July 2013 by InsuranceNewsNet

Life Annuities Health Financial

July 2013

PAGE 24

ALSO INSIDE Master your Mind with the Legendary Les Brown PAGE 12

Closing Business from Costa Rica PAGE 36 Handle the No. 1 Concern of All Seniors PAGE 52

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ANNUITY

42 R ethinking the Ideal Buyer of Annuities By Kenneth L. Brown A new product concept gives financial professionals the opportunity to start a conversation about income with clients in their early 50s.

44 M arket Value Annuities are Back on the Sales Radar By Linda Koco A little-discussed annuity sales trend is the subtle advantage that market value adjusted annuities appears to have gained over fixed annuities that do not have a market value adjustment feature.

HEALTH INFRONT

8 Private Equity Deals Draw Subpoenas, Questions By Linda Koco A New York State investigation into firms that have interests in private equity purchase of fixed annuity companies could have repercussions elsewhere.

24 Illustrated Promises: Unmet Expectations By Richard M. Weber Reforms designed to provide consumers with an understanding of how products such as flexible premium universal life policies “work” have left buyers even more vulnerable to surprises. Here is a look at how reform led to less clarity and accuracy.

48 H ow are You Handling the No. 1 Concern of Seniors? By Todd Colbeck Establishing yourself as the go-to Medicare expert in your community will lead to other business opportunities.

FINANCIAL

52 The Natural Market Evolution of Fees and Service Accelerates By Kenneth Cochrane Advisors have moved to specialize in the business, spending more time developing higher levels of expertise. These advisors now approach their client as a consultant.

LIFE

36 You can Close Business from Costa Rica

FEATURES

12 M aster Your Mind

An interview with Les Brown The motivational speaker, talk show host and author challenges his audience to examine whether they are giving and getting all they can from life. In this interview with InsuranceNewsNet publisher Paul Feldman, Les Brown discusses how his own personal challenges inspired him to attain what he calls his “magnificent obsession.”

InsuranceNewsNet Magazine » July 2013

By Ethan Kap Learning to sell remotely can give you the best of both worlds: a great income that continues to grow along with the lifestyle that you want.

38 How to Stay Motivated Over the Summer Months By Bob Davies Most of us can’t wait for summer, but if the “summer doldrums” are threatening your practice, here are some strategies to help you make the most of the season.

54 BUSINESS

54 F earing the Phone: Curing Your Call Aversion By Kerry Johnson In the second installment of this twopart series, we look at four steps to help you lose your fear of calling and open a flow of business.

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ALSO IN THIS ISSUE JULY 2013 » VOLUME 6, NUMBER 7

WHO benefits

YOU or your

IMO?

INSIGHTS

62 N AILBA: Market Yourself

58 M DRT: Making a Lasting First Impression

By Raymond S. Phillips There is no “right way” to be successful, but one common denominator among all successful producers is a sound marketing plan.

By Nan M. Zimdars Preparation before you ever meet with the client can make the difference between getting and keeping business.

59 NAIFA: This is the Best Time to be in the Industry By Ayo Mseka and John Davidson Never before has there been a greater need for insurance advisors to serve the public and to help people understand that the insurance business is about more than selling financial products.

64 Let’s Weaken Retirement Planning!

60 LIMRA: Income Annuities are Getting a Second Look

By Larry Barton It’s critical for us to have a dialogue about how to build retirement security in this country as more Americans reach retirement age.

By Mark Paracer It’s easy to make a case for why income annuities fit into an overall retirement plan, but there are challenges for advisors.

EVERY ISSUE 6 Editor’s Letter 22 NewsWires

34 LifeWires 40 AnnuityWires

46 HealthWires 50 FinancialWires

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

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WELCOME

LETTER FROM THE EDITOR

You Ain’t Nothin’ but a Hound Dog I came away from the Million Dollar Round Table annual meeting with many things. One is the knowledge that 7:30 a.m. is way too early to be subjected to an overamplified Elvis Presley impersonator. Actually, no time of day prepares anyone for the sight and sound of a fat, sweaty Elvis on stage backed by a full band and projected onto a huge screen. They were good, and I was impressed with how anybody got a group of professional musicians up and amped that early in the morning, but, really, there is just not enough coffee in the world to be ready for that. As I looked around, trying to connect my cognition to my experience, I saw thousands of people from all over the world smiling, laughing, taking pictures and, yes, dancing. I realized it was more than the “Hunka, Hunka Burnin’ Love” on stage that was driving them to their feet and pumping the air at 7-freakin’-30 in the a.m. It was the same thing Kim Harding spoke to me about the day before. She has a New York Life practice and, with her husband, is developing two advisors in their business to become MDRT-eligible. The biggest hurdle for one of them is confidence. After all, it takes chutzpah to ask people to entrust their money and the future of their family to you, especially if you are a young advisor. We’ve all heard the voice that says, “Who are you to think you can do this? They will never take you seriously. You may as well stay home and eat chocolate ice cream.” (Ok, maybe we don’t all hear the ice cream part. Substitute with your own crutch. Although I have no idea why that wouldn’t be chocolate ice cream.) Kim said she had made sure both of her advisors have the training they needed to serve their clients, so she asked that particular advisor if he believed he could help the prospect. The advisor replied, without question, he could help the prospect. “Well, then, if you don’t help that person, someone else will and might do 6

InsuranceNewsNet Magazine » July 2013

it wrong,” she said, transforming a sales call into a mission. It was the same thing that pushed Les Brown from his beginnings as impoverished and “uneducable” to become a state legislator, radio disc jockey, author and master motivational speaker. And it also pulled him through the darkest days of fighting a 17-year bout with cancer. Les spoke about that during an interview with InsuranceNewsNet Publisher Paul Feldman that is featured in this edition. When Les first heard he had prostate cancer, he remembered the words of his inspiration, Howard Thurman: “Imagine, if you will, being on your death bed, and standing around your bed, the ghost of the dreams, the ideas, the abilities, the talents given to you by life, and you for whatever reason – you never pursued those dreams. You never used those gifts. You never acted on those ideas. And there they are standing around your bed, looking at you with large, angry eyes, and saying, ‘We came to you, and only you could have given us life, and now we must die with you forever.’ ” That perspective transforms a life into a mission. You don’t go to your job heartbroken over your life. Work becomes a joy. The details stop being so draining. You have something important to give and it is imperative for people to listen. That’s what happens when you know your purpose and you act on it. It erases the largest chasm in a person’s being – the shame of undeserving. When we win success but feel we stole it, it’s because we sense we did not deserve it. When we grab a reward but it is not enough for us, it’s because an external thingamabob is not the real fulfillment for us. When we hurt the people closest to us, it’s because we feel unlovable. No one will accept us unless we accept ourselves. I know what you’re thinking: What does all this have to do with Fat Elvis? Everything. We know the last day Elvis was cool – Dec. 3, 1968. That was when he did an in-

1968 1977

formal jam session in front of a small audience for a TV special. It featured him, trim Elvis, in full black leather with a guitar and the songs that made America love him. His career was riding on this show. The anxiety that generated was what propelled his dynamic performance, which was so perfect that if he had died the moment after that special, we would remember him as the pinnacle of cool. But, instead Elvis became as kitschy as a prowling purple panther TV lamp. Why? Elvis lost his way. Many biographies describe Elvis asking why fate had chosen him to be Elvis and what his true purpose was. All the Cadillacs, drugs and fried banana sandwiches in the world were not going to answer that. But it was clear to the rest of the world. He was to be Elvis, the guy who helped you bust out of heartbreak, cut out your crying and learn how to be tough yet tender. He was Elvis to everybody, but Elvis. So, instead of the model of self-assured masculinity, we have this guffawing cartoon of America suitable for a family-friendly morning show. Maybe that lesson was his purpose after all. Steven A. Morelli Editor-in-Chief

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For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it 2013 is accessible to the general public.7 July » InsuranceNewsNet Magazine

INFRONT

TIMELY ISSUES THAT MATTER TO YOU

Private Equity Deals Draw Subpoenas, Questions When New York officials subpoenaed firms that have interests in private equity purchase of fixed annuity companies, it raised an alarm, as well as a lot of concerns. By Linda Koco

ncertainty may follow the news that New York officials have subpoenaed several firms that have interests in private equity purchase of fixed annuity companies or businesses. Does this mean that there something wrong with those deals? The New York Department of Financial Services (DFS) sent subpoenas to six private equity firms with interests in the fixed annuity business. The firms are Apollo Global Management, Guggenheim Partners, Harbinger Group, Goldman Sachs Group, Global Atlantic Financial Group and Tiptree Financial Partners. The subpoenas are a precursor to a DFS move to develop enhanced regulations concerning private equity company ownership of annuity carriers, sources said. The regulations will be comparable to those that apply to private equity ownership of New York banking businesses. DFS plans to move forward on the regulations soon, but the sources did not give a time frame for “soon.” The goal is to put guardrails in place on such deals, not to prohibit private equity ownership of insurance businesses, the sources added.

