule or not, the industry is inching toward a fiduciary way of doing business, he said. That unrelenting momentum is going
“I wouldn’t want to hang my hat on a prediction on what the government is going to do because it’s so difficult to say,” Patterson said. “It’s so volatile. But you can see the direction of the industry and there are plenty of opportunities to take advantage of it.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john. hilton@innfeedback.com.
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HEALTH AGENTS BETTING ON BENEFITS FEATURE
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27
LIFEWIRES
QUOTABLE
Term Life Insurance Outpaces Permanent The term vs. perm war has raged for years. A LIMRA study shows term is now outpacing permanent life. The study showed that for the first time since 1960, life insurance owners are now more likely to own term life insurance products than permanent life insurance (68 percent vs. 62 percent). Permanent life insurance ownership has decreased by 18 percentage points since 1992, while term life ownership has increased by 26 percentage points. In addition, LIMRA research found that a record percentage of policyholders owns both types of coverage. Thirty percent of life insurance owners hold both term and permanent coverage. This is an increase of 12 percentage points in six years. “While the average number of life insurance policies people own remains two, there has been a shift in the type of products owned,” said Jim Scanlon, senior director of LIMRA Insurance Research. “Today, Americans are more likely to own one permanent life insurance policy and one term life insurance policy, rather than two permanent policies. A factor that could be contributing to this trend is that term life insurance offers more coverage for the dollar than a permanent life policy. Due to increases in the cost of living and higher amounts of household debt, consumers may be more focused on getting the coverage amounts they need at the most affordable price.”
LOTS OF POTENTIAL IN THE UNDERINSURED MARKET
The sales potential of the underinsured market is $12 trillion and growing, according to LIMRA. Based on current rates of population growth and inflation, the sales potential of this market is expected to grow by $300 billion per year. Who are these underinsured? LIMRA said half of the underinsured market consists of households that already own life insurance. Approximately 9 million households own only group life insurance. Based on LIMRA’s life insurance coverage model, these households have an average coverage gap of $225,000. This amounts to a $7 trillion opportunity. Since this segment
9 million households have only group life insurance, a $7 trillion opportunity. DID YOU
KNOW
?
28
already believes in the value proposition of life insurance but needs supplemental coverage, they are an important target market. The approximately 15 million households earning $100,000 or more per year have the largest coverage gap of any demographic group, LIMRA found, with an average need of more than $400,000 per household. This market segment has a sales potential of more than $6 trillion, which represents more than 25 percent of the underinsured market.
MORE AMERICANS BUYING LIFE INSURANCE DIRECTLY FROM CARRIERS
More consumers than ever before are saying they have bypassed a financial professional and purchased individual life insurance policies directly. That’s according to a recent LIMRA study. Technology is the main reason for the increase in direct purchasing, LIMRA researchers said.
Legal and General America launched ALittleHelp.com, its crowdfunding website dedicated solely to memorial funds.
InsuranceNewsNet Magazine » April 2017
Source: Frederick (Md.) News-Post
There are a lot of different forces that are pushing on how we recruit agents. — Gary Bhojwani, president of CNO Financial Group
Carriers have different options they can use to connect with consumers directly. They can use their own direct-to-consumer (D2C) distribution capabilities or partner with other organizations that may provide better access to the market.
2016 A BANNER YEAR FOR SOME LIFE INSURERS
The past year saw record numbers for some life insurers.
Northwestern Mutual posted record revenue and beefed up its surplus in 2016. The company posted record total revenue of $28.2 billion, up about 1 percent from $27.9 billion in 2015. At the same time, total assets grew 5 percent to $250.4 billion from $238.5 billion a year earlier. Net income was $818 million, compared with $815 million in 2015. The company said it expects to pay policy owner dividends of $5.2 billion in 2017, down from 2016,s payout of about $5.6 billion, but still the highest in the industry.
Pan-American Life topped $1 billion in revenue and total premiums for the first time during 2016. The company said its revenue increased 25.7 percent and premiums increased by 17 percent for the year.
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29
LIFE
How an Income Stream Can Fill a Legacy Bucket Strategy strategy that uses life insurA ance to create a legacy fund “bucket” can help protect some of your clients’ assets and provide a legacy for future generations. By Randy L. Zipse
T
he welfare and happiness of their children and grandchildren is what is most important to many of our clients. What client doesn’t want to show you pictures of their grandkids? In fact, during the planning process, it isn’t unusual for clients to focus more on their loved ones than on themselves. When it comes to clients who have taken retirement planning seriously, you can be sure that they have a good idea what they want to leave to their heirs.
Pouring a Portfolio Into “Buckets”
An integral part of the retirement planning process is segregating client’s assets into three distinct “buckets.” Sometimes, this segregation is done literally by creating 30
InsuranceNewsNet Magazine » April 2017
trusts or separate accounts with the assets. These three distinct asset “buckets” include: » The Retirement Fund (“Bucket A”). » The Contingency Fund (“Bucket B”). » The Legacy Fund (“Bucket C”).
efficient supplement to retirement income.
Bucket A assets are those that are earmarked for use in retirement. During the planning process, it is important to leave enough assets for your client’s own retirement, despite their desire to leave as much as possible to their family. Bucket B assets are those that are not expected to be used during your client’s lifetime. These assets are set aside in the event that the client lives longer than expected, the Bucket A assets underperform or the client experiences an unexpected financial setback in retirement. For many clients, cash value life insurance with a long-term care rider is a significant component of this contingency fund. Here are some reasons cash value life insurance with a long-term care rider can be an appropriate asset for Bucket B.
» If the cash value and long-term care rider are not used during the client’s lifetime, the life insurance policy’s death benefit will pass to heirs free of income taxes.
» The cash value can be used as a tax-
» The long-term care rider can be used to pay for the cost of unexpected long-term care events.
But what about Bucket C? What investment strategy is appropriate for assets that your client has set aside for their heirs? On one hand, clients want to maximize their legacy, and that suggests an aggressive investment strategy. But for many clients, leaving a legacy for their family is at least as important as funding their own retirement. This desire to preserve the Bucket C assets can cause the investment strategy to be overly conservative as the client focuses on conserving the Bucket C principal for the family.
The Legacy Protect Strategy
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855-277-2090, ext. 8120 April 2017 » InsuranceNewsNet Magazine
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LIFE HOW AN INCOME STREAM CAN FILL A LEGACY BUCKET STRATEGY families will receive a legacy, regardless of how long they live or the performance of their other Bucket C assets. A portion of the Bucket C cash flow is reallocated into permanent life insurance. In many instances, depending on the size of the portfolio, it is possible to take as little as 1 percent, or 100 basis points, from the return on the Bucket C assets and reposition it into a permanent life insurance policy that will, in effect, serve to protect the legacy fund against unexpected fluctuations in value. The primary purpose of the life insurance policy is its death benefit. In addition, the life insurance policy protects the legacy funds against some of the financial effects of your client’s early death. It also serves as some level of overall portfolio diversification, helping protect the legacy assets in that sense. Some insureds and their investment professionals believe that the portfolio diversification created by including a permanent life insurance policy in Bucket C allows them to take a broader investment strategy.
A Grandmother Plans for a Legacy
Marjorie is 55 and recently has become a grandmother. As she looks forward to her retirement and the chance to spend more time with her grandchildren, Marjorie has taken the opportunity to sit with her investment professional and discuss her financial position. With $4 million in investment assets, Marjorie and her investment professional believe that she is in good shape for retirement. Marjorie hopes to work another 10 to 15 years before retiring. Her employer has a 401(k) plan, which she has been funding for the past 20 years, as well as a “cash balance” pension plan. She believes that $1 million of her investment assets — which include her retirement plans plus Social Security — will provide her with a comfortable retirement. These assets are what Marjorie considers her “Bucket A” retirement fund. She previously purchased $500,000 of permanent life insurance with a longterm care rider. This policy is funded at the maximum non-modified endowment contract level to optimize possible supplemental retirement income from policy cash value. This policy and $1 32
InsuranceNewsNet Magazine » April 2017
million of investment assets make up “Bucket B,” or her contingency fund. This leaves Marjorie with $2 million of portfolio assets that are not expected to be needed for retirement. Although they are not segregated formally, these are Marjorie’s “Bucket C” legacy assets. If Marjorie lives until age 87 (her life expectancy) and earns a hypothetical average return of 3 percent (net of taxes), her Bucket C assets will have grown to more than $5 million by the time of her death. Although feeling protected in retirement
A Bigger Bucket C for Legacy » Marjorie, 55, has $2 million in retirement portfolio assets to fund a legacy for her family (Bucket C). » She buys a life insurance policy with a face amount of more than $3 million. » She grows Bucket C from $2 million to more than $5 million. » Combining her portfolio with the face amount of the life insurance creates a Bucket C of more than $6.5 million at age 87 (her life expectancy). » This is more than $1.5 million above what it would be without life insurance.
makes her feel comfortable, her belief that she can leave a significant legacy for her family excites her. But how certain is this $5 million legacy that she has earmarked for her family? Although Marjorie is a healthy and active 55-year-old, good health can be fleeting. A number of her friends are already fighting serious health issues. And although she and her investment professional are assuming a modest net 3 percent growth on her investment portfolio — that is hardly a given. What’s to say that the economy won’t experience another correction? An ill-timed market correction could have a devastating impact on her anticipated legacy. By simply repositioning less than half of the current cash flow (140 basis points), Marjorie can purchase a life
insurance policy with a face amount of more than $3 million. By purchasing a life insurance policy today, Marjorie has immediately grown her Bucket C from $2 million to more than $5 million (the amount that she hopes to accumulate for heirs at life expectancy). If Marjorie lives until life expectancy, after repositioning 140 basis points to life insurance, her $2 million Bucket C will still grow to more than $3.5 million by life expectancy. Combining her portfolio with the face amount of the life insurance policy creates an anticipated legacy (Bucket C) at life expectancy of more than $6.5 million. In other words, Marjorie’s legacy is immediately increased by more than $3 million and, at life expectancy, the projected legacy is more than $1.5 million above what it would be without life insurance. Moreover, her investment professional suggests that life insurance is creating diversification and protection that allows the professional to help Marjorie change her investment strategy slightly — even potentially earning more on the Bucket C assets than the current assumed hypothetical 3 percent. Most financial professionals and their clients realize that cash value life insurance can help create a source of supplemental retirement benefits. They also understand that a permanent life insurance policy with a long-term care rider (available at an additional cost) can help protect clients and their families from the high cost of long-term care. But what is often less understood is that life insurance can be a key component of a well-balanced legacy portfolio. Life insurance is the one product that is designed to protect against what is probably the top threat to clients’ achieving their legacy goals — that is, early death. Life insurance can help complete the legacy goal immediately by redirecting a portion of the investment returns to that life insurance policy. Life insurance also can diversify the portfolio’s risk profile, and can help create confidence when investing the portfolio’s principal. Randy L. Zipse, J.D., is vice president, AXA Advanced Markets. Randy may be contacted at randy.zipse@ innfeedback.com.
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Insurance products issued by: Minnesota Life Insurance Company | Securian Life Insurance Company These materials are for informational and educational purposes only and are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. Securian Financial Group, and its affiliates, have a financial interest in the sale of their products. Orion IUL is designed first and foremost to provide life insurance protection. While the interest crediting options are attractive for cash accumulation, the product should always be promoted to first meet the death benefit needs of families and businesses with cash accumulation as a secondary benefit. Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender charges. One could lose money in this product. Policy loans and withdrawals may create an adverse tax result in the event of a lapse or policy surrender, and will reduce both the surrender value and death benefit. Guarantees are based on the claims-paying ability of the issuing insurance company. Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. 400 Robert Street North, St. Paul, MN 55101-2098 ©2017 Securian Financial Group, Inc. All rights reserved. F88673-11A Rev 3-2017 DOFU 1-2017 97293
For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public.
April 2017 » InsuranceNewsNet Magazine
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LIFE
For Life Insurers, Transformation and Talent Go Hand in Hand n industry survey showed A that life insurers need to accelerate the pace of change and innovation, but talent remains important to a company’s success. By Doug French
E
xecutives across the life insurance and annuity industry have accepted the urgent need for broad-based change across their companies in recent years. Transformation can sound like a buzzword, but it is also a strategic imperative for insurers of all types and sizes. Why? Because the industry must learn to innovate both faster and more effectively if it is to keep up with rising consumer expectations, compete effectively with new market entrants and restore historical levels of profitability. Results from Ernst & Young’s 2016 Life Insurance and Annuity Executive Survey confirm the consensus to embrace and accelerate change as a means to drive innovation. Further, the study confirms the conventional wisdom that core technology must be upgraded in some cases. However, there is new recognition that new thinking and capabilities must be applied across functions and at every level of the enterprise. For example, senior leaders are growing more comfortable with datadriven decision-making, advanced analytics and new technology. New hires and junior staff must bring different skills and attitudes to help re-energize the business. But in seeking to drive transformation and innovation, people and cultural factors are every bit as important as data and technology. Talent transformation is critical to retooling life insurance and annuity companies for the next era of an evolving marketplace. EY’s 2017 Life-Annuity Insurance Outlook highlights closing the talent gap as one of the top six strategic priorities for the industry. The remaining priorities 34
InsuranceNewsNet Magazine » April 2017
include preparing for regulatory change, remaining centered on the customer, re-evaluating strategies in a changing marketplace, advancing digital transformation and focusing on cybersecurity.
Addressing the Talent Gap
First and foremost, insurers must prepare for the looming talent gap as large numbers of older workers retire and take their institutional knowledge with them. At the same time, younger workers have shown little interest in insurance careers.
culture that emphasizes and rewards collaboration and teamwork will streamline the transfer of technical and digital knowledge between seasoned professionals and new hires. A new generation of workers can make major contributions in boosting the industry’s use of digital and social channels and analytical tools, but only if insurers learn to compete effectively for the most in-demand skills. Data scientists — professionals able to apply predictive analytics and other sophisticated quantitative
Key Takeaways From the EY 2016 Life Insurance and Annuity Executive Survey 1. Insurers must take on more risk, fail faster and rethink core operational approaches. 2. Life insurers have significant work to do to meet 21st-century customer expectations. 3. To reduce costs and increase performance gains, insurers must modernize systems and invest in technology. 4. Innovation is necessary to change the public’s perception of the industry.
As a result, some carriers may confront a full-fledged talent crisis where they simply don’t have enough or the right workers to fill critical roles in areas such as product development, underwriting and claims. Even though robots, algorithms and technology may replace some workers, the vast majority of insurers will still be heavily reliant on human talent for the foreseeable future. To mitigate the risks of generational turnover, insurers must work actively to create clear pathways to transfer knowledge. A
tools to support underwriting processes and identify promising new market opportunities — are among the most expensive talent on the market today. Not only are big names in finance, technology and consulting after the same talent, even small startups may offer a more attractive proposition and work environment than well-established life insurers. Thus, insurers must be proactive in recruiting and retaining next-generation innovators and leaders while helping enhance existing teams with new skills and knowledge.
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LIFE FOR LIFE INSURERS, TRANSFORMATION AND TALENT GO HAND IN HAND
EXTERNAL FACTOR IMPACT ON THE LIFE-ANNUITY MARKET IN 2017 9 Regulations
(1 = low impact, 10 = high impact)
If they take effect, the new DOL fiduciary rules will have serious implications for distribution channels, costs and product design. New cybersecurity regulations at the national level will further complicate the regulatory landscape. A Trump administration will bring a change in the regulatory agenda.
8 Customer expectations
The convergence of demographic, regulatory and technological change will raise expectations for a more digital, personalized and seamless customer experience. Simpler products and a holistic financial orientation will become prerequisites as insurers strive for true customer centricity.
8 Technology
Insurers will continue to drive cost savings and innovation through core technologies, such as robotics and analytics, while exploring new tools such as artificial intelligence and blockchain.
7 Cyber risks
Ongoing digital transformation and cybercrime will expose insurers to unprecedented levels of cyber risk. Developing a robust cyber strategy will be critical, not only for complying with regulations and protecting customer information, but also for building customer confidence and brand reputation.
7 Competition and M&A
Facing continued disruption, insurers will reassess their market position and explore M&A options, partnerships and greenfield investments to meet strategic objectives. Acquiring distribution channels and spinning off unprofitable businesses to improve long-term positioning will be top of mind.
6 Economy
Stubbornly low interest rates, combined with mediocre U.S. growth, will put continued pressure on insurers’ margins, investment returns and credit fundamentals. A new Trump administration adds greater economic uncertainty, with economists divided on the potential impact.
6 Talent
With insurance professionals retiring, and digital transformation accelerating, insurers will face a wider talent shortfall in 2017. Forward-looking insurers will focus on attracting and retaining data scientists, cyber risk specialists and other talent to capture their future.
Perception is part of the problem. Many EY survey respondents believe the industry needs to communicate a clearer and more compelling value proposition. The industry is largely viewed as dull, slow-moving and non-innovative. This is a long-term problem that has contributed to the current talent shortage. For millennials, who greatly value a sense of purpose in their work, a clearly articulated corporate mission (helping more people save for a comfortable retirement, for example) may be a necessary part of recruiting pitches. Also, given 36
InsuranceNewsNet Magazine » April 2017
their preference for transparency, millennials may be drawn to companies that openly acknowledge their commitment to the future. Recruiting is not the only variable in the equation, however. Insurers must think in terms of a clear and comprehensive human capital strategy that identifies the skills that insurers must have in-house versus the ones they can source from outside. Defining the tasks and activities most likely to be handled by machines or robots is another critical action. These
are important steps insurers can — and should — take in the near term as they plan future hiring strategies and chart their way forward. In some areas, the winning formula will likely be one that combines highly skilled human resources focused on specific high-value tasks and exceptions with high-powered machines to handle the heavy lifting of high-volume data and transaction processing. Evaluating partnership and acquisition opportunities with an eye toward their talent and knowledge implications may help insurers move up the technology learning curve. Bringing in digital experts in critical areas such as advanced analytics and cybersecurity, and developing greater collaboration between internal teams such as those headed by the chief risk officer and chief information officer, also will be essential.
Failing to Innovate
If insurers are to benefit fully from new talent and ongoing technological advancements, they must rethink their approaches to innovation. That means culture change and new ways of thinking. More experimentation, a willingness to take on prudent risk and the ability to learn quickly from mistakes (“failing faster”) were common themes among EY survey responses to questions around innovation. There is a clear understanding that, although not every new idea and technology will prove beneficial, it’s important that companies commit time and resources to experiment with the most promising ones. If life insurance and annuity companies are going to thrive in the future, they must be prepared to change — and change faster and at larger scale than they have in the past. It is a huge challenge, but I sense new energy across the industry as more executives accept that transformation is no longer a choice. It’s also becoming clear that new talent management strategies may be just as important as new technology in fostering this evolution. After all, transforming a business is simply not possible without the right talent. Doug French is the managing principal of the Insurance and Actuarial Advisory Services within Ernst & Young in New York. Doug may be contacted at doug. french@innfeedback.com.
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1. As long as required premiums are paid when due. 2. Coverage is guaranteed to the lesser of 40 years or to age 90, as long as the required guarantee premium is paid. 3. The Long-Term Care ServicesSM Rider does have an additional cost and is subject to restrictions and limitations. Clients may qualify for life insurance, but not for the Long-Term Care ServicesSM Rider. 4. Policy owners would be accessing the cash value through loans and withdrawals. Loans and withdrawals reduce the policy cash value and death benefit, may cause certain policy benefits or riders to become unavailable, and increase the chance that the policy may lapse. If the policy lapses, is surrendered or becomes a Modified Endowment Contract (MEC), the loan balance at the time would generally be viewed as distributed and taxable under the general rules for distribution of policy cash value. “AXA” is the brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY, NY), MONY Life Insurance Company of America (AZ stock company, administrative office: Jersey City, NJ), AXA Advisors, LLC (member FINRA, SIPC), and AXA Distributors, LLC (member FINRA, SIPC). AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. The obligations of AXA Equitable Life Insurance Company and MONY Life Insurance Company of America are backed solely by their own claims-paying ability. Life insurance policies have certain exclusions and limitations and terms for keeping them in force. Certain types of policies, features and benefits may not be available in all jurisdictions or may be different. For costs and more complete details read a specimen policy. BrightLife® Protect, a flexible premium universal life insurance policy with an index-linked interest option, is issued in New York and Puerto Rico by AXA Equitable Life Insurance Company (AXA Equitable), NY, NY, and in all other jurisdictions by MONY Life Insurance Company of America (MLOA), an Arizona stock corporation with its main administrative office in Jersey City, NJ. It is co-distributed by AXA Network, LLC, AXA Network Insurance Agency of California, LLC in CA; AXA Network Insurance Agency of Utah, LLC in Utah; AXA Network of Puerto Rico in PR; and AXA Distributors, LLC. AXA Equitable, MLOA, AXA Network and AXA Distributors are affiliated companies and do not provide tax or legal advice. BrightLife® is a registered service mark and Long-Term Care ServicesSM is a service mark of AXA Equitable Life Insurance Company. All guarantees are based on the claims-paying ability of the issuing life insurance company, AXA Equitable Life Insurance Company or MONY Life Insurance Company of America. IU-122432A (1/17) (Exp. 1/19) Financial Professional Use Only. Not for Use With, or Distribution to the General Public.