Foreshadowing

Benjamin Lawsky, DFS superintendent, foreshadowed these plans when he said in a speech in April that “DFS is moving to ramp up its activity” in modernizing its regulations in this area. One reason is the sudden growth in private equity activity in the fixed annuity business. Private equity-controlled insurers now account for nearly 30 percent of 8

InsuranceNewsNet Magazine » July 2013

the indexed annuity market, up from 7 percent a year ago, Lawsky said. In addition, private equity now represents 15 percent of the total fixed annuity market, he said, noting this is up from 4 percent a year ago. At issue is not only the rapid growth but also the short-term focus that the DFS believes some private equity firms may have. Private equity firms typically manage their investments for three to five years, Lawsky said. As a result, “they may not be long-term players in the insurance industry and their short-term focus may result in an incentive to increase investment risk and leverage in order to boost short-term returns.” He did not name any private equity company as causing or being part of such problems in New York. Rather, he framed his concerns as “the risk that we’re concerned about.” This suggests that DFS’ action may have been preemptive in nature rather than a reaction to a major problem or crisis. The proposed regulations probably will take the same direction as New York’s regulations on private equity acquisition of banks. In his April speech, Lawsky described those banking regs as being “designed, in part, to encourage a long-term outlook,” in such a way as to ensure that the person controlling the company “has real skin in the game.”

Translation

It appears that New York is on a mission to bring greater oversight to deals in which private equity firms buy fixed annuity companies or books of fixed annuity business. Does that mean that DFS has decided private equity firms are “bad” for the annuity business? At this point, it does not seem so. More than likely, DFS is doing what regulators basically do – that is, lay down regulations when they spot po-

Benjamin Lawsky, New York Department of Financial Services superintendent

tential risks in emerging business areas. Usually, state insurance regulators leave a new trend alone while it’s in the incipient stage. But when they notice a lot of firms getting into the new thing, or a lot of business flowing in the new direction, they perk up their ears. In this particular case, the insurance industry is a bit confused over the increased interest that private equity firms are showing in annuity company ownership. Many practitioners say they just don’t know enough about such firms to make business decisions concerning the insurance companies the firms buy, even if they’ve known and worked for the carriers for years under different ownership.

Confusion

Some of the annuity industry’s confusion stems from the stereotype that industry professionals have of private equity companies. This is the expectation, deserved or not, that these firms will do “just about anything” in order to increase profits for their investors. That image grew large in the wake of the controversial leveraged buy-out (LBO) deals of past decades, when private equity firms made headlines for buying, stripping and flipping companies and/or burying their underperforming acquisitions, seemingly done with little or no concern for customers, employees, vendors, community or other vested interests. As a result of such concerns, some insurance producers are reluctant to place

Do MEDICAL business with carriers that might be entangled with such firms. Their reason: They prefer to work with carriers that are “in it for the long term.” The confusion arises because certain private equity firms now have owned fixed annuity businesses for one to three years or more, and they may own more than one carrier plus some existing books of business acquired elsewhere. This means industry professionals now have access to industry buzz against which to weigh their previous preconceptions. A consideration here is that loans from banks have been hard to come by in recent years. So if a private equity firm provides funds that banks could not or would not provide, and if good things start coming about as a result, is the private equity deal so bad after all? Would the client be better off with placement at the private-equity-owned insurer than at an insurance company with more traditional ownership? Is the more traditional company arrangement really more predictable? Then again, what is the likelihood that the private equity company might turn off the money spigot as quickly as it turned it on? Or what if the company uses the spigot to enhance annuity interest rates or bonuses in ways that woo market share but ultimately create a book of business that is unsustainable?

The New York Effect

Those are only a few examples of the questions that are floating around. Will New York’s inquiry help with any of this? Maybe and maybe not. The regulations the state is proposing to develop may bring forward more information about private equity activity in the fixed annuity business, and that could bring some clarity. Whatever the outcome, the investigation could have repercussions elsewhere. New York is a major state for insurance regulation, and many other states follow its lead. However, the opposite is also true, with some state regulators quipping that they will do the opposite of whatever New York does. Let the games begin. Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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InsuranceNewsNet Magazine » July 2013

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July 2013 » InsuranceNewsNet Magazine

InsuranceNewsNet Magazine Âť July 2013

MASTER YOUR MIND - WITH LES BROWN

FEATURE

Legendary Motivator Les Brown Says Conquering Yourself is the First Step to Winning in Life In the unlikely event that you have not heard of Les Brown, you owe it to yourself to go to YouTube and watch one of his many videos. If you donâ&#x20AC;&#x2122;t come away inspired to take on the world, you might not have a pulse. Sometimes motivational speakers can have a sameness about them, but that cannot be said of Les. In his unique voice, he does not shy away from challenging his audiences. Invariably, listeners are inspired to examine what they are doing with their lives and to ask themselves if they are giving and getting all they can from life. July 2013 Âť InsuranceNewsNet Magazine

FEATURE

MASTER YOUR MIND - WITH LES BROWN

es has been many things in his career in addition to being a motivational speaker. He was a member of the Ohio House of Representatives, a radio DJ, a talk show host and author, best known for Live Your Dreams and It’s Not Over Until You Win. But it is as a speaker that he is most noted. He was named one of America’s Top Five Speakers for 1992 by Toastmasters International, which presented him with its Golden Gavel Award. Les had so many insights to share that InsuranceNewsNet has expanded his interview into two installments. In the August issue, Les will give advice to our readers on the need to tell their story to clients and prospects, and the challenge of telling your clients what they need to hear instead of what they want to hear. In this month’s installment, Les shared some great news with us. Many of his fans have been concerned because Les has been battling cancer for more than a dozen years. But at the start of his interview with InsuranceNewsNet Publisher Paul Feldman, Les was excited to talk about the latest development in what he called his “cancer experience.” FELDMAN: I understand you had exciting news recently. BROWN: I beat cancer just this past Friday, and that’s been very exciting. I’ve been dealing with it for 17 years and the cancer metastasized. It metastasized to seven areas of my body, but now my PSA is zero, and I have no cancer in my system, and that’s after dealing with it for 17 years. So, I’m happy. I’m fired up. FELDMAN: That’s wonderful news! So, are you back at it full speed? BROWN: Well, actually, I didn’t slow down that much and I’ve been reflecting on this whole experience because I feel like I have a new lease on life. During the time that I was dealing with my cancer, I did a video program called You’re More Powerful Than Cancer for cancer conquerors. I saw how it affected the mindset of people, and many people just could not understand when I said to them, “Doctors determine the diagnosis. God determines the prognosis.” Just because someone has a stethoscope and a white coat, they don’t know how long you’re going to be here. What if they 14

InsuranceNewsNet Magazine » July 2013

graduated at the bottom of their class? So you have to fight. I strongly believe that life is a fight for territory. And once you stop fighting for what you want, what you don’t want automatically will take over. FELDMAN: Can you tell us about when you discovered that you had cancer and how it changed your life? BROWN: After achieving my financial goals and earning millions of dollars doing what I love to do, I had another challenge that I did not expect. Someone said to me three words that no one ever

wants to hear, and it happened twice in my life: “You have cancer.” Up to that point, I had talked to and inspired people who were going through cancer and other illnesses but that was something that happened to other people, not to me. And so, just imagine when someone looks at you and says, “You have cancer. It’s eating 40 percent of your T1 vertebra, and it’s metastasized to seven areas of your body.” Well, it doesn’t matter how much money you have in the bank. Look at Steve Jobs. He had more money than the U.S. Treasury, and he’s gone. So, cancer is a different battle. You have to have a hunger in every dimension of yourself to improve your health, to develop yourself, to be physically fit, to be disciplined, to have a ritual that says, “I plan to be here.” FELDMAN: It seems that anytime we achieve something, a bigger challenge shows up. How do you deal with that? BROWN: Life is very interesting. I remember Bette Davis said, “Old age is not for wimps.” The older you get, the more things you encounter – new levels, new devils. And so you have to have the confidence and the level of mastery to deal with those things. All of us are called upon to be hungry and determined and passionate and to have a mindset that says, “I can deal with this. I can handle this.” And you need to use your imagination and resourcefulness to figure it out. You have to continue to raise the bar on yourself. Even though I’ve been recognized among the top speakers in the world, I don’t believe that I’ve done my

“If you had your life to live over again, could you have done more than what you’ve done thus far?”

FEATURE

MASTER YOUR MIND - WITH LES BROWN

best work. I would rate myself a six plus (on a scale of 1 to 10) as a speaker. And so you have to have your own personal criteria. I remember some people were talking to Dr. J (Julius Erving), who was very accomplished as a basketball player, but he’s also very accomplished as a business man. And they asked him the question, “How is it that you were great in basketball? Now you’re a great business man.” And he said, “I demand more of myself than anyone could ever imagine.” That’s what all of us have to do. We have to challenge ourselves. I’m 69. Most of my friends are retired. But I’m re-fired. I’m looking at what I can do next. What else do I have in me? In one of the speeches that I give, I have the audience repeat the affirmation, “Live full. Die empty.” They say that, and then I tell the story of Dr. Howard Thurman, who was a mentor to Dr. Martin Luther King Jr. and Mahatma Gandhi. I first told this story just after having 238 radiation seed implants when I was first diagnosed with prostate cancer.

“Master your mind or your mind will master you.” Dr. Thurman said, “The ideal situation for a man or woman to die is to have family members praying with them as they cross over. But imagine if you will, being on your death bed, and standing around your bed is the ghost of the dreams, the ideas, the abilities, the talents given to you by life, and you – for whatever reason – you never pursued those dreams. You never used those gifts. You never acted on those ideas, and there they are standing around your bed, looking at you with large, angry eyes, and saying, ‘We came to you, and only you could

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have given us life, and now we must die with you forever.’ ” The question is: If you die today, what dreams, ideas, talents will die with you? And when I posed that question to the audience, you could see them thinking. The silence, the quiet in the room was very thick. You could cut it with a knife. If you ask most people, “If you had your life to live over again, could you have done more than what you’ve done thus far?” even people who lived a very accomplished life would have to say, “Yes, I could have done more.”