April 2017 » InsuranceNewsNet Magazine
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ANNUITYWIRES
2016 Fixed Annuity Sales Break Record How high will they go? Fixed annuity sales soared 14 percent to a record $117.4 billion in 2016, according to LIMRA Secure Retirement Institute. Leading the way were fixed-rate deferred an- $133B $105B $103B $117B 2015 2016 2015 2016 nuities with sales of $38.7 billion. This was an increase of 25 percent compared with sales in 2015. Fixed annuities eclipsed the $100 billion VAs Fixed in variable annuity sales estimated for the year. Sales of fixed indexed annuities (FIAs) also hit a record in 2016, rising 12 percent to $60.9 billion. This marks the ninth consecutive year of growth for FIAs. Meanwhile, variable annuity sales declined 21 percent to $104.7 billion in 2016. Fourth-quarter variable annuity sales were $25.3 billion, a drop of 20 percent compared with the year-ago quarter.
BILL WOULD CHANGE HOW MEDICAID TREATS ANNUITIES
An Oklahoma congressman believes too many people who can afford to pay for nursing home care are shielding their assets by putting money into annuities. So he wants to tighten the rules on how annuities are calculated for Medicaid coverage formulas. Rep. Markwayne Mullin, R-Okla., has drafted the Close Annuity Loopholes in Medicaid Act bill. The CALM Act would change how Medicaid treats annuity income within its eligibility guidelines. Under existing rules, if a couple buys an annuity, and one spouse uses Medicaid nursing home benefits, Medicaid considers all of the annuity income as that of the spouse still living in the community. Mullin’s bill would require Medicaid to count half of any income from an annuity a couple purchased within the previous five years toward the cost of longterm care. The bill would not apply to DID YOU
KNOW
?
38
annuities that were purchased more than five years previously.
IMOS WANT TO KEEP FIA FLEXIBILITY
Regulators want to know: Why can companies change the terms of FIA contracts after the contracts have been issued? Insurers and independent marketing organizations reply: Having the ability to charge those terms is critical to adjusting to market changes. Insurers and IMOs filed 15 comments as part of the industry’s response to a Department of Labor proposal granting IMOs an exemption to sell commission-based FIAs under the fiduciary rule. “The ability to adjust rates during the surrender period is part of natural product design,” said John Matovina, CEO of American Equity Investment Life Holding, one of the nation’s largest FIA sellers. Insurance companies and policyholders need to retain ample latitude and “lots of
U.S. single premium pension buy-out sales totaled $13.7 billion in 2016, the second-highest annual total recorded. Source: LIMRA
InsuranceNewsNet Magazine » April 2017
QUOTABLE
It’s tooare early to tell if fee-based There 11 companies offering indexed annuities will experience QLAC (qualifying longevity annuity successful sales levels. contract) products. While this is a small and new part of the DIA — Sheryl J. Moore, presidentto see an uptick market, we expect and CEO of Moore Market in sales in Intelligence and2016. Wink
options” to make changes after FIA contracts are sold in order to adjust to changes in the marketplace outside an insurance company’s control, he said.
HERE THEY COME! FEE-BASED INDEXED ANNUITIES
Annuity carriers are preparing for the Department of Labor’s fiduciary rule by lining up new fee-based fixed indexed annuities for independent marketing organizations and their advisors to sell. Voya Financial launched its Voya Journey Index Annuity with a “two-stage” interest-crediting approach. The annuity offers advisors the flexibility to use more than one interest crediting strategy to match long-term financial goals. Voya Journey Index Annuity is sold via commission, but the company is developing an advisory version for release later this year. Allianz Life announced the launch of Retirement Foundation ADV Annuity, the company’s first fee-based fixed indexed annuity. Great American Life signaled it was ready to enter the investment advisory channel with the release of Index Protector 7, a fee-based FIA with an optional guaranteed income rider. The annuity, sold through financial advisors at Raymond James, complements the insurer’s commission-based indexed annuities already in the market.
UNDERWRITING DECISIONS IN 120 SECONDS OR LESS
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SINGLE PREMIUM WHOLE LIFE
Sagicor Life Insurance Company (Sagicor) just made their SPWL products available on Accelewriting®. Sagicor’s Accelewriting® process is an automated underwriting system that provides an underwriting decision in minutes and eliminates the need for a face-to-face meeting with the client and the telephone interview.1 The Ohlson Group has been one of the leaders in the single premium product market for over a decade and is excited to offer these Sagicor SPWL products. Fixed Indexed Single Premium Whole Life (FISPWL) • Immediate 10% premium bonus • Guaranteed return of premium from day 12 • Chronic Illness and Terminal Condition Benefit 3 • Withdrawals allowed 4,5 • Issue ages 18 to 85 (age of last birthday) • Minimum premium $5,000 • Distinct crediting strategies 6
Interest Sensitive Single Premium Whole Life (ISSPWL) • Minimum guaranteed interest rate of 3% • Guaranteed return of premium from day 12 • Chronic Illness and Terminal Condition Benefit 3 • Withdrawals Allowed 4 • Issue ages 45 to 85 (age of last birthday) • Minimum Premium $5,000
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For Producer use only. Not for use with the general public.
1
FISPWL and ISSPWL are issued by Sagicor Life Insurance Co. (Home Office: Scottsdale, Arizona).
Issuance of the policy may depend upon the answers to the health questions set forth in the application.
2 3
Less any loans, withdrawals or Accelerated Benefits paid out. The Accelerated Death Benefit Rider is an inherent rider at no additional cost. Only one benefit is payable. See policy for details.
4
See policy for complete details, including fees, limitations and exclusions.
5
Not available in MN.
6
For current rates and strategy options please visit the Producer’s section of Sagicor’s website and download the Current Crediting Strategies/Rates PDF (Form 4062). April 2017 » InsuranceNewsNet Magazine 39
This material is for informational purposes only. Please see the policy forms and riders for details. Policy forms and riders may vary by state and may not be available in all states. Single Premium eApps for amounts above the Accelewriting® Net Amount at Risk (NAR) limits will be automatically referred to underwriting for further review.
ANNUITY
How Annuities Can Be Structured to Be Medicaid-Compliant S etting up a Medicaid-compliant annuity enables a seriously ill client to pay for long-term care while preserving a financial quality of life for the healthy spouse. By Rich Lane
A
major fear for most married clients — regardless of age — is that they will outlive their income. For older clients, this concern can magnify quickly when one of the spouses requires long-term care. When a spouse becomes ill, a couple’s attention most often is focused on finding the best care facility. However, they may not be thinking of one important factor: What happens to the financial stability of the healthy spouse? The average cost of a semiprivate room in a nursing home has increased to $6,844 a month, according to the most recent Genworth “Cost of Care” study. Many clients haven’t thought about how this cost could impact their overall financial situation.
The High Cost of Long-term Care
Consider this example: You have worked with a husband and wife — Greg and 40
InsuranceNewsNet Magazine » April 2017
Jennifer — for more than 15 years. During this time, you’ve helped them build and maintain a net worth totaling $426,500 in countable assets. Now well into retirement, Greg suddenly experiences a stroke and requires full-time nursing home care. In the middle of determining the best approach for Greg’s care, the couple has an important decision to make. How can they fund Greg’s care and still maintain Jennifer’s standard of living? There are a few ways the couple could proceed. First, they could pay for Greg’s care privately, which would cost the couple about $7,000 a month as they wouldn’t be eligible for Medicaid assistance at their current income level. With $84,000 per year going toward nursing home costs, the couple’s hard-earned savings could be gone in about five years if they pursue this option. Alternatively, the couple could convert their assets into a Medicaid-compliant annuity, which acts as a spend-down vehicle. Purchasing an immediate annuity will put the bulk of the couple’s income in a safe place that preserves it for Jennifer’s needs, while resulting in Greg’s immediate eligibility for Medicaid to pay for his long-term care.
Using an Annuity to Restructure a Client’s Assets
While Medicaid can provide much-needed financial assistance when someone incurs a serious medical condition later in life, certain rules and requirements may keep some of your older clients from receiving the financial support they need after experiencing a serious health condition. As illustrated previously, the cost of care in a nursing home can be financially devastating, and many clients may not be able to sustain this type of expense. Immediate annuities are a good tool to use when assisting your clients with Medicaid planning. The ability to rearrange assets to qualify for Medicaid became legal under the Omnibus Budget Reconciliation Act of 1993. Although regulations vary from state to state, this law means assets placed within a Medicaid-compliant immediate annuity are considered income and no longer count as available assets when qualifying for Medicaid assistance. Immediate annuities can help achieve your clients’ goal of helping an ill spouse qualify for immediate Medicaid eligibility in order to pay for long-term care, while providing the healthy spouse with sufficient income and resources to maintain their lifestyle.
HOW ANNUITIES CAN BE STRUCTURED TO BE MEDICAID-COMPLIANT ANNUITY
Setting up a Medicaidcompliant Annuity
Federal law allows for a division of assets at the time a spouse enters nursing home care. To that end, when looking at Greg and Jennifer’s assets, $310,580 of their original $426,500 can be put in a Medicaid-compliant annuity in Jennifer’s name. This provides Jennifer with $4,320 of monthly income for six years, and allows Greg to qualify for Medicaid immediately. This arrangement makes Jennifer the owner and annuitant, based on her life expectancy. However, in arranging the Medicaid-compliant annuity, the primary
$426,500
ments. These include the annuity being irrevocable and actuarially sound, and that payments from the annuity begin immediately after purchase. Also, as mentioned previously, a spouse or child can be named as the remainder beneficiary to collect on any leftover proceeds after the amount of Medicaid support is deducted. By providing an income stream to the healthy spouse who is exempt from Medicaid spend-down, the healthy spouse is protected from losing their money and needed government assistance. In addition, Medicaid-compliant policies are reviewed by a state’s Medicaid office and
Total countable assets
– $115,920
Less amount Jennifer can keep
$310,580
Balance used to purchase annuity
beneficiary listed will be the state, as any remaining money left in the annuity after Jennifer’s death would be recovered to help pay for the amount Medicaid has spent on Greg’s medical care to date. Medicaid-compliant annuities still may be used as vehicles to help pass remaining wealth on to loved ones, as well. Secondary beneficiaries (including children and grandchildren) can be listed, allowing for the money remaining after the Medicaid settlement to go directly to those listed.
Regulations Around Use
This type of transaction is allowed by the Deficit Reduction Act of 2005 (DRA). The DRA was established to provide states with the ability to reform Medicaid programs and expand access to affordable coverage. Through this, Medicaid-compliant annuities were established to help ensure either spouse wouldn’t be impoverished by a serious medical condition. Under the DRA, Medicaid-compliant annuities must meet certain require-
reported, so clients can feel secure knowing this is a valid, helpful transaction.