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MASTER YOUR MIND - WITH LES BROWN And so, that’s what I’m shooting for. When they asked George Bernard Shaw, “If you had it in your power to be anybody throughout history, who would you like to be? Any leader that you admire?” And he said, “I’d like to become the man I never was.” And I believe that even if you’ve had accomplishments in many areas of your life, we all know in our heart of hearts, in some part of ourselves, that we have not developed some part of ourselves that the world has not had a chance to be exposed to. And when we go to our graves with that unexpressed greatness, we’re all deprived. FELDMAN: How important is it to have rituals in your life for success, or for goal-setting?

BROWN: Rituals are very important. Holding a vision of what it is you want to achieve, writing down the goals that are important to you and prioritizing them, and doing certain things every day. When my mother was working in Miami Beach for wealthy families, I started listening to motivational programs – Earl Nightingale, Dr. Norman Vincent Peale, who wrote The Power of Positive Thinking, and Jim Rohn. These families that she worked for had libraries. I remember somebody I worked for told me, “Leslie, I told you to shine my shoes better than this, and I want you to work on my office, and keep it clean.” I said, “I will, sir.” His guest thought he was very arrogant and very rude to me, but he wasn’t, because

FEATURE

I didn’t clean his office as well as I could have. That’s because I wanted to be in the office with him. I wanted to spend more time in there because every morning he had a ritual of listening to audio programs. He told his son that you don’t get in life what you want, you get in life what you are. That’s an Earl Nightingale quote. And so, during the time that I was in his office, shining his shoes, dusting, I would listen to the programs that he listened to. Unbeknownst to me – I was 10 years old – it was programming my mind. And so, I then started doing it myself when I got out of high school. I started listening to audio programs, and reading 10 to 30 pages every day, and I still do that. I even read more.

Do You Dance With Life? Or Do You Sit It Out?

Take a minute or two to reflect on your attitude and approach to life by completing this exercise. Do you believe that when something bad happens to you it is a permanent defeat, or do you look at it as a temporary setback? Ask yourself these questions to help you define your approach. In hard times are you more inclined to say:

A DANCER

A WALLFLOWER

I’m too tired to handle this right now. I’m not going to argue when you are in this mood. I’m having a rough time with the boss. I haven’t heard from you lately.

I’m never going to get this. I’ve had enough. I always fight with my boss. I thought you’d given up on me.

People who give in to life generally perceive bad things in terms of always and never – they are habitually pessimistic in their approach to life, while those who see bad things as temporary conditions are generally optimistic and positive. Interestingly, the opposite holds for their perceptions of good times. The optimistic person sees good times in terms of permanence while the pessimistic person sees them as fleeting.

A DANCER

A WALLFLOWER

I have such good luck. This is wonderful. I earned this reward.

I’m just lucky today. It seems unreal. What a fluke.

Do you see yourself in these responses? Differing views and approaches to life can have a definite impact on an individual’s quality of life, even on matters of health. Studies indicate that people who are more optimistic live longer and spend less time in the hospital than people who are pessimistic. The optimists have better relationships. The person who sees life in optimistic terms is much more willing to take life on in a dynamic way. Les Brown, It’s Not Over Until You Win!, Fireside Books, 1997.

July 2013 » InsuranceNewsNet Magazine

FEATURE

MASTER YOUR MIND - WITH LES BROWN

I started reading a minimum of two books a week. I heard a program that said the average American reads one book a year, but if you decide to read one book a month, in five years, when the average American would have read five books, you would have read 60 books. That will make you an expert. You don’t get paid by the hour. You get paid for the value you bring to the hour. So, I disciplined myself to read two books a week, and it changed my life. And so, I had the reading, listening to audio programs, holding the vision of what it is that I wanted to accomplish, along with the whole ritual of talking to myself. When I was struggling with cancer, I said, “I give thanks that I am healed.” For 17 years, I was going for walks and saying to myself, “My immune system is powerful. It’s producing powerful white blood cells that kill quickly and permanently every renegade cancer cell in my body.” My doctors are amazed. “How could you? What are you doing? What’s your ritual?” Well, that’s part of my ritual, talking to my body. I read a book that said, “Your body hears everything that you say and the thoughts that you are thinking.” And so by saturating my mind with words that I read in healing books of Bernie Siegel, Louise Hay and others, by talking to myself, by visualizing my cancer cells, those radical cancer cells being consumed by powerful white blood cells, all of those things helped to cause me to be in the kind of health that I’m in right now. It was the same way that I accomplished my goals as a speaker. When people told me, “There’s no way with no college training. There’s no way that you’re going to be able to be on the big stage, and cause a corporation to see you as an intellectual resource, and reach over people with PhDs and MBAs, and years of experience, and hire you to come in to motivate and inspire them to do something that you have never done. You don’t know how to do that.” And I said, “I know, but we’re all born the same way; dumb, naked and speechless. I can learn.” I decided that I was going to learn how to deliver a message. I was going to learn how to do research. I was going to learn how to speak extemporaneously. 18

InsuranceNewsNet Magazine » July 2013

Nine Principles for Dynamic Living [1] Each of us can achieve far beyond our horizons and in avenues of life we have never explored. [2] Each of us has some basic goodness that is the foundation for the greatness we can ultimately achieve. [3] Each of us must take responsibility for our actions, our well-being and the attainment of our maximum potential. [4] Self-awareness, self-approval and self-commitment are essential for self-fulfillment. [5] Building and maintaining relationships is critical to social development, both within the family and within the community. [6] Mutual respect is the fundamental element of human relations. [7] We elevate our own lives by helping others rise. [8] Planning, measuring and executing are the critical tools in the manifestation of our beliefs. [9] Each of us must model integrity in the making and keeping of our commitments.

Les Brown, It’s Not Over Until You Win!, Fireside Books, 1997.

MASTER YOUR MIND - WITH LES BROWN I would custom design a message for an audience. Oliver Wendell Holmes said that once someone’s mind has been expanded with an idea, concept or experience, it can never be satisfied to going back to where it was. I wanted to create an experience that would give the audience a larger vision of themselves. With rituals of reading, visualizing, journaling, talking to yourself and reviewing your goals on a regular basis, we ignite a force within us to achieve things that most people will never do. FELDMAN: You discussed a positive inner dialogue but you also have said you have to battle negative self-talk. How do you catch yourself doing it, and what are some exercises to overcome negative self-talk? BROWN: You have to be aware of your thoughts. We cannot control the thoughts that come in our minds, but we do control the thoughts that we dwell on. It’s been said that, “Master

your mind or your mind will master you.” What’s very important is when you find yourself thinking something negative that you have to catch yourself, and say, “Cancel that.” I do that all the time. Studies indicate we have a propensity for thinking negative thoughts. That’s why my favorite book says, “Be ye not conformed to this world. Be ye transformed by the renewing of your mind.” Those are the 16 most revolutionary words. We have a tendency to be negative. We live in a world where we’re told more about our limitations rather than our potential. You have to make a conscious, deliberate effort not to think negatively, and when you find yourself doing that, you have to change that thought. Don’t say and speak negative words, and if you do, catch yourself and say, “Wait a minute. Excuse me. I don’t mean that,” and replace that with something positive. I remember when I was speaking to an audience, and somebody asked, “Do you still have cancer?” And I said,

FEATURE

“Most people go through life and get caught up in their distractions rather than on their destiny.”

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FEATURE

MASTER YOUR MIND - WITH LES BROWN

“Yes.” Then I said, “No, no, no, no, no. I don’t have cancer. I’m going through a cancer experience. I don’t have cancer. I’m not going to claim anything negative for myself.” And so, we have to be mindful, and conscious of our thoughts, and change them on a regular basis. FELDMAN: You talk about mind sight vs. eye sight. Does that have something to do with that as well? BROWN: Yes, because we don’t see life as it is. We see life as we are. And that’s why it’s very important that we work on our mindset. Everything starts there. Dr. Carter G. Woodson said, “If you could determine what a man shall think, you’ll never have to concern yourself with what he will do.” We have to trade our thinking, restructure our belief system and continue to find ways in which we can override the inner conversations that are a part of our consciousness that we don’t even know. If I said right now, “Winston tastes good like …,” what would you say?

destiny. You have to be very, very disciplined in how you move your life forward. Don’t look to the right and don’t look to the left. There’s an Alaskan proverb that says, “If there’s no enemy within, the enemy outside can do you no harm.” When I was growing up in Liberty City, Fla., I had the distractions of drugs. I had the distractions of very good friends who were engaged in all types of criminal activity. During that time, I could have chosen those distractions. I could have said, “You know what? I want to do what my friends are doing.”

“You’ve got to decidethere’s something that you want and that it becomes your magnificent obsession.”

FELDMAN: A cigarette should. BROWN: And that commercial hasn’t been on the air for 40 years. So, what else is in that subconscious mind? Those are things in us. There was an article in Newsweek called “The Unseen Mind” that pointed out eight to nine choices that we make every day that come out of the unconscious mind. That’s why we have to work on ourselves continuously because most of the stuff that’s in us governing our daily lives has been formed in our belief systems since we were children. That belief system drives our decisions even though we don’t notice it happening. We’re not mature enough or wise enough to make those decisions, and so we take on that stuff unconsciously, and as we grow up, we begin to take them off or we continue to buy into them and live the story that we’ve been born into. FELDMAN: How do you beat what you call the “Demons of Distraction?” BROWN: It requires discipline. Most people go through life and get caught up in their distractions rather than on their 20

InsuranceNewsNet Magazine » July 2013

court and a tennis court in North Miami Beach. I created that vision as I would drive through wealthy areas before going home each day. That kept my mind focused on what I wanted, and not on the distractions around me. Inside me, I had this conviction that I’m better than this. Inside me, there was a feeling that I deserved more. What we do, what we have, what we accomplish in life is directly related to our sense of deservedness. I believe that I deserve to live someplace that’s clean, decent, has flowers, water, and is spacious, crimefree and full of happy families. That was

But instead, I had to discipline myself to hold the vision of how I saw myself. My mother had a third-grade education and she adopted seven children. She cleaned homes in Miami Beach. She cooked for these families. We ate the food left over from the families that she had cooked and set the table for. They were very kind and generous people, and they would say, “Mamie, whatever food is left over, you can pack it up and take it home to those seven children.” My vision for myself was that one day I would live in a big, beautiful mansion. One day I would buy my mother a big, beautiful home. I bought her a home; actually, four different homes before she passed at 89. The vision that was etched in my mind was of those big, beautiful mansions in Miami Beach. The first big home I bought for my mother was 10,000 square feet, with a basketball

my daily vision of myself living in that kind of environment, and I was determined to create a life that would enable me to have that for myself. So that became my magnificent obsession. You’ve got to decide there’s something that you want and that it becomes your magnificent obsession. As a result of that kind of single-mindedness and focus, life will give its secrets up to you. It will say, “You know what? We’ve got to give in because he’s not going to be denied. He’s not going to go away. He refuses to give up. We’ve got to give him what he wants because he’s laser-focused on achieving this.”

NEXT MONTH: Les Brown challenges InsuranceNewsNet’s readers to “never let what you want to say get in the way of what the client needs to hear.”

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For Agent Use Only — Not for use with General Public

[NEWSWIRES]

LIMRA CEO tells U.S. Treasury: Americans need help with financial decisions. bitly.com/QRneedhelp

Harkin Day Leaves Questions Sunday, June 16, has come and gone with little fanfare but a lot of curiosity in fixed insurance circles. It could be called Harkin Day because this was the date that a key provision in the Harkin Amendment of the Dodd-Frank financial reform law went into effect. This is a provision which says that, to be exempt from securities regulations under the new Harkin safe harbor, annuities need to be issued in states that have adopted the Suitability in Annuity Transactions Model regulation of 2010 published by National Association of Insurance Commissioners. Common industry understanding is that all 50 states needed to have adopted the 2010 model, or a close proximity, by the June 16 deadline. Problem is, by June 16, only 32 states had done so. So industry practitioners are now wondering whether fixed annuities, especially the indexed annuity variety, must now be treated as securities. There are no official answers so far. But Stephen E. Roth, partner at the Washington, D.C., law firm of Sutherland Asbill & Brennan, points out that other provisions in the Harkin Amendment come into play, and that producers should look to their carriers for guidance. Meanwhile, leaders from industry and regulation will sort out the fine points, so stay tuned.

A LIFE SETTLEMENT LAW FOR MEDICAID CASES?

Texas has become the first state to enact a new type of life settlement law. This is the Medicaid Life Settlement Law. Signed by Texas Gov. Rick Perry on June 14, Gov. Rick Perry the measure went into effect immediately. It allows seniors

who are about to apply for Medicaid to sell their life policies for as much as 10 times more than the cash surrender value and apply those proceeds toward

their long term care, according to Coventry First. By comparison, in most states, residents who want to apply for Medicaid must surrender their life policies, said The Lifeline Program. But other states may get on board soon, according to Chris Orestis, chief DID YOU

KNOW

executive officer of Life Care Funding. Similar measures have been introduced in California, Florida, Kentucky, Louisiana, Maine and New Jersey, he said, and a number of other states have such legislation pending. If other states follow through, the legislation could impact a lot of people, said Lifeline. That’s because, according to a 2007 report from the U.S. Government Accountability Office, 38 percent of all Medicaid applicants have a life insurance policy.

LEADERS OF THE PACK

Individual universal life and individual life took the lead in first quarter market share, according to LIMRA. Together, they grabbed a 73 percent share, with universal life taking 40 percent, and whole life taking the remaining 33 percent. That’s on premium growth

of 8 percent and 7 percent respectively,

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InsuranceNewsNet Magazine » July 2013

compared to the same period last year. A few highlights: Premiums for the indexed variety of universal life jumped by 23 percent, making for the 16th consecutive quarter of growth. And universal products sporting lifetime guarantees represented 35 percent of overall universal life premium, giving these policies the largest share of new universal life premium. Meanwhile, whole life experienced its 15th consecutive quarter of growth. Not everything was rosy, though. Both lines dropped in policy count – universal life by 18 percent compared to last year, and whole life by 5 percent. So both lines entered the winner’s circle, but not without a slight limp.

SURPRISE, SURPRISE

On the eve of full startup of the Affordable Care OF EMPLOYERS Act, most employers (89 percent) aren’t thinking WILL NOT DROP of dropping their em- EMPLOYER-SPONSORED ployer-sponsored health HEALTH COVERAGE coverage for full-time employees, said Towers Watson. That’s even though many employers have been worried about how the law will impact business. Neither are most employers thinking about asking full-time workers to move to part-time status, nor are they

considering bumping up their use of contract workers. Still, employers aren’t entirely gameon either. Of those who said they expect to make some changes due to health care reform, nearly half (49 percent) are eyeballing changes to their rewards programs, 42 percent are looking at reducing subsidies for dependent health care coverage and 37 percent are studying whether to place more emphasis on variable pay. Sounds as if agents and brokers will have plenty to talk about with those employers. Change is in the air.

GOTTA LOVE THOSE IRA ROLLOVERS

Rollover dollars are dwarfing new contributions to individual retirement accounts (IRAs). In fact, in 2011, rollovers accounted for almost 13 times the amount of dollars that flowed into IRAs compared to con-

[NEWSWIRES] tributions, says the Employee Benefit Research Institute (EBRI). We’re not talking pennies here. According to the EBRI IRA Database, the average

and median (mid-point) rollover amounts in 2011 were $72,398 and $19,632, respectively. That compares to the average con-

tribution amount, which was just $3,723. And, by the way, the numbers increased with age, reaching $121,106 and $46,216, respectively, for those aged 60-64. With so much money in motion, this must be a good time for rollover specialists, eh?

QUOTABLE Even though the new health care law has been hotly debated for years, a shocking number of Americans are still unsure how it will affect them. — Laura Adams, senior insurance analyst, InsuranceQuotes.com

MILLIONAIRES BY THE NUMBERS

If you’re going after the millionaire household market, the United States appears to be the best place to target. That’s because, in 2012,

the largest number of millionaire households (5.9 million) were U.S. households, according to

The Boston Consulting Group (BCG). Japan came in second with 1.5 million, and China, third, with 1.3 million. But Daniel Kessler, global leader for wealth management at BCG, cautioned that, for wealth managers, the “battle to maintain momentum amid a very complex industry landscape, will continue to intensify.” Managers must not only find ways to gather new assets and generate new revenues, he said, but also find ways to “manage costs, maximize IT capability, comply with regulators, and find winning investment solutions that lead to deep and long-standing client relationships.” Yup, that’s a lot. But then, if they do it right, they’ll earn a lot.

Gems from MDRT Presenters The Million Dollar Round Table had a turnout of more than 8,000 for its annual meeting in Philadelphia this year. Here are some highlights from a few of the presentations: “During my first 16 years in this business, … I had accrued a meager renewal income of $15,000 per annum. During the last 5 1/2 years, through small incremental changes (from commission-only to fee-based), my recurring income is now 15 times bigger.” – Asvin Chauhan, managing director of Ashleigh Court Private Client Wealth Management Ltd., Coventry, England, and a 15-year MDRT member “In business school, they often teach you to think outside the box. Sometimes the answer is actually inside the box.” – Keith M. Gillies, managing partner, Wealth Solutions, LLC, LaPlace, La. “If the first thing out of your mouth is about you, you are already building a brick wall. … [The buyer] feels sold to, and gets defensive.” – Sam Richter, chief executive officer of SBR Worldwide, Minnetonka, Minn. “We may live longer than we ever thought and whether we do, or do not, life insurance can be part of that solution.” – Karl Frederick Frank, president, A & I Financial Services LLC, Englewood, Colo. “Instead of spending all your time working in the business and in your personal life, don’t you owe yourself at least an hour to work on your business and on your personal life?” – Richard W. Sawyer, insurance and financial advisor and past president of Norton Financial Services, South Portland, Maine

WHAT IS MANAGED VOLATILITY?

Often considered to be an alternative financial and investment planning strategy, managed volatility is now cropping up in newer variable insurance policies. Securian Financial, which debuted three such portfolios in some of its variable annuities recently, described managed volatility this way: It seeks “to

provide more consistent returns over time while reducing volatility risk.” It

does that by using hedging strategies to manage volatility. By comparison, traditional investment options typically do not zero in on reducing the risk of multiple – and

deep – swings in investment value and performance. Those swings have made certain buyers nervous in recent years, so the managed volatility alternative is being positioned as a way to help even out the overall performance. The managed volatility approach also is being positioned as an investment to use in lieu of going into an insurance product with guarantees on income or other benefits – guarantees which have been curtailed sharply in recent years. Fixed insurance producers will not likely be speaking with clients about managed volatility, unless the producers also hold a securities license. But if the term comes up, at least they’ll know how to redirect the conversation. Do you want guarantees or something else? July 2013 » InsuranceNewsNet Magazine

illustrated * promises unmet expectations

Policy Illustrations Re-examined

15 Years After Reform

* Most universal life illustrations bear little

resemblance to actual performance, leaving advisors caught between offering more realism and facing consumer disillusion.