Tips to Keep in Mind
As mentioned previously, pursuing this option is a viable way to ensure a client can receive the appropriate long-term care needed, without bankrupting the healthy spouse. To help make sure you’re recommending and implementing a sound strategy for your clients, consider these tips. 1. Partner with a highly rated company. There are a handful of companies that offer Medicaid-compliant immediate annuities, but it’s important to spend time reviewing carriers to ensure you’re putting your trust in the hands of an upstanding organization. This includes reviewing financial ratings and learning more about the company’s approach to customer service.
rangement is the carrier’s ability to issue and deliver the annuity quickly. The faster the annuity contract can be shared with the Medicaid reviewers to show that assets have been repositioned into a Medicaid-compliant immediate annuity, the faster the spouse can qualify for the care needed. This will limit the amount of time the couple will spend selffunding care. 3. Work in conjunction with an eldercare attorney. After a Medicaid-compliant annuity is issued, it can’t be revoked. It’s important to discuss the annuity purchase with an elder-care attorney. These attorneys have specific knowledge of the needs facing seniors and are well-versed in your state’s laws. In addition, they are familiar with estate planning and preservation of assets, as well as Medicaid and long-term care solutions. 4. Know the features. Once issued, Medicaid-compliant annuities are irrevocable, nonassignable and nontransferable. They must be actuarially sound and provide payments in equal amounts. These are important aspects to bring up with clients to make sure they understand these features before they make the purchase. The Medicaid market is a huge opportunity for sales due to the aging population and the high cost of longterm care. Although this strategy may be unfamiliar territory or seen as complex, the rules have changed over the years. The result is strengthened Medicaid programs that are led by the states themselves. Seeking a spend-down option that preserves the integrity of your client’s way of life and allows an ill spouse to receive important care helps ensure that both clients are supported during what can be an already stressful time. Rich Lane is the second vice president of individual annuity sales and marketing for Standard Insurance Co. (The Standard). Rich may be contacted at rich.lane@innfeedback.com.
2. Consider timing and delivery. One of the key factors for this type of arApril 2017 » InsuranceNewsNet Magazine
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tain, Forget the foun ity! nu an discover an
ANNUITY
How Will Annuities Help Americans Handle Longer Lives? U pdated actuarial tables prove that Americans’ longevity continues to jump significantly. How the industry is responding to these increased lifespans.
LIFE EXPECTANCY CSO TABLE Male
Female 80.8
By Anthony Domino Jr.
F
or centuries, humankind has searched for the Fountain of Youth. Its draw is legendary — enticing men like Ponce de Leon to embark on voyages to unknown regions in search of it. Today it seems as though the Fountain of Youth has been found — not via armadas on the open seas or by cutting through jungles, but by men and women working in lab coats and researching the innermost workings of our earthly vessels. The proof is in the numbers. The actuarial community publishes tables to predict how many people of a given age will die in a given year. These tables, known as Commissioners Standard Ordinary (CSO) tables, are accepted as “gospel” among this group of professionals, and are updated when the actuarial community agrees that the change in longevity is significant. The CSO tables have been extending over the past 70 years, and they experienced another jump this year. Here are a few observations that come to mind after reviewing these life expectancy tables. » People are on average living 30 percent longer than they did at the start of World War II. » Men are closing the gap. Over the past 20 years, men have extended their longevity by 12.5 percent whereas the average woman’s lifespan is only 9 percent longer. » A “normal retirement age” of 65 (or 67 depending upon when you were born) may be unsustainable for the population at large. At age 65, a 2017 retiree will need to have three times the assets their father 42
InsuranceNewsNet Magazine » April 2017
75.8 71.2 68.3
78.9
82.9
76.6
70.8
62.3 62.3
1941
1958
1980
needed when he retired in 1980. A greatest generation dad lives on average another five years in retirement while a baby boomer son will live for an average of 15 years in retirement. » The slope of the longevity curve is trending sharply upward. » These life expectancy tables represent a statistical average. Half the female population will live to age 83. Once you make it to age 83, the present table extends longevity as high as age 120. So what does this all mean in the world of insurance and financial products? In a word — everything. Here is how increased lifespan has affected long-term care and longevity guarantees.
Long-Term Care Insurance
First offered in the late 1970s, long-term care insurance typically pertains to medical support coverages that are generally not available or only available on a limited basis under private medical insurance or Medicare. Benefits provided include home
2001
2017
health care, private duty nursing (in or out of a care facility), live-in caregiving and housekeeping assistance. Claims are based upon the client’s inability to perform as few as two of the basic activities of daily living such as dressing, bathing, feeding themselves, toileting, continence, transferring (getting in and out of a bed or chair) and walking. Roughly 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. About 60 percent of those over age 75 will spend some period of time in a nursing home. Since 2010, many carriers have either severely limited the policy benefits they offer, dramatically increased premiums or even pulled out of the LTCi market. The factors affecting these changes have included the increased costs of private nursing facilities and the aforementioned issue of longevity. LTCi policies once provided lifetime coverage but now typically are capped at six years of benefit payment. The current approach is to attach a long-term care rider onto a life insurance policy. Often expressed as a percentage of the
HOW WILL ANNUITIES HELP AMERICANS HANDLE LONGER LIVES? ANNUITY death benefit — these riders provide a pool of cash available to pay the cost of care. They also follow a similar claims process based upon the client’s inability to perform basic activities of daily living. Because these riders can rarely be added to existing policies, age and insurability become factors to consider.
Longevity Guarantees
After attending to health care needs, the second financial concern resulting from longer life expectancy is not outliving assets. Several seismic shifts have made this a greater concern than it ever was for our
ered through the fire hose known as the internet. Sprinkle in persistently low interest rates, and one’s financial concern ratchets higher. A variety of unique investment products have arisen to meet these needs and allay those fears. One of the more creative is a type of rider that is added to an annuity. These guaranteed minimum benefit (GMB) riders are commonly attached to many annuities sold today. GMB riders provide an investor with a minimum level of annuity payment while the annuity is in the accumulation phase and a base amount of lifetime income while in the distribution phase — regardless of how the investment has performed. These “guarantees” are paid for by the assessment of a fee (between 0.75 percent and 1.25 percent) against the performance of the underlying investment itself. In order to receive the guarantee — the investor must “annuitize” their payment
People are on average living 30 percent longer than they did at the start of World War II. parents. Among them is the virtual end of defined benefit pensions, enhanced volatility within the financial markets, growing investor confusion and uncertainty resulting from information deliv-
(take over the remainder of their life). This may not be true of all products and may void the riders. Unlike traditional “period certain” annuities, these newer contracts offer refund of premium or enhanced death benefits should one buck the longevity trend and pass away on the wrong end of the actuarial curve. As a result, they often become an important financial planning tool. Much like with the traditional defined benefit pension, with GMB riders the client is provided a base amount of lifetime income upon which the remainder of retirement assets can be invested. How the trend of extended life expectancy will continue to play out is anyone’s guess. Will the longevity arc continue trending upward? And, if so, what product innovations remain to be seen? Anthony Domino Jr. is managing principal with Associated Benefit Consultants, Rye Brook, N.Y. He may be contacted at anthony.domino@ innfeedback.com.
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HEALTH/BENEFITSWIRES
2018
DECEMBER
31
Grandmothered Plans Get Another Year The health insurance world isn’t saying good-bye to grandmother just yet. “Grandmothered” health plans – another name for individual and small-group health plans that do not comply with the Affordable Care Act’s coverage rule – will be allowed to remain in effect for another year. The Centers for Medicare & Medicaid Services has allowed these grandmothered plans to continue operating until Dec. 31, 2018, at which time they must end. An estimated 1 million people are covered by grandmothered plans in the 30 or more states that still permit them. The rest of the states already ended the sale of these nonACA-compliant plans.
WHEN INSURANCE MERGERS GO BAD
Call it the worst day ever in the health insurance market. On that single day, one giant merger was abandoned, another was threatened by infighting and a major insurer announced it will stop selling coverage on public exchanges in 11 states. Aetna said it was abandoning its planned $34 billion purchase of Humana. Then, later that same day, Cigna said it was suing Anthem to kill a $48 billion acquisition bid. To top things off, Humana told investors that it was abandoning the exchanges in all 11 of the states where it sells as of the beginning of next year. The Aetna/Humana and Cigna/Anthem deals were conceived as a way to help the insurers increase their enrollment and cut down on expenses, in part so they could improve their performance on the Affordable Care Act’s public insurance exchanges. DID YOU
KNOW
?
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INSURER CHARGED WITH OVERBILLING MEDICARE
UnitedHealth Group is accused of allowing its subsidiaries and other insurers to overcharge Medicare by “hundreds of millions — and likely billions — of dollars,” according to a lawsuit. At issue is Medicare Advantage, which was created in 2003 after UnitedHealth and other insurers said that managed care could help contain Medicare’s overall costs. UnitedHealth is charged with adding billions of dollars in excess costs over more than 10 years, according to the suit, which was filed in U.S. District Court in Los Angeles.
More than 12.2 million people signed up for health coverage under the Affordable Care Act during the most recent open enrollment period. Source: Associated Press
InsuranceNewsNet Magazine » April 2017
QUOTABLE
The idea that we require insurers to cover everyone and rate everyone the same is a worthy goal, but it is expensive. — Joseph Antos, American Enterprise Institute
A spokesman for UnitedHealth disputed the charges, saying they were based on faulty interpretations of Medicare rules.
PPO PLANS LOOKING MORE LIKE HDHPS
PPO plans and other traditional employer- sp ons ore d primary medical coverage plans seem to be taking on the characteristics of high-deductible health plans. Higher deductibles and out-of-pocket maximums foisted onto traditional plans have made these PPO plans look more like HDHPs, according to the latest data. The average 2017 PPO individual deductible rose 8 percent, to $1,088, compared with 2016, the Benefitfocus State of Employee Benefits 2017 report found. The average family deductible rose 9 percent to $2,421 over the period. PPO deductibles are now only a few hundred dollars shy of the IRS deductible threshold of $2,600 for a plan to be considered an HDHP. In addition, out-ofpocket maximums for PPOs are almost on a par with those for HDHPs. Average out-of-pocket family coverage maximums for PPOs rose 10 percent to $7,986 in 2017, while out-of-pocket family maximums for HDHPs rose 5 percent to $8,666, Benefitfocus found.