BY RICHARD M. WEBER

President of the Society of Financial Services Professionals

InsuranceNewsNet Magazine Âť July 2013

ILLUSTRATED PROMISES: UNMET EXPECTATIONS

eforms designed to provide consumers with an understanding of how products such as flexible premium universal life policies “work” – and to differentiate guarantees from non-guarantees – have left buyers even more vulnerable to policy-lapse surprises long before their expected life span. This conclusion is the result of multiple analyses of universal life-style illustrations. It has been especially true when illustrations were used to calculate an attractive answer to the consumer’s understandable question: “How much will this policy cost?” In fact, most illustrations that advisors are allowed to use almost always bear

way of technology. However, life insurance remained a unique asset providing something no other financial instrument could accomplish with guarantees: delivering critical dollars to those who needed it, most often a family upon the death of a breadwinner. But then a small company on the West Coast (ironically, no longer in business) introduced an innovative form of life insurance that soon would shake the traditional life insurance industry to its very core. E.F. Hutton Life began selling flexible premium universal life (UL) in 1977. It became so popular that UL’s market share of permanent life insurance reached 40 percent by 1984. Significantly, each percentage point of market

FEATURE

she were lucky, she would have realized this was too good to be true and would have increased her premium periodically as interest rates steadily declined over the next 30 years. If not, within just 10 years, that $2,000 annual premium would need to triple to $6,000 a year in response to declining policy crediting rates. With further interest rate drops, the annual premium would need to be increased again to $10,250 as of her 55th birthday if she wanted reasonable assurance the policy would “last” longer than she would. In today’s low interest rate environment, in which such a policy is likely to achieve only the guaranteed minimum crediting rate, her policy at age 62 would

WHEN CONSUMERS BUY POLICIES UNDER THOSE ILLUSIONS, THE ONLY LIKELY RESULT IS DISILLUSION IN THE YEARS AHEAD. no resemblance to actual performance. Meanwhile, advisors are caught between the choice of offering more realistic illustrations or losing out to their competitors who may use rosier (but permitted) scenarios that lead consumers to believe they will get the bargain of paying a lower premium, sometimes 50 percent lower. When consumers buy policies under those illusions, the only likely result is disillusion in years ahead. How did reform lead to less clarity and accuracy? First, we have to look at the background.

Life Insurance – The Early Years

For most of the life insurance industry’s 250-year presence and financial dominance the U.S., policies provided substantial and reliable guarantees. If you paid the premium specified in the policy on time – except for the rare instance of insolvency – the insured death benefit would be paid to the beneficiary upon the insured’s death. In the case of a whole life policy, the accrual of cash value was guaranteed (but dividends were not guaranteed until declared). In the case of a term life policy, the premium usually was stipulated and guaranteed, although it might change as the insured became older. Even through the first 75 years of the 20th century, the life insurance industry wasn’t very innovative nor did it use much in the

share achieved by UL came directly out of reduced sales of whole life. This was the dawn of creative, “current assumption” policies and the computer-generated illustrations that presumed to explain and, more significantly, to “price” them. Why was this so groundbreaking? It was no coincidence that UL achieved fast sales momentum during a time of historically high interest rates from the mid-1970s into the mid-1980s. It also was no coincidence that UL grabbed market share with the introduction of the personal computer in virtually the same time period. Early computer-generated UL policy illustrations incorporated current, non-guaranteed crediting rates as high as 14 percent. Problems arose in responding to the age-old consumer question of “What’s it gonna cost?” for a policy that was based on such a high rate and that had no scheduled premiums or timing of when premiums were to be paid. A healthy 35-year-old woman would have been advised that her $1 million policy could cost barely $2,000 a year. Her understandable mistake, and perhaps the mistake of the agent as well, was to assume that the 14 percent crediting rate would persist throughout her lifetime. The mathematically correct (but practically impossible) calculated premium was only temporarily sufficient. If

require yet another increase in annual premium to $15,500, but by now that policy likely would have been replaced with a promise of a “new and improved” policy. In fact, replacement became so rampant with UL and its evolution of variations, that it’s estimated that 30 to 50 percent or more of “new” policies sold in the past 30 years may well have been replacements for “failed” policies.

Current Assumptions

Class action lawsuits against major carriers in the early 1990s resulted in billions of dollars of “reparations” for what often was judged as illustrated promises and unmet expectations. The (then named) Society of CLU and ChFC responded to members urging it to “do something” by developing its groundbreaking and innovative Illustration Questionnaire and Replacement Questionnaire. At the same time, the Society of Actuaries weighed in with the statement that “Illustrations which are typically used ... to portray the numbers based on certain fixed assumptions – and/or are likely to be used to compare one policy to another – are an improper use of the policy illustration.” Further, the executive summary of the Society’s 1992 report concluded: “How credible are any non-guaranteed numbers projected 20 years in the future, even if constructed with integrity? How July 2013 » InsuranceNewsNet Magazine

FEATURE

ILLUSTRATED PROMISES: UNMET EXPECTATIONS

does the consumer evaluate the credibility of two illustrations if they are from different companies? Or even if they are from the same company if different products with different guarantees are being considered? Most illustration problems arise because the illustrations create the illusion that the insurance company knows what will happen in the future and that this knowledge has been used to create the illustration [emphasis added].” Pressure increased within the “traditional” (whole life) portion of the industry to do something to tame policy illustrations. By 1995, the National Association of Insurance Commissioners (NAIC) was gathering consensus and

were held to much tighter standards. For example, regulations required an “illustration actuary” to annually certify the reasonableness of future expense projections. Illustrations were to provide expanded narrative, as well as to format its numerical projections about guaranteed results completely independent of projected, non-guaranteed results. Also, in the case of a whole life policy or a current assumption policy, amounts paid to insurance companies on behalf of policies were to be referred to as “premium,” even though a premium on behalf of a whole life policy is fully guaranteed, while the “premium” for a universal life policy has virtually no guarantee associated with it.

with respect to an aversion to risk (and wanting little or no policy management responsibilities). In that same context, if a balanced risk tolerance points to UL and the acceptance of some policy management duties – and aggressive risk tolerance points to variable universal life (VUL) and ongoing active sub-account and policy management – what would we call the risk tolerance that seeks only upside and no downside? Perhaps the term passive aggressive risk tolerance best describes this new style of policy, and perfectly matches the opportunities touted for indexed universal life (IUL). Unlike its variable UL cousin – in which policy owners direct how their

WITH REGULATION... WE OFTEN DEAL WITH A COMPUTERGENERATED PACK OF 18 TO 30 PAGES CONSISTING OF ARCANE NARRATIVE AND LENGTHY STREAMS OF NUMBERS... direction for regulations that would contain both rampant replacement and the projection of values that were very unlikely to materialize in the policy for which the illustration was merely a marketing device. NAIC Model Illustration Regulations were adopted for implementation by the states starting Jan. 1, 1997. By the end of 1998, all 50 state departments of insurance had adopted the substance of the NAIC’s model for illustration reform. Before regulation, universal life illustrations generally wove their expectations in three to four pages. With regulation however, we often deal with a computer-generated pack of 18 to 30 pages consisting of arcane narrative and lengthy streams of numbers that would make even Stephen Hawking flinch. Before reform, carriers were generally free to project crediting rates, bonuses and expenses without a rigorous relationship to reality. For example, an insurer could include in its current assumptions the circular logic of an expectation of substantial early-year policy lapses – and illustrate numerical results that could not possibly be achieved if those lapses didn’t occur. If the projections were substantial enough – why would anyone lapse? With the new regulation, carriers 26

InsuranceNewsNet Magazine » July 2013

While all of the elements of illustration reform were intended to aid the consumer in better understanding the policy she or he was buying, it inflated the volume of pages, narrative and columns of numbers without necessarily adding to the consumer’s ability to truly understand how current assumption policies would work when the assumptions invariably did not “show up” as portrayed in the original illustration. Despite well-intended regulation, illustrations for policies designed for current, rather than guaranteed, assumptions have become even more problematic in the past 15 years. They have continued to inspire numerous individual and class action lawsuits for the customer’s inability to understand even the basic rudiments of how actual policy credits may affect performance versus the assumptions made in the illustration. It shouldn’t surprise readers to see that hidden in the word “illustration” can be an “illusion.” Turning to the selection of appropriate styles of lifetime life insurance based on something other than the illusion of “best price,” it would seem logical that a prospect’s conservative investment attitude would inspire whole life to be the preferable policy choice, especially

premiums should be invested in a range of offered equity and fixed “sub-accounts” – IUL insurers still invest in very conservative bonds and other highgrade, fixed-return assets. The policy’s “credit” comes from sophisticated hedging of policy premiums in excess of what’s required to guarantee (typically) a 0 percent return on its reserves underlying these policies. This is true even though the main attraction is the appearance of an opportunity to participate in a portion of gains in “the market,” while not suffering market losses. Clearly, this is an appealing approach to buying life insurance. In a typical IUL inquiry, a consumer might be interested in paying as low a premium as possible for a certain death benefit. Because flexible premium universal life policies of all varieties have no stipulated (or guaranteed) premiums, the policy illustration invariably is used to estimate a planned premium that would maintain the policy until death. The “return” that an agent is allowed to use is often the average of a common stock index – such as the S&P 500. (The S&P 500 index used in this example represents increases in the underlying large cap stocks of that index that are typically part of VUL’s S&P 500 Index Sub-

ILLUSTRATED PROMISES: UNMET EXPECTATIONS Account. However, it excludes the dividend component, which can be 200 or more basis points of the index “return.”) Over the past 25 to 30 years (and in spite of the downward thrusts of equity returns in 2000-2002 and 2008-2009), it is not uncommon to see IUL illustrations assume a “long-term average” of 8, 8.5 and even 9 percent, even though the dividend component of the S&P 500 Index is excluded. Yet, whatever the rate used in a specific IUL and even VUL illustration, it is always incorporated in illustration calculations as a constant.

CHART 1 Accumulation doesn’t “care” about order of returns $2,500

10%

$2,000

2.1%

-5% 20% 15% 8%

4% 12%

0% End with $2,000

$1,500

Improving Information and Tools

Understandably, policy illustrations are unable to suggest likely, real world outcomes when constant crediting rates are projected 30 to 50 years in the future, and when those crediting rates depend on volatile elements, which will cause the rate to go up and down and instead of being constant. Although average rates of return in an accumulation scenario do not depend on the order in which the returns show up to reach a particular value in the future, life insurance is constantly “de-cumulating” through its monthly expense charges while attempting to accumulate through the underlying source of its crediting rate. Charts 1 and 2 demonstrate these differences. In Chart 1, the upper and lower scales – in red and blue – are mirror image annual returns, both sets of which have a 7.2 percent compound rate of return over 10 years. They will accumulate to the same value even though the lines cross back and forth while “getting” there. Chart 2, however, is an example of distributing $100 a year out of an initial $1,000, and we see that the order in which returns “show” up does matter. This is true even though the average compound return on each scale is the same over the 10-year period through its “mirror image” returns. Typical insured lifetimes of 30-50 years, and increasing mortality charges over that time, will greatly exaggerate the de-cumulation effect in UL-style insurance policies, especially with minimum “best price” planned premiums. Because volatile returns can produce different results in this simple example, it would be important to model volatile returns in VUL and IUL illustrations

FEATURE

Start with $1,000 $1,000

0% 12%

8% 15% 20% -5%

2.1% 8% 10%

$500

CHART 2 DE-cumulation does “care” about order of returns $1,200

10%

-4%

8% 15%

-15% -12% 0%

15%

-4%

$1,00

$800

$600

$400

$200

-12% -15%

10%

-$200

July 2013 » InsuranceNewsNet Magazine

FEATURE

ILLUSTRATED PROMISES: UNMET EXPECTATIONS

to see the degree of variance from the constant assumptions that underlie regulated policy illustrations. Chart 3 is a graphic visualization of the data points derived from a VUL illustration when it is used to calculate a lifetime annual planned premium in response to the question: “What’s it gonna cost?” Notice how the illustration produces the theoretical perfectly smooth accumulation of account value from $0 in the first year to virtually the dollar amount of the death benefit at age 100 based on the calculated premium of $4,062 for a healthy 43-year-old woman, using the allowed 12 percent gross return. Also observe that only in such a graphic depiction can we visualize what the 18-page stream of columns of numbers is trying to tell us. A picture is indeed worth a 1,000 words. But because equity sub-account returns do not materialize in any constant way, we need a means to both visualize and assess the potential effect of the volatility. Fortunately, that means is readily at hand, and is commonly used in portfolio management and retirement plan distribution assessments. It is a statistical process called stochastic analysis, more popularly referred to as Monte Carlo analysis. With it, we can set aside the use of an arbitrary rate of return, and focus on using the client’s chosen asset allocation. If we assume the response is for an aggressive risk tolerance, in turn pointing to an all-equity election of sub-accounts, we might randomize historic monthly S&P 500 returns from the past 40 years as a reasonable proxy of both volatility and realistic returns within that asset allocation. When this statistical process is applied to 1,000 such randomized illustrations focused on the $4,062 planned premium, we might first take a peek at an individual but randomly generated result and a randomly generated hypothetical illustration that closely resembles the results of the bull market of the ’80s and ’90s in Chart 4. But with a “click” on the control of the randomization engine to generate another random scenario of monthly historic returns (and actuarially determined expense factors), Chart 5 is typical of the result. And even in a random scenario that has only 13 “down” years and 45 “up” years – and for which there are signif28

InsuranceNewsNet Magazine » July 2013

CHART 3

Face Amount

Account Value

$1,000,000 $800,000 $600,000 $400,000 $200,000 $0 45

CHART 4

Face Amount

Account Value

100

Assumed Return

$3,000,000 $2,400,000

Variable UL - 12%

$1,800,000 $1,200,000 $600,000 $0 45

100

40 20 0 -20 -40

Age 45

CHART 5

Face Amount

Account Value

Assumed Return

$1,000,000 $800,000 $600,000 $400,000 $200,000 $0 45

100

40 20 0 -20 -40

Age

ILLUSTRATED PROMISES: UNMET EXPECTATIONS icant “up” years – Chart 6 shows how, in reality, VUL’s long-term results can turn out to be substantially less than illustrated when approaching the answer to “What’s it gonna cost?” with a “best price” mentality and a high constant return assumption. When all 1,000 hypothetical illustrations are run and a tally is made of the number of illustrations that sustain to age 100 with the underlying $4,062 VUL planned premium, we find that only 100 out of 1,000 meet our expectation of “success.” If a 10 percent chance of success would be unacceptable in the purchase (and determination of premium) of life insurance for the protection of our loved ones, we could turn it around by asking the client, “What would be an acceptable success probability with respect to this type of life insurance policy?” If the answer is an understandable “100 percent,” the resulting calculation of a planned premium that will fulfill that requirement (and rather than simply using a fixed average return) leads to a reverse engineered $11,600 planned premium that finds vir-

CHART 6

Face Amount

FEATURE

Account Value

Assumed Return

$3,000,000

$2,400,000

Variable UL - 12% $1,800,000

“What’s it gonna cost?”

$1,200,000

$600,000

100

1 of 1,000 randomizations of S&P 500 20 0 Age

-20 45

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FEATURE

ILLUSTRATED PROMISES: UNMET EXPECTATIONS

It All Starts with Net Amount at Risk VUL and IUL policies with volatile elements drive the actual, ongoing policy crediting rate. This naturally will produce fluctuations in net amount at risk: the amount of actual insurance that, when added to the policy month’s account value (VUL) or the policy year’s account value (1-year point-to-point IUL), adds up to the level death benefit specified in the policy. When the schedule of cost of insurance (COI) charges are low at younger ages, minor fluctuations in account value probably will not make much of a difference to the long-term ability of the policy to sustain itself through volatility. But if a planned premium is calculated for the purpose of driving the “price” as low as possible, the policy will not have much room to sustain a big deviation from the theoretical account value “curve” that runs from the lower left-hand corner to the upper right-hand corner of the conceptual illustration graph. Face Amount

Account Value

Assumed Return

$1,000,000 $800,000 $600,000 $400,000 $200,000 $0 45 0 8 6 4 2 0

100 Age

100

In this graphic example of an IUL with a minimum 0 percent and maximum 10 percent credited return, the hypothetical and randomly generated crediting rates drive the account value almost exactly along the so-called perfect curve. This is until age 81, when two years of (implied) negative returns in the index cause the account value to drop when only 0 percent is credited to the account value, while at the same time more money has to be taken from the account value to pay for more “net amount at risk” to compensate for the lower-than-expected account value. At this age, the relatively high monthly COI charges force the policy’s account value into a negative spiral from which the policy cannot recover, and (in this example) the account value dissipates by age 97, causing the policy to lapse. This will concern the 70 percent of the population who believes they will outlive their peer group’s average life expectancy!

InsuranceNewsNet Magazine » July 2013

tually all 1,000 hypothetical illustrations sustaining to age 100 and beyond with randomized returns in the client’s chosen asset allocation. A lower required success probability (we wouldn’t expect a client to be comfortable with less than 80 percent) could be achieved with a somewhat lower planned premium. A 90 percent threshold suggests a $7,425 planned premium and an 80 percent threshold suggests $6,575. At least now we can relate “What success probability do you need out of the relationship of a planned premium and the likelihood of success?” to the rational approach toward estimating an initial planned premium. This is in contrast to the irrational use of a constant rate of return for a policy style that will achieve anything but constant returns in the deployment of its chosen asset allocation. Given the experience of most investors in the 2007-2009 bear market, and the extremely low fixed returns that have dominated the bond market for the past five years, insurance buyers needed a different solution for their long-term insurance needs if their requirement was premium payment flexibility (current assumption) rather than guarantees (whole life and no-lapse guarantee). IUL was developed to protect against equity losses while providing some participation in equity gains. But while volatility occurs in a much narrower range than in VUL, volatility can still produce a very different result than the policy illustration, especially when the objective is a low, lifetime annual premium. Instead of the idealized “perfect” graphic image of an illustration whose $5,417 planned premium is calculated based on IUL’s often-allowed 8 percent average crediting rate, Chart 7 depicts two random results with annual credits ranging between the guaranteed 0 percent minimum and a 10 percent “cap” with 100 percent participation (i.e. in a year in which the index return is 14 percent, the most that will be credited to the policy is the “cap” as determined by the formula 10 percent cap X 100 percent participation = 10 percent credit). When all 1,000 randomized hypothetical IUL illustrations are run and the 0 percent minimum and 10 percent cap are imposed on outlying returns, we find that only 1 in 1,000 are able to sustain to age 100 with a premium of $5,417. Similar to

ILLUSTRATED PROMISES: UNMET EXPECTATIONS

CHART 7

the example with the VUL hypothetical case, when we solve for 100 percent probability of success, we discover that the IUL planned premium should be set at least initially at $10,735 rather than $5,417. This is almost twice that was determined in the conventional, average rate of return process that is required by illustration regulations. But if we choose to overcome the urge to use the highest crediting rate to produce the lowest “premium,” we can start instead with the more sophisticated approach, and then fine-tune the determination of the initial planned premium as experience and actual market returns “show up” over the ensuing years of policy management. It should be obvious that the variability in future planned premium adjustments will be far less with this approach, as compared to the use of a high constant rate to arbitrarily make that premium look as low (although improbable) as possible. Yet, despite the advisor’s growing awareness of the problem and the solution, the realistic response of the client is going to be: “Hey! I liked that first num-

$400,000 $200,000

Face Amount

Account Value

FEATURE Assumed Return

Index UL - 8% “What’s it gonna cost?”