HEALTH/BENEFITS
How Finding Your WHY Finds Your Way to Your Ideal Client Great companies start by asking themselves why they do what they do. Answering that “why” can lead to opportunities with the clients who best align with your company’s values. By David Contorno
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hen I started in the health insurance business at the ripe young age of 17, I sought to be the most attractive choice to the broadest possible number of clients and prospects. The law of large numbers certainly would work in my favor. And back then, it appeared that was standard operating procedure for this industry, as well as for many other industries. This resulted in a very large influx of leads and a large group of possible clients to market to. Again, the strategy seemed sound at the time. The problem was that 46
InsuranceNewsNet Magazine » April 2017
most of those leads turned out to be people just shopping on price (and if you win on price, you will also quickly lose on price). This resulted in a tremendous amount of effort to quote, spreadsheet, etc., and a fairly low close ratio on what were fairly low-revenue clients (and even lower since the Affordable Care Act took hold). In 2009, I restarted my agency after a move from New York to North Carolina, and I decided to make that the turning point for doing things differently. And admittedly, that change did not happen overnight. It seemed that all the forces around me (employers, employees, carriers and even other brokers) all wanted the status quo to continue. This was despite at least some of those groups being very unhappy with the resulting higher premiums and eroding benefits. So I still found myself caught up in that already flowing river. Changing the tide has proved to be very difficult but it brought great rewards.
In this new environment, I began with the end in mind. What results did I want to deliver to my clients? What I really wanted was to stop winning business because we were the “least bad” option and instead win business by providing real value and real results. I so badly wanted to deliver good news to clients year after year. So we set out to become the agency that can deliver the results that are important to me personally and to our clients. And I can tell you that this makes us the exact opposite of what most clients actually want us to be. This sets us up to have uncomfortable conversations, to push employers and employees way outside of their comfort zones and shift their thinking so that they consume health care in a fundamentally different way. Most employers want us to deliver results, but not change anything in how the employer buys health care and how the employee consumes it. That just doesn’t work. After all, if nothing
HOW FINDING YOUR WHY FINDS YOUR WAY TO YOUR IDEAL CLIENT HEALTH/BENEFITS changes, then nothing changes. Somewhere around this time, I was introduced to a TED talk by Simon Sinek titled “How Great Leaders Inspire Action.” In short, Sinek said that every business has a “Golden Circle” with three rings: what they do as a company, how they do it and why they do it. He believes that most companies and their leaders start with “what” because it
you feel accomplished? Answering that can help you find your “why.” From there, I worked backwards and filled in the “how” and then the “what.” How does all this translate into how we do business today? Well, we offer a pretty comprehensive but defined set of services, strategies and solutions. It’s not right for every client, and not every client is right for us.
they have to. We look for an employer who will no longer stand by and continue to operate in the opaque, inefficient, overpriced and low-quality health system that typically is presented to them as their only option. We already have moved to a compensation model that involves a flat fee whenever possible. We are starting to work with employers on a system where we charge
The Golden Circle Simon Sinek described “How Great Leaders Inspire Action” in his TED talk. Sinek said that every business has a “Golden Circle” with three rings: what they do as a company, how they do it and why they do it.
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WHY? HOW? WHAT? is the easiest to convey in spoken word and in print. If they ever move beyond “what,” they then talk about “how” they do it. But the really great leaders and really great companies start with why they do what they do. It is Sinek’s belief that people will be far more inclined to buy from you if your “why” aligns with their “why.” In other words, people buy on emotion, not on facts and figures. Sinek’s 14-minute TED talk completely opened my eyes and solidified something that had been in the back of my brain for years, but was so abstract to me that I never recognized it consciously. As a result, I spent several years expressing and honing my “why” for me personally and for my agency. I think every personal and corporate “why” should be unique and heartfelt and passionate. This should be what gets you out of bed each day. Not to make money, we all need to do that. What gets you excited and pumped, and makes
The first thing we look for is a business owner who truly cares about their employees. Last year, I had the pleasure of meeting Harris Rosen, the owner of Rosen Hotels and Resorts in the Orlando area. As we walked through his flagship multibilliondollar property, and despite being a septuagenarian, he knew the first name of every single employee we walked by, from the property manager to the mother of four sweeping the lobby (and he even knew her kids’ names!). Is it any coincidence his health care costs for his employees are 30 percent or so below other surrounding businesses and he has an unheard-of low turnover rate for a hospitality-based business? Obviously, a lot more goes into those outcomes than these particular factors, but it is indicative of the type of employer we want to work with. We also look for an employer who offers benefits because they want to, not because
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Strategic Positioning Why = The Purpose
What is your cause? What do you believe?
How = The Process
Specific actions taken to realize the Why.
What = The Result
What do you do? The result of Why. Proof. half our normal fee in exchange for shared savings over three years for the strategies we implement. This fully aligns our incentives with those of the client as the client makes a three-year commitment to our agency as well. It also pays us more if we deliver results for our clients, instead of the traditional model that rewards the opposite. So today, we work with far fewer prospects, but a much higher percentage of our prospects are more than $50,000 in annual revenue and we close a much higher percentage of them. At a time when we feel as if we are being asked to do more work for less pay, we have found a path that allows us to work with fewer clients, and get higher pay. Can someone say Utopia? David Contorno is president and CEO of Lake Norman Benefits, Mooresville, N.C. David may be contacted at david.contorno@innfeedback.com.
April 2017 » InsuranceNewsNet Magazine
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NEWSWIRES Things Looking Better for Recent College Grads
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Grads With Jobs Requiring Degree
Young adults are finding their financial futures to be much rosier recently, according to the latest figures released by The Urban Institute. Two-thirds of those fresh out of college in 2014 wound up in jobs that require a degree. That’s a shift from three years previously, when more than half of recent college grads were either out of work or underemployed. A 2014 poll by the Pew Research Center found the outlook for new college graduates even more optimistic. About 86 percent of college grads between 25 and 32 said they were either in a “career job” or in “a stepping stone to a career job.” The long-term financial stakes are high for graduates who settle for jobs that require less education. College graduates who did not find a good-fitting occupation earned just half of what their peers did in jobs fit for college grads, The Urban Institute’s study said.
BREAKAWAY ADVISOR TRANSACTIONS ON THE RISE
Last year saw a surge in breakaway activity as advisors left registered investment advisors (RIAs), wirehouses and independent broker/dealers to join other RIAs. Last year, 64 teams and individuals broke away, an increase of 15 percent over the previous year. The surge in breakaway activity was due to the expiration of “forgivable loans” that wirehouses signed to keep advisors from leaving the large firms at the height of the financial crisis in 2008, according to the 2016 DeVoe & Co. RIA DealBook.
64 breakaway
advisors in 2016. There were
49 in 2015.
INCREASE OF 15% DID YOU
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50% 2011
66% 2014
New Department of Labor fiduciary rules will cause an increase in breakaway activity, although the trend may be more pronounced at broker/dealers, said David DeVoe, managing partner of DeVoe & Co. This year, however, breakaway RIA activity is likely to fall off now that the sevenyear loan period has expired and the departure wave has peaked, he said.
MILLENNIALS WARY OF ADVISOR FEES As millennials begin building wealth and planning for retirement, expect them to take a deeper interest in how and what their advisors charge for fees. That’s the word from a Cerulli Associates report that said younger investors are more likely than baby boomers to understand how financial advice is paid for.
the first two months year, insurers filed 17 fee-based variable THEIn AVERAGE RETURN ON of ANthe INITIAL PUBLIC OFFERING was 20 percent this annuity year. Thecontracts, average increase in the first (or “pop”) is 13 percent. more than twice theday number of variable annuity Source: Renaissancefiled Capitalin a typical calendar-year period. contracts
InsuranceNewsNet Magazine » April 2017
Source: Morningstar
QUOTABLE
It’s very possible that the business model financial advisors rely upon today will not survive long into the future. — Matt Lynch, managing partner with Strategy & Resources
This generational shift is putting pressure on advisor fees. “As younger investors’ wealth grows to comprise a greater proportion of investable assets, pricing pressure will increase,” the report said. Advisors appear to be moving still further into selling products and services based on fees and away from commissions, the Cerulli researchers found.
WORKERS CONTRIBUTING MORE TO 401(K)S
When it comes to 401(k)s, there’s good news and there’s good news. Workers are putting more money into their 401(k) accounts, and they are borrowing less money from them. The average 401(k) balance was $92,500 at the end of 2016, up nearly 5 percent from a year earlier, according to a Fidelity study of plans it administers. Workers set aside 8.4 percent of their paychecks during the last quarter of 2016. It’s the highest quarterly level for 401(k) contributions since the spring of 2008. In addition, fewer workers are taking loans from their 401(k)s. Only 21 percent of workers have a loan outstanding from their 401(k) accounts, the lowest level in seven years.
Sponsored
NEXT ERA INVESTMENT PHILOSOPHY GIVES EDGE TO LEADING RIA National leader in the RIA space, Brookstone Capital Management, has reinvented an antiquated investment philosophy to benefit advisors and their clients. How this firm’s performance-focused position has them surging ahead of competitors.
In-house intelligence is paramount
One of Brookstone’s big differentiators is talent. Brookstone has made it a priority to recruit some of the sharpest talent in the industry rather than outsource investment intelligence or back office infrastructure. Their in-house team includes three CFAs, one of whom is the Chief Investment Officer, who are instrumental in shaping the investment platform. There is a consistent creation of new solutions and enhancements to the platform, with the singular goal of providing the best options to advisors. Those solutions are not limited to a handful of third-party money managers. Brookstone understands the needs of individual investors and the need for their advisors to have a competitive advantage for every situation. With that in mind, Brookstone offers an open architecture platform where advisors can navigate a broad universe of mutual funds, ETFs and SMAs to create customized solutions for clients. With the RAISE philosophy (see sidebar) in mind, Brookstone knows how important it is to provide maximum flexibility for advisors.
Managing both performance and protection
Over the past few years, many RIA firms have relied solely on using defensive tactical management, which is designed to perform in specific market cycles with limited upside capture. Understanding the need to provide clients with positive returns and to protect against potential downside, Brookstone created the RAISE 360 Select models. The RAISE 360 Select models are designed to be competitive throughout changing markets and are a globally diversified blend of strategic and tactical components. Each model aligns with a specific risk profile using a range of equities and fixed income vehicles engineered by a seasoned investment committee.
Brookstone truly believes that this approach gives clients the security of downside protection, while still participating in upside performance, and the results have validated this.
The Brookstone Investment Philosophy The investment philosophy is referred to as “RAISE,” which stands for Risk Appropriate Investment Strategy Evaluation. The concept is simple, as they aim to achieve six important goals:
1. Deliver competitive returns 2. Avoid large losses or drawdowns 3. Incorporate a risk-managed approach
4. Offer both brand name and boutique money managers
5. Utilize a combination of strategic/tactical and active/passive approaches 6. Focus on goals-based per-
formance and do not chase benchmarks
Serving the performance-focused investor
Brookstone removes most limitations and gives advisors much more than a handful of antiquated solutions. They have the ability to provide any solution that may be applicable to the individual investor. The investment platform is one of the most comprehensive and customizable in the independent RIA space, and advisors have seen the benefit of that from client satisfaction. By having a large menu of solutions, including those with a performance-focused investor in mind, they’ve created a competitive advantage for every Brookstone advisor. Couple this platform with a home office staff whose singular mission is to help advisors grow their businesses, and you have the truly special
culture and value proposition that has made Brookstone a national leader in the RIA space.
Three themes with the new administration
There are three themes that are likely to remain intact during the new administration.
1: Fee compression is real. If your fees
are too high, you will not be competitive, and you won’t be operating in the best interests of your clients. Brookstone has aggressively reduced fees, without reducing the compensation of independent advisors.
2: Performance matters. Brookstone built a value proposition around protecting on the downside, but also wanted to ensure meaningful participation on the upside. Brookstone boldly revamped their investment platform to be effective and relevant in all market cycles. 3: The move toward total portfolio construction that contemplates insurance or annuity needs with thoughtfully allocated managed money. They conscientiously moved their education and internal support infrastructure toward supporting total portfolio construction. This focus on total portfolio construction has positioned advisors more competitively in the marketplace. Brookstone feels that any advisor who focuses on these three themes will be perfectly positioned to navigate any challenges and opportunities that a new administration would bring. Learn more about how Brookstone is designed with performance-focused investors in mind at
www.PerformanceMattersRIA.com April 2017 » InsuranceNewsNet Magazine
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Emotional Currency: How Clients’ Money Stories Guide Decisions When you let your clients tell their personal history with money — and you really listen — you can work with them to ensure their story doesn’t become a horror story. • Rick Bowers and Lisa Klingberg
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hat is your personal money story?” Financial professionals should explore this question with clients to help them evolve the personal stories that shaped their inner relationships with money. Financial psychologists advise that discussing clients’ personal money stories removes emotional barriers to future discussions about spending, saving, investing and retiring. Stephen Lippa, vice president of education and digital strategy at JA Canada, left a recent professional roundtable convinced of the importance of personal money stories. In a blog post, Lippa called for “tools and questions to help uncover individual money stories.” “We need to first help people see their own attachments to what money represents to them… so the more pragmatic skills and conceptual understanding can get through emotional defenses,” Lippa wrote. “Each of us has a story, and with courage we can share it.”
Global Asset Management found that “making emotional decisions is the No. 1 investor mistake.” An American Psychological Association 2014 survey, “Stress in America,” found that money tops the list of the nation’s stressors. Subtitled “Paying With
Emotion
The emerging focus on unpacking personal money stories follows a rich vein of research illuminating the link between personal decision-making and human emotion. Jennifer S. Lerner’s paper, “Emotion and Decision Making,” in the 2014 Annual Review of Psychology succinctly put that “many psychological scientists now assume that emotions are the dominant driver of most meaningful decisions in life.” New studies reveal how emotions such as fear, anxiety and stress influence financial decision-making. A recent survey of financial professionals in 15 countries conducted by Natixis 50 50
InsuranceNewsNet Magazine Magazine »» April April 2017 2017 InsuranceNewsNet
Our Health,” the survey showed that 72 percent of adults who were questioned felt stressed about money at least some of the time and 22 percent experienced extreme stress about money. The APA also noted “money and finances have remained the top stressor since our survey began in 2007.” Based on these kinds of insights, some financial planners are examining the emotional aspect of their practices. They are teaming up with coaches, psychologists and counselors or taking classes and reading books on financial counseling.
Money Scripts
Financial psychologists Bradley Klontz and Ted Klontz coined the term “money script” in their 2012 research, “How Client Money Scripts Predict Their Financial Behaviors,” published by the Financial Planning Association. This research continues to impact finances and psychology. The Klontzes’ research, along with additional research by Sonya Britt, program director of the registered Certified Financial Planner Board programs at Kansas State University, showed how childhood memories profoundly influenced adult attitudes toward saving, spending, investing and planning. The researchers define money scripts as typically unconscious beliefs about money, handed down by ancestors, learned in childhood and passed along through generations. According to the experts, these emotional triggers were imprinted long before anyone opened their first checking account. Personal money scripts also drive adult financial decision-making. Positive money scripts can lead us to make sound decisions while troubled scripts can affect our decisions in major ways. “Financial planners can assess client money scripts as a part of their data gathering process to provide a shared language to explore the impact of money beliefs on financial behaviors and to predict potential risks to clients’ financial health,” according to the research.
The Challenge
It makes perfect sense for financial professionals to tease out their clients’ personal money stories given the importance of deeply held emotions and attitudes on the topic. It’s important to help clients evolve their scripts to meet the complex demands of saving for retirement in the current economic environment. Many people find money a difficult subject to discuss. The 2015 Fidelity In-
EMOTIONAL CURRENCY: HOW CLIENTS’ MONEY STORIES GUIDE DECISIONS
vestments Money FIT Women Study found that eight in 10 women have refrained from talking about finances with those close to them. The national survey found that only 47 percent of women are confident in discussing money and investing with a financial professional on their own.
Soliciting Stories
How can financial professionals overcome resistance to capture personal money stories? The burgeoning field of financial therapy provides insight into the best approach.
» “Do you recall the first time you earned your own money?” » “Would more money make you happier?” There are times when clients aren’t keen on answering questions. In this situation, another technique can be borrowed from a therapist’s office. When you ask an open-ended question and your client demurs, answer it yourself, or tell the story of another person you know, such as your father or aunt. This gives your client another perspective and highlights your comfort dealing with what
Bradley Klontz’s research identified four categories of money scripts, three of which are associated with poor financial health. These categories are: 1. Money avoidance – belief that money is bad, that rich people are greedy and that they themselves don’t deserve money. 2. Money worship – belief that more money will solve all of their problems, that there will never be enough money and that money brings power and happiness. 3. Money status – equating self-worth to net worth and putting a premium on buying the newest and best things. 4. Money vigilance – the only script associated with good financial health, this script includes themes of frugality, the importance of savings, being discreet about how much money one has or makes, and nervousness about saving enough money for an emergency. Keep the mood light by beginning with a conversation rather than an interview. Be patient and supportive as the storyteller sorts through memories and shares feelings. Gently align the storytellers’ background, memories and emotions with their current financial outlook. Encourage storytellers to embrace their strengths, discard old baggage and evolve their story to meet current challenges. Guide the conversation with low-key but open-ended questions that can’t be answered by a simple yes or no. For example: » “Were you raised to save money or spend money?”
might feel like dirty laundry to them. Sometimes, no matter how hard you try, you can’t get a client to open up. In these instances, you should employ patience and a little reverse psychology. Try guiding them to the answer by making an assumption based on the facts available. For example, you could say, “It appears from your spending habits that you are more of a live-for-today instead of save-for-tomorrow kind of person. Have you always been this way?” This might prompt the client to respond in an attempt to refute your incorrect assumption. The exercise should be enlightening for all — including the advisor. Understanding what a client’s economic situation was in childhood can provide insight into their
present investing preferences and tolerances. A person who grew up on the lower end of the economic spectrum might be more conservative and cautious. Likewise, a person who grew up with greater advantages might have a higher risk tolerance and demand more input into financial strategies. Cultural background, ethnicity and even religion can impact money attitudes. Money scripts also can reveal trouble areas, ranging from compulsive spending to wealth aversion.
When Couples Share Money Stories
Sharing money stories can be extremely helpful for couples. Many couples tie the knot without revealing to each other their full financial pictures. A 2016 Ameriprise survey found that approximately 31 percent of married couples — even the happiest ones — clash over finances at least once a month. The most common quarrels revolved around major purchases (34 percent), finances and children (24 percent of respondents with kids), a partner’s spending habits (23 percent), and important investment decisions (14 percent). One important takeaway from this survey is that 40 percent of couples who disagreed about money said that an advisor had helped them make money decisions when things turned tense. By discussing their individual money scripts, partners can gain insight into the other’s attitudes toward money and better understand why they do what they do. Rick Bowers is an award-winning journalist, author and filmmaker with expertise in planning for creative retirement. Rick may be contacted at rick. bowers@innfeedback.com. Lisa Klingberg, managing partner of Inver Consulting, has 20 years of experience in wealth management, banking, Treasury, mortgage and capital markets. Lisa may be contacted at lisa. klingberg@innfeedback.com. Together, they wrote this article exclusively for Jackson National Life. While Jackson commissioned Rick Bowers and Lisa Klingberg to research and write this article about retirement and financial planning, they are not affiliated with Jackson.
April 2017 2017 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine April
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Advisors can help women remove the risk of not having enough funds to meet their retirement health care needs ...