$0 45 10 8 6 4 2 0

$400,000 $200,000

100

Age

100

Index UL - 8% “What’s it gonna cost?”

$0 10 8 6 4 2 0

100

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FEATURE

ILLUSTRATED PROMISES: UNMET EXPECTATIONS

ber much better than the second one! What gives? I think I’ll shop around a little more!” And that’s where it is critical that we understand how VUL and IUL policies “work,” and then find a way to present it clearly to the typical client who has become accustomed to buying everything from paper towels to bigscreen TVs on the basis of “Who’s got the best price?” My approach is both conceptual and practical. We know that we can work only with the client and deal with the regulated and “signed” illustration. However, it is still up to the advisor to pick an appropriate interest credit rate within the range allowed by the illustration.

(HVC). The calculator takes many of the input fields used in a VUL or IUL illustration. Then, in a manner similar to what has been discussed in this article, the calculator uses the process of historic rate randomization to estimate the success probability that an illustrated “best price” planned premium will be successful in sustaining the policy to age 100. With a specified minimum threshold of success as part of the data input, the calculator also will estimate a revised premium that will meet the generally downward pressure of the randomly generated returns in the client’s specified asset allocation. For IUL, it also will provide an interest crediting rate that can be used in a reg-

Policy illustration examples in this article are generic. For IUL, we are often asked, “Why not a 12 percent cap? Why not 140 percent participation?” The answer is that we’re attempting to help the advisor and the client appreciate the underlying concepts, and the cap and participation factors may change in the future. Since almost everything about VUL and IUL can be changed on an inforce policy – we would rather “under-illustrate” the process of setting initial expectations. VUL and IUL policies need to be actively managed. Only a policy’s experience with factors driven by unpredict-

PRODUCERS AND THEIR CLIENTS NEED BETTER WAYS OF COMMUNICATING AND UNDERSTANDING HOW TO SET A REASONABLE EXPECTATION FOR “WHAT WILL THIS POLICY COST ME?” The illustrated solution covering the client’s best interest is to choose an interest crediting rate that has a high probability of sustaining the policy for a client-determined length of time (often age 100). The agent can run an illustration that solves for lifetime premiums sufficient to sustain the policy to age 100 with the illustration’s highest allowable rate, producing a relatively low planned premium. She then can run a second illustration that solves in the same manner, but with a crediting rate that is at least 250 basis points lower than the originally illustrated rate. Use those two illustrations to help the client understand that while $5,417 is clearly the best looking number, in reality it is very unlikely that actual, credited returns always will be simply 8 percent (or whatever the higher illustrated crediting rate). The use of a crediting rate at least 250 basis points lower typically produces an initial calculated planned premium that more readily will compensate for the natural volatility of the S&P 500.

Real World - How do I Make These Calculations?

The 12,000 members of the Society of Financial Service Professionals recently have been given access to a new member benefit: the Historic Volatility Calculator 32

InsuranceNewsNet Magazine » July 2013

ulated illustration to produce a sustainable planned premium that responds to the better articulated question: “What should I pay into this policy that will meet my expectations for lifetime coverage?” Members of the Society can download a tutorial and the program at www.FinancialPro.org/HVC.

Caveats

The extraordinary power of Monte Carlo assessment and the application of actuarially derived expense factors (product standards), as used in the above examples, require some important considerations in their use. Chief among them: Not withstanding an expectation of more precision in the calculation of a planned premium with the methodology described in this article, Monte Carlo technology and the application of product standards does not and cannot predict the “right” premium for any policy, nor does it replace the regulated policy illustration! Advisors will not win the “price” competition with this approach. We must help our prospect or client understand why price does not equal value.

able returns (and expenses) will allow us to provide subsequent “mid-course corrections” for the benefit of sustaining the underlying policy for all years, with optimal outcomes. Registered representatives reviewing or selling a VUL policy, or a producer reviewing or selling an IUL policy, and using such tools as the HVC for in-force management or new sale determination of a funding premium that can reasonably meet the client’s expectation, will need to discuss the use of the information derived from such tools with their compliance department. That said, use the recommended “discount” of at least a 250 basis point reduction in crediting rate for the purpose of calculating a planned premium for IUL. If you are a member of the Society of Financial Service Professionals, use the HVC’s lower “average return” calculation to better inform and serve you with a better approach to calculating a funding premium. We anticipate a favorable compliance reaction when an advisor picks an appropriate and lower crediting rate to compensate for volatility that isn’t otherwise accounted for by the regulated illustration.

ILLUSTRATED PROMISES: UNMET EXPECTATIONS

FEATURE

the beginning and for 250 years thereafter, there was Whole Life, and it was good. As inflation pushed interest rates to unfathomable levels, Whole Life begat Universal Life, and it, too, was good. Universal Life held the promise (but rarely the reality) that its initial high interest crediting rates would sustain such policies well past the typical person’s life expectancy with “premiums” far less than those for whole life, while simultaneously building substantial cash values for possible withdrawal at retirement. As an additional benefit, Universal Life was proclaimed to be transparent, whereby all charges, credits and activity could be seen and understood. However, regulators would come to insist that payments into Universal Life be termed “premiums” (wanting to avoid “investment” or “deposit” as potentially misleading), even though that term of art generally inspired an expectation of guarantees, which are inherent in Whole Life but not Universal Life.

to VUL’s allowable maximum illustratable average crediting rate of a (gross) annual 12 percent. In those boom years of the stock market, the success of equity sub-accounts propelled VUL to more than a 40 percent market share for permanent life insurance by the end of the ’90s. Another factor aiding VUL’s success was that the National Association of Insurance Commissioners’ Model Regulations largely exempted VUL illustrations from requirements otherwise imposed on general account current assumption universal life illustrations.

As interest rates declined through the 1980s, expectations were not being met as to low premiums driven by high crediting rates, and the bloom began to fade on the Universal Life rose. So it came to pass that Universal Life begat Variable Universal Life (VUL), and it was good. Variable was given an immediate boost amidst a booming bull market that in turn inspired VUL’s market share “grab” in the ‘90s, mimicking UL a decade earlier. One important reason was that VUL had the ability to recapture some of those glamorous crediting rates of a decade earlier, illustrating extremely favorable answers to “What’s it gonna cost?” due

So the final begat produced Index Universal Life (IUL), and it too was very, very good. Already accelerating to comparable peaks in popularity as its UL predecessors, it has survived a fight to make IUL a security, and now available to sell by anyone with a general account insurance license, and is very attractive for its claim to “participate in the upside of the market while guaranteeing owners won’t suffer the losses.” However, a guarantee of no negative returns is not the same as a policy that cannot lapse, and that may well be the “rub” as history continues to turn back on itself with most lessons of the past, unfortunately, left unlearned.

A guarantee of no negative returns is not the same as a policy that cannot lapse.

As we’ve seen, current illustration technology can’t readily explain this IUL reality. Policy illustrations have evolved to help consumers better understand how the underlying policy would work under the extremes of an unrealistic “guarantees-only” result, and an equally unrealistic “current, non-guaranteed” calculation that is the simplistic result of projecting a user-selected crediting rate as a constant over the many years of expected policy benefits. Neither extreme is a realistic representation of a likely future, nor

And the begats continued: In the latter stages of the bull market, UL and VUL begat No-Lapse Guaranteed UL (NLG - also referred to as Guaranteed Death Benefit - UL), and it, as well, was good. At least, it was good until the Great Recession inspired historically low and persistent interest rates, in turn causing re-pricing of NLG and possibly less attention in the marketplace.

can the 15-year old technology of producing illustrations really lend itself to helping the client make decisions that are in their better interest. VUL illustrations were left out of the last attempt at illustration reform, and IUL policies and their illustrations weren’t even contemplated 15 years ago. Because policy credits on behalf of VUL and IUL styles of current assumption universal life depend on volatile – not static – returns in sub-accounts or indices, producers and their clients need better ways of communicating and understanding how to set a reasonable expectation for “What will this policy cost

me?” and the resulting need for ongoing management to optimize the benefits of whichever type of universal life policy the client may choose to own. In the era of annual “new and improved” iPhones and Android device upgrades, policy illustrations, especially for universal lifestyle policies, are long overdue for their own version of a technology upgrade. Richard M. Weber, MBA, CLU, AEP is president, Society of Financial Service Professionals. He may be contacted at Richard.Weber@ innfeedback.com.