Women’s Longer Life Expectancy Comes at a Higher Health Cost The preretirement savings required to cover women’s higher health care costs in retirement can be manageable, if tackled early enough. • Ron Mastrogiovanni
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iving longer is expensive. A 55-year-old woman will have an average of two extra years of life compared with a man of the same age. This means that a 55-year-old woman who retires at age 65 will face an additional $79,000 in future health care costs compared with a man of the same age. And that’s before factoring in long-term care expenses or living beyond a healthy woman’s average actuarial life expectancy of 89. Because women are an average of 2.3 years younger than their husbands, they will need to count on living about four years longer than their spouse. When combined with housing and all other living expenses, the importance of planning for these extra years of life is all too apparent. These are just basic end-of-life costs. An average healthy 65-year-old woman 52 52
InsuranceNewsNet Magazine Magazine »» April April 2017 2017 InsuranceNewsNet
is projected to need $235,526 in future dollars ($153,079 in today’s dollars) to pay for a lifetime of premiums for Medicare parts B and D and supplemental insurance. This rises to $306,426 ($199,951 in today’s dollars) for total costs when outof-pocket, dental and vision expenses are included. These future expenses, detailed in our report “The Cost of Living Longer: Women & Retirement Health Care,” may appear overwhelming. But like all aspects of retirement planning, the preretirement savings required to cover these costs are manageable, if tackled early enough. Advisors can help women remove the risk of not having enough funds to meet their retirement health care needs — specifically after their partner has passed away — by making modest increases in savings or ensuring that a portion of
household financial assets is allocated for this purpose. Additional savings of as little as $25 a paycheck starting at age 55 will be sufficient to cover basic Medicare premiums in the final four years of life. By allocating $25,500 (growing at 6 percent) at the same age, total health care expenses can be addressed. Our experience has shown that when advisors discuss future retirement health care needs — one of the leading concerns of preretirees — their clients act. In fact, one leading plan sponsor saw an average 25 percent increase in 401(k) contributions when the cost of health care in retirement was introduced as a savings goal. Additional research will need to be done in this area, but we believe there are two simple reasons for this extraordinary increase: 1) Clients want to ensure that their health care costs will be covered in retirement, and 2) the additional savings are manageable. If all that was required to achieve women’s projected retirement health care goals
WOMEN’S LONGER LIFE EXPECTANCY COMES AT A HIGHER HEALTH COST
was increasing contributions to 401(k) or health savings accounts, the advisor’s value proposition might be limited. But when it comes to health care, advisors have a critical role to play — because future costs will be directly correlated to income in retirement and the composition of a retirement portfolio. Health care must be factored into the retirement planning process — not only in terms of setting realistic savings goals, but in building efficient decumulation plans aligned with retirees’ future financial needs. The importance of these conversations to women’s retirement security cannot be overstated. From an advisor’s perspective, these conversations provide the opportunity to add value across the range of retirement planning solutions. Advisors can provide value by discussing the following with women in their preretirement years:
qualified annuities along with HSAs into retirement plans — An average healthy which do not qualify as income 65-year-old woman is under MAGI — can reduce projected to need future surcharges by tens if not $235,526 in future dollars hundreds of thousands of dollars. ($153,079 in today’s dollars) An additional savings chalto pay for a lifetime of lenge women face is saving for premiums for Medicare long-term care. Given their addiparts B and D and tional expected longevity, womsupplemental en are more likely to play a role insurance. as caregiver during their spouse’s This rises to last years of life. As a result of a $306,426 ($199,951 longer life expectancy, women in today’s dollars) for tend to incur higher LTC costs total costs when out-of-pocket, dental than men do. Given the exceptionally high cost of future LTC and vision expenses services, women face the risk that are included. their spouse’s needs may exhaust household savings unless these costs are planned for. Again, advisors have a critical role to play in helping couples plan for this eventuality with long-term care insurance, life insurance and savings strategies to ensure a woman’s end-of-life needs will be met. It is important to note here that actuarial averages are a good 1. Savings strategies to meet starting point for planning, but it health care or long-term care is important to plan at an individneeds in retirement. ual level. Age, income, health, location and, as we have discussed, 2. Protection products includgender all have a significant iming whole life and long-term care pact on projected future costs. insurance to ensure that funds The starting point for addressare available to meet financial ing women’s retirement needs is needs after a spouse has passed having a conversation and preaway. senting data that reveal both the challenges of achieving and the 3. Longevity products including de- gross income (MAGI) in retirement is opportunities to achieve financial and ferred annuities or portfolios designed to higher than $85,000 for an individual or health care security in retirement. These ensure that funds are allocated and avail- $170,000 for a couple. conversations lead clients to take steps to able when needed most. Because the surcharge bands are not ensure funds are available to meet their and inflation-adjusted, over time a growing their spouse’s future needs. That’s a win for 4. Social Security strategies. number of retirees will be impacted as women and advisors. incomes rise with inflation. For women, 5. Portfolio optimization strategies to this can be a significant issue, because the Ron Mastrogiovanni is presimaximize lifetime income and minimize death of a spouse and the resulting change dent and CEO of HealthView Services. Ron may be contactMedicare surcharges. from married to individual status may ed at ron.mastrogiovanni@ lead to higher premiums. (Women — and innfeedback.com. One of the areas where an advisor men — who face surcharges following the knowledgeable about health care can add death of a spouse may well be able to apply Like this article or any other? real value is in product portfolio optimi- for a one-time exemption.) Take advantage of our zation to minimize Medicare surcharges. The selection of products that do not award-winning journalism, customizable Surcharges can increase Medicare premi- qualify as income under MAGI may siglicensure and reprint ums anywhere from 35 percent to more nificantly reduce their impact. Building options. Find out more than 200 percent if modified adjusted certain types of life insurance and nonat innreprints.com. As seen in the
July 2012 issue
Life
Annuities
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et Magazine
Health
July 2012
April 2017 2017 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine April Exclusive digital report for LIMRA Member Companies and their Producers. This report may be redistributed freely and may not be edited or modified without permission from InsuranceNewsNet.
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BUSINESS
Embrace Soft Skills to Reduce Rejection P roduct knowledge is great, but the ability to be genuine and honorable will help you close the sale and keep the client. By Luke Brown
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ou might have looked at the title of this article and thought it was about online dating. But the advice I’m about to give is aimed at new advisors as well as veterans in the business. Veteran advisors can’t afford to be complacent, because the tide can recede despite their previous hard work. For those longtime advisors, prospects and methods have changed just as the products they are selling have changed. New advisors have a lot of new product knowledge, but product knowledge alone doesn’t necessarily make for a fruitful insurance career.
What to Do?
Maybe the answer is to embrace a new paradigm. A paradigm whose hallmark is learning and using soft skills. Now might be a good time for a confession. I’ve never sold insurance. My career was as a trial, insurance coverage and insurance regulatory lawyer. Then a brain tumor got in the way. As a result, I had to switch gears, and the path that I took was writing about insurance for a consumer audience. In my prior life, the keys to success included listening skills, identifying and uncovering stated and unstated needs, and trying to find ways to fulfill those needs for my clients. The keys for me were not hitting the numbers for numbers’ sake or hitting home runs each time at bat. I understand that selling insurance is how advisors support their families and that you do need to hit some home runs. What I’m saying is that there are ways to get reach the goal other than by shooting the third-baseman as you head for home plate. There are ways to reach the goal other than the “how to overcome the objection” 54
InsuranceNewsNet Magazine » April 2017
routine that is commonly taught. What is needed instead is a way to help identify prospects’ long- and short-term objectives and find ways to achieve them. The operative word here is help.
How Not to Do It
Let’s define soft skills as the manner in which you listen, comprehend, express yourself and emote. More broadly, it is the package of appearance, communication and knowledge skills that you have. Some people are born with these soft skills, while others must develop them. In either case, it is critical that soft skills are not developed for the sole or primary reason of making sales. Otherwise, soft skills will be seen as fake, as just another sales tool, and will be counterproductive. We all know people who feign interest in a subject or conversation — look us in the eyes, nod their head, purse their lips and then move on with their own agenda. Despite their behavior, we may keep them as friends because of inertia or guilt. If the person is just an acquaintance, they are easier to jettison. But if you, a stranger and an insurance salesperson, try it, you won’t get the time of day, much less close the sale.
Another Approach
The jury selection model is an approach to insurance sales you should consider. Choosing a jury involves taking a pool of individuals (cold calling?) and selecting those the lawyers think may be favorably disposed to finding in the client’s favor (a warm prospect?). At the least, the attorneys want to eliminate from the pool those who may decide against their client. To determine who’s who in this pool, the lawyers present a broad overview of the facts of the dispute. They then ask some general questions and some that are specific to the facts of the case. This is a way for the lawyers to see whether any of the prospective jurors have experiences, feelings or prejudices that could prevent
them from being impartial. Some potential jurors are eliminated by this process until enough people remain to fill the jury panel. You might consider approaching insurance sales by following this model. Envision the positive results of your cold calls as the entire pool of potential jurors. The nature of insurance sales is usually that you would meet with each prospect. While some reject the approach right off the bat, some will meet with you. The meeting ultimately is intended to result in a sale, but if it doesn’t, that’s OK. After all, not everybody in the jury pool becomes a juror. Yet the odds are likely better if you use soft skills in your presentation. Just as the trial lawyer asks questions of the individuals in the jury pool and listens carefully for answers that may disclose whether the prospective jurors seem favorable or unfavorable toward their client, you must do the same thing. This first meeting is the time to listen for clues such as the prospect’s revelation that their father died relatively young and their mother was forced to work three jobs to support the kids. That’s a segue to a discussion of life insurance and maybe disability insurance. Identify with the strain the death must have put on the family, but don’t shove whole life insurance down the prospect’s throat at the first visit. Discuss options instead. Cheaper term life insurance may be all the prospect can afford right now. Show genuine understanding and a genuine desire to help. The operative words here are “genuine” and “help.” It’s not just overcoming objections — that’s sales. It is all about finding solutions. Luke Brown is a retired insurance attorney who writes extensively on insurance, mainly for consumers. He has written several books on insurance and served as the subject-matter expert for the development of an insurance regulatory tool by LexisNexis. Luke may be contacted at luke.brown@innfeedback.com.
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April 2017 » InsuranceNewsNet Magazine
55
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.
Widows, Widowers and their Advisors: A Glass Half Full to widows, there are many widowed people who do switch advisors or who decide not to be advised at all. That’s the glasshalf-empty perspective. Forty-six percent of widows leave their advisors, including 35 percent who switched to a new advisor and 11 percent who dropped their advisors and became unadvised. Twenty-two percent of widowers switched advisors and 12 percent became unadvised.
Reasons Why They Stayed
Let’s first explore why widows and widowers stay with their advisors. Both widows and widowers who were satisfied with their advisor indicated that it was because their advisor was providing good results. But more widows (45 percent) than widowers (25 percent) indicated that they kept working with their advisor because of an established, trusted, reliable relationship. In addition, more widows (78 percent) than widowers (60 percent) reported that a major factor in continuing to work with their advisor was that the advisor took time to educate them about their financial options. For both widows and widowers, reasons for remaining included the advisor’s knowledge of financial planning and investing, and being available when needed.
R easons why those who are widowed keep their advisors, switch advisors or become unadvised.
T
By Sandra Timmermann
here’s a statistic that has become something of an urban legend in the financial field. It states that two-thirds of widows leave their advisors after their husbands die, but that widowers tend to stay with their advisors after their wives die. To find out whether this assumption had any validity, the Center for Women and Financial Services and the Center for Retirement Income at The American College conducted a survey of recently widowed women 56
InsuranceNewsNet Magazine » April 2017
and men. The findings offer some hopeful surprises and provide interesting insights — as well as some lessons learned — as to why people leave an advisor, stay with an advisor or drop an advisor altogether. When tracking widows’ financial behavior after their husbands’ deaths, the glass is actually slightly better than half full — and not as empty as predicted. Fifty-five percent of widows continued working with the same advisor. The survey did find widowers were more likely to continue working with the same advisors after their wives’ deaths. However, the percentage of those widowers — 66 percent — was not as great as might be expected. Although these figures are somewhat encouraging, especially when they pertain
Reasons Why They Left
One surprising finding was that, of those widowed people who left their previous advisor, many did not choose to do so. Nearly two in 10 had to do so because their advisor retired or moved. There were also other reasons for leaving. Widows reported that a major reason for switching was that they had a bad relationship with their previous advisor. They reported the advisor wasn’t helpful and didn’t take the time to educate them on financial options. Widowers, on the other hand, indicated that their main reason for leaving was that they had different goals or a change of goals after the deaths of their wives. For those who dropped their advisor altogether, the reason was that they felt they no
WIDOWS, WIDOWERS AND THEIR ADVISORS THE AMERICAN COLLEGE INSIGHTS longer needed their advisor’s services or advice. This was especially true of widowers. Men also felt more confident that they could do things on their own.
What the Widowed Look for in an Advisor
The overwhelming majority of both widows and widowers were satisfied with their primary financial advisor (72 percent very satisfied and 25 percent somewhat satisfied). Interestingly, widows’ satisfaction level increases more than that of widowers after the death of a spouse. One might speculate that women, faced with the sole responsibility for their own finances after the deaths of their husbands, need someone who can understand the transition and help them move into this role. In fact, nine in 10 widows would recommend their primary financial advisor to friends and family. The advice that both groups receive is primarily in investing, financial planning and retirement income planning. Both widows and widowers are most concerned about having enough money to
last throughout their lifetimes. Their other concern is being able to afford long-term care. Widows are more likely than widowers (23 percent versus 14 percent) to say that they are extremely or very concerned about their ability to stay in their home as they age. This points to a disconnect. Despite concern about frailty and care needs, the survey indicated that few advisors actually are helping widowed people prepare for long-term care.
Takeaways and Lessons Learned
When people become widowed, the responsibility of managing money and determining a sound financial future rests solely on their shoulders. For widows in particular, advisors who take time during the transitional period to build a strong relationship, offer a sympathetic understanding of a new life stage, and explain and educate about financial options are more likely to retain their widowed clients. Because widowed people are concerned about long-term care but few advisors seem to be helping people plan for
it, discussions about care in the later years should be included in retirement planning. Advisors should discuss with their widowed clients who will provide the care, what living arrangements are preferred and how it will be financed. A final takeaway is the need for advisors to engage in succession planning so that their older clients who become widowed have continuity in advice. This is especially true for advisors who have grown old along with their books of business. Because many of us will be living into our 80s, 90s and beyond, a new focus on the particular needs of widows and widowers will be valuable to older clients and to those who provide financial products and services. Sandra Timmermann, Ph.D., is visiting professor of gerontology and retirement living with The American College of Financial Services. Sandra may be contacted at Sandra.Timmermann@ innfeedback.com.
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April 2017 » InsuranceNewsNet Magazine
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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.
Retirement Planning the Millennial Way M illennials have the potential to be the next high-net-worth clients, but they need some help getting started toward building wealth. By Matthew T. Hoesly
B
elieve it or not, the oldest millennials will be turning 36 this year. However, as they launch into adulthood, many of them are struggling to achieve traditional life milestones, such as getting married, having kids or buying a home. In fact, a 2016 study by the Million Dollar Round Table found that 53 percent of millennials are worried they will never achieve these types of milestones. Millennials have different financial priorities and goals, especially when it comes to retirement. Because of this, financial advisors have a unique opportunity to engage with those who are focused on building future wealth.
What’s Holding Millennials Back
Millennials face different economic challenges than older generations ever did. Student loan debt is one of the biggest challenges, with millennials owing nearly $1.3 trillion. On average, members of the class of 2016 have an average of $37,172 in student loan debt, which is up 6 percent from those of the class of 2015. The significant and growing college debt crisis is causing many millennials to delay saving for retirement, which directly jeopardizes their future standard of living. While education is vital to getting ahead in today’s society, uncontrollably rising student loan costs will set many millennials back. For instance, it is estimated that graduates of four-year colleges who took out student loans will spend more than a decade saving up for a 20 percent down payment on a median-priced home. That’s nearly double the 5.3 years it is expected to take graduates who didn’t have to take out loans to fund 58
InsuranceNewsNet Magazine » April 2017
Millennials have different financial priorities and goals, especially when it comes to retirement.
their education. With rising housing costs, many millennials may have to purchase homes at increasingly high debtto-income ratios, heightening the risk of mortgage default. Another challenge millennials face is lagging earnings due to the 2008-2009 recession and the subsequent slow recovery. With a median household income of $40,581, millennials earn 20 percent less than baby boomers did at the same stage of life, despite being better educated, according to Federal Reserve data.
What millennials earn early in their career can greatly influence the arc of their earnings later on.
How We Can Help Them
Because they have not received the exposure to the stock market that has helped previous generations accumulate wealth, millennials are less confident about investing. Moreover, many are choosing to delay saving until all their debt is paid off, despite the risk and opportunity cost associated with waiting to save. As
MDRT INSIGHTS advisors, we need to help our millennial clients find a balance between paying down debt and finding ways to maximize savings. Some millennials have a greater inclination than previous generations toward saving, so they live at home longer to establish a solid financial foundation before living on their own. In addition, millennials are staying on their parents’ health insurance plan until they turn 26, to increase their amount of disposable income. If your clients are no longer eligible to be on their parents’ plan, they should seek health care coverage on their own. While many may not see the need for it at a young age, experiencing a sudden illness or accident without the proper protection can drastically impact their financial stability. Proper disability insurance coverage also should be in force because for young workers such as millennials, their ability
Some millennials have a greater inclination towards than previous generations toward saving, so they live at home longer to establish a solid financial foundation before living on their own. to earn a paycheck is usually their biggest current asset. Millennials also should take advantage of their workplace benefits, such as 401(k) plans, to ensure their readiness for retirement. Even if they are not able to contribute a lot, making small contributions each month will give them time and the power of compounding interest. If they don’t have a 401(k) plan at work, there are many individual retirement account options available. Along with focusing on saving for retirement, it’s equally important for millennials to build a strong foundation of cash savings. Having enough to cover at least three to six months’ worth of necessary expenses is a good rule of thumb for millennials to follow so they can keep their retirement money invested. This could be in savings accounts, cash value of life insurance or other readily accessible sources of money. Millennial clients may have little money to invest and even less in assets, but they can be a perfect fit for developing a long-term working relationship. Stop overlooking a generation that has the potential to be your future high-net-worth clients. Matthew T. Hoesly, CFP, ChFC, MSFS, is a financial advisor with Resource 1, a registered investment advisory firm in Norfolk, Va. He is a nineyear member of the Million Dollar Round Table with four Court of the Table and one Top of the Table honors. He may be contacted at matthew.hoesly@innfeedback.com.
Like this article or any other? Take advantage of our award-winning journalism, licensure and reprint options. Find out more at innreprints.com.
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April 2017 » InsuranceNewsNet Magazine
59
LIMRA INSIGHTS
More than 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.
Bumpy Ride Predicted for Individual Annuity Sales in 2017 A nnuity sales are expected to see a drop in 2017, but 2018 could be a turnaround year as the marketplace adjusts to the Department of Labor fiduciary rule. By Joseph E. Montminy
T
he Department of Labor’s fiduciary rule certainly will have a significant impact on individual annuity sales in 2017. As of Feb. 10, LIMRA Secure Retirement Institute estimates that total U.S. individual annuity sales will be around $200 billion, dropping 10 to 15 percent in 2017. Variable annuity (VA) sales are projected to drop as much as 20 percent to 25 percent — to between $80 billion and $85 billion in 2017. Several factors are contributing to the decline in VA sales: » Sales of VAs in individual retirement accounts will need to use the best interest contract exemption. This likely will have an adverse effect on the number of advisors active in this market and the type of compensation they receive. » Exchanges will decline. We anticipate that the number of annuity contracts that exchange from an annuity at one company into a VA at another company will drop, particularly for qualified contracts that now will fall under the fiduciary rule. » Additional contributions will drop. We also expect a decline in additional money going into existing IRA contracts because, if compensation is paid, it would trigger a fiduciary standard. » Distribution firms will offer fewer VA products. The additional requirements that are involved in the regulation will prompt many distribution firms to shrink the number of products they have on their shelves. » Some companies will become less active in the VA market. Given the additional 60
InsuranceNewsNet Magazine » April 2017
risks and responsibilities required to comply with the DOL rule, some companies may scale back their efforts in the VA market. Also, they do not have a lot of time to address some critical issues such as putting the necessary policies and procedures in place. LIMRA SRI also projects fixed annuity sales will be relatively flat in 2017, totaling $115 billion to $120 billion. Market conditions in 2017 will impact fixed annuity product categories differently. » Sales of indexed annuities are expected to drop 20 percent to 25 percent for many of the same reasons listed for VAs. In addition, distribution intermediaries such as independent marketing organizations (IMOs) need to adhere to special requirements in order to receive the special exemption status provided by the DOL to become a financial institution. » Sales of fixed-rate deferred annuities (traditional book value and market value adjusted annuities) are expected to grow 25 percent to 30 percent in 2017 as they attract more retirement funds. Products with guaranteed lifetime benefit riders will help grow these sales. Interest rates also have improved — rising more than 100 basis points from the record lows of early July 2016. In addition, these products will need to comply with the less onerous Prohibited Transaction Exemption 84-24 within the DOL rule. » Sales of income annuities (single premium immediate annuities and deferred income annuities) could grow 20 percent to 25 percent as the need for guaranteed lifetime income products continues to grow. Individuals are spending more time in retirement than ever before and must take on more of the responsibility for generating retirement income. These products will benefit from the improving interest rate environment and must comply with PTE 84-24.
Although LIMRA SRI can project the likely effects the planned DOL rule will have on the annuities market, a lot of uncertainty still surrounds the possible impact if the Trump administration delays the implementation of the rule. The impact will depend upon the length of the delay and whether the rule is modified. However, if the rule is delayed beyond 2017, we anticipate the following impact to 2017 annuity sales (over 2016 sales): » Total annuity sales will be relatively flat. » VA sales will drop 10 to 15 percent. » Fixed annuity sales will grow 5 to 10 percent. Total fixed indexed annuity sales will grow by 5 percent; fixed-rate deferred annuity sales will improve by 10 to 15 percent, and income annuity sales will increase by 20 to 25 percent. It is still too early to tell whether 2018 will be a transition year or a turnaround year for the annuity market. However, LIMRA SRI does expect individual annuity sales to eventually turn around and improve, given the growing demand for retirement income products. We project that the number of retirees will grow from 49.5 million in 2015 to 66 million in 2025. The amount of retirement income market assets held by individuals aged 55 and older is expected to almost double from $13 trillion in 2014 to $25 trillion in 2025. In addition, we estimate that the guaranteed lifetime income market could be as high as $750 billion today. Amid the changing administration, one thing we are certain of is the individual annuity market will only grow larger in the years to come. Joseph E. Montminy, ASA, MAAA, is assistant vice president, LIMRA Secure Retirement Institute. He may be contacted at joseph.montminy@ innfeedback.com.
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APPOINTMENTS (NOT LEADS) MONTHLY. Close 20% = 5 sales • Average Premium is $141,853 $709,265 x 8% Commission = $56,750 Paid to You*
UPDATED! Examples of the last quarter annuity premium from coast-to-coast:
P. in Southern California $4,490,216
M. in Texas
$9,241,217
J. in Illinois
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S. in South Carolina $9,958,818
V. in Northern California $3,190,707
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w w w.Tu c k e r sD i s t u r b i n g A p p o i n t m e n t s . c o m O R CA L L 1 . 8 5 5 . 4 5 4 . 2 6 3 8
*The above statistics are actual sales f rom our advisors. Your results may differ. We do not guarantee results.