July 2013 » InsuranceNewsNet Magazine

[LIFEWIRES]

LIMRA/LOMA to take “quantum leap” and branch into retirement research bitly.com/QRquantumleap

NAIC Looking At ‘Hybrid’ Products Individual life policies that provide coverage for long-term care are on the rise, and the National Association of Insurance Commissioners (NAIC) is looking into these so-called “combo” or “hybrid” products. Earlier this year, the American Council of Life Insurers (ACLI) expressed concern to NAIC over what it called confusion over the number of these hybrid products. The topic has been discussed at several meetings of NAIC’s Market Analysis Procedures Working Group. Although ACLI and NAIC have some concerns about combo products, the buying public has embraced them enthusiastically. Last year marked the fourthstraight year of double-digit gains for life combo products. Total new premium last year represented 11 percent of total new premium for individual life insurance. More than 86,000 life combo policies were sold in 2012, up 19 percent from 2011, according to LIMRA. Life/long-term care combo products are primarily life-based with long-term care riders that allow the policyowner to access the death benefit if the policyowner needs the money for long-term care services under the definitions common to most longterm-care policies. Similar to stand-alone long-term-care insurance, most combo policies in force are insuring women with a greater portion of policies issued to those in their 60s.

ADVISORS OPTIMISTIC ABOUT ECONOMY, CONCERNED ABOUT TAXES

Is the glass half full or half empty? Advisors said they are more optimistic about the economy now than they were in previous years, but they are worried about taxes and interest rates. These findings are from a recent survey by Curian Capital. More than half of those surveyed said they believe the economy will improve in 2013. Only about one fifth said they believe the economic crisis will be long term. But a few clouds remain on the horizon, namely unemployment, rising interest rates and increasing taxes, according to the advisors surveyed. Other highlights of the survey include: Time management was cited as the DID YOU

KNOW

biggest practice management challenge by the advisors surveyed. The majority (56 percent) of advisors do not use social media within their practices, and only six percent of respondents ranked social media as one of their top three sources of new leads. Apple iPads are the preferred mobile tablet device of more than 50 percent of advisors, while one third of advisors don’t use a tablet device in their practices.

COMPANIES ANNOUNCE JOB CUTBACKS

Pink slips are being handed out by the hundreds at some insurers. Genworth announced what it called an “expense reduction plan” that will eliminate about 400 positions, including 150 open positions that will not be filled. Earlier this year, Genworth announced a

NATIONWIDE HOPES TO HAVE the first life insurance/annuity crossover product on the market in 2015. Source: Nationwide

InsuranceNewsNet Magazine » July 2013

reorganization that it said would reduce financial risks at its mortgage insurance business and put that unit under a newly created parent company. Aviva plans to eliminate 2,000 positions, 6 percent of the company’s overall work force, over the next six months. Group Chief Executive Officer Mark Wilson said in a statement he realizes cuts are painful, but necessary to boost the company’s competitive position. Meanwhile, MetLife said it has eliminated about a third of its advisor jobs, or about 2,500 positions, since early 2012. Treasurer Eric Steigerwalt said the company had 7,500 advisors in February 2012 and now has around 5,000. Steigerwalt said the cuts make MetLife more productive and are saving a significant amount of money. However, he said he believes the number of advisors has reached a low point and should start to grow.

THRIVENT – NOT JUST FOR LUTHERANS ANYMORE

One of the nation’s largest fraternal benefit societies, Thrivent Financial for Lutherans, has decided to open its membership to all Christians. Thrivent’s membership voted to expand its reach. The change is expected to start at the beginning of 2014, and the company will be known simply as “Thrivent.” Thrivent is a fraternal benefit society and a Fortune 500 company that provides a full range of banking, investment and insurance products. The vote struck at the heart of the not-for-profit, which has wrestled for years with whether or not to expand Thrivent’s focus beyond the Lutheran faith amid declining loyalty to Christian church denominations. Thrivent has seen its assets under management grow, even as its membership has declined. The company reported its assets under management grew to $82.2 billion in 2012, up 8.4 percent from 2011. This growth came on the heels of a four-year streak that also saw its membership base drop to 2.5 million. This was a decrease of 500,000 members since 2002.

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Financial Independence Group, Inc. www.figmarketing.com July 2013 » InsuranceNewsNet Magazine

AFRAID OF SE LLING OVER THE PH ONE? CURE YOUR CALL AVERSION

LIFE

page 56

You can Close Business from Costa Rica L earning the techniques to sell insurance remotely will enable you to reach more prospects in less time. By Ethan Kap

can still remember driving for more than an hour to meet with a client, with whom I had confirmed the appointment just hours before. When I got there, he was nowhere to be found. I waited, talked to the neighbors, went to lunch, called him a couple times and still nothing. I was furious. This “no show” had just cost me three hours of work time. I burned a ton of gas driving 60 miles each way at $4 per gallon. Even worse, I missed out on all the opportunities to work on other deals during that time. I was sick of wasting time and money. I wanted to sell these cases over the phone, so I could talk with more people and make more money. So, for the past eight years, that’s ex36

InsuranceNewsNet Magazine » July 2013

actly what I’ve been doing. And if you have dreams of running off to Costa Rica but still keeping your business going, you can do it! Advisors are becoming increasingly savvy when it comes to technology. They are doing everything from performing annual reviews via Skype, to using e-applications, chatting with clients via Facebook, and having a killer online video and email conversion sequence. In all this, there’s a major missing component, and that is taking someone from a stone-cold prospect to closed, issued and paid – all over the phone and Internet, without ever meeting that client. The average advisor sees five to ten clients per week. It’s tough to grow your income when you can’t increase the number of people you are seeing. It makes sense why, when you have to prepare for an hour or two, then drive 30, 45 maybe even 60 minutes each way to meet the client, then you have a oneor two-hour meeting, and drive back 45 minutes – that could be a three- to four-

hour time drain. You get two of those per day, and you’re done. Working virtually with clients should be at the top of everyone’s list. Here’s why: [1] Your market is the entire country. You can sell in any state in which you have a non-resident license. This allows you to access a clientele that more closely matches your target market. For example, if you are seeking senior prospects, but live in an area that doesn’t have a high senior population, this fixes that problem. [2] Maximize and leverage time to the fullest. (No more wasted time with no-shows.) It’s easy to see how much time you waste traveling to see clients. It’s not as easy to see how many clients you lose because they aren’t willing to meet with you face to face. When you work virtually, just about anyone is comfortable having a 15-20 minute conversation over the phone. You increase your first appointments

YOU CAN CLOSE BUSINESS FROM COSTA RICA dramatically by allowing people to work with you in an environment in which they are comfortable. [3] Powerful positioning. There’s an old saying, “A prophet is without honor in his own land.” When your clients are meeting with someone who is far away from them, there is a level of credibility that can be created if done properly. But advisors don’t think they can sell virtually, and it’s usually because of these three reasons: “I’m not tech savvy.” The good news is that you don’t have to be tech savvy. We use the good old-fashioned telephone, email and a simple screen sharing tool that is completely free. It’s called join.me and is very easy to use. All the users need is for you to tell them what to type into their web browser. It can be join.me/yourname and then they can see what you are showing on your screen instantly. “High-net-worth clients won’t buy unless I meet with them face to face.” Large sophisticated investors don’t require that they meet you. What they do require is that they trust you. Is it a good idea to meet your clients face to face at some point? Of course, there’s nothing wrong with that. Meeting them is great, but not necessary. “I’m not comfortable without seeing the client ‘belly to belly.’ ” This is a challenge, but in order for this to be successful, you must be willing to stub your toe a time or two as you figure out how to do it effectively. It starts with generating leads for you to work. You must have a good flow of new appointments being set for you in order to have any leverage with this type of approach. It’s important that these are strong leads that you are following up on. Positioning is crucial in this process. If you are seen as a salesman chasing people like a hungry animal, your prospects will smell it a mile away and never take your call. It’s crucial that these leads have called you and have requested an appointment with you. When they come to you, you can maintain your position as the expert.

The way we’ve done this is by using 60-second radio spots to target high-networth clients. We address the problems and frustrations they currently have, and then we offer a solution. This has proven to generate a very high-quality prospect, with high investable assets and open mindedness to getting out of the market. We can get a return on this investment easily with a few closed cases. From there, the sales process begins.

The First Appointment

The first appointment is usually the shortest, and it happens over the telephone. It’s a short, low-pressure, 20-minute conversation. However, don’t take this for granted. What you do on the first appointment is crucial to the entire process.

In order for this to be successful, you must be willing to stub your toe a time or two as you figure out how to do it effectively. We take all the pressure off the prospects by using what we call an “Up Front Contract,” and giving the prospects permission to bail out at any time this doesn’t seem like a fit. From there, we spend most of the time asking prospects specific, targeted pain questions to see if they are a fit for us. We don’t “spill the candy in the lobby,” revealing a bunch of information about our strategies, because that’s a surefire way to lose a deal. We do sprinkle some candy, however, letting them know there are solutions to their frustrations, and they can learn more about them, but we’re running out of time. During the first appointment, our main goal is to see if they have the budget, their level of pain and how open-minded they are to some new concepts that we will show them on the next appointment.

LIFE

The Second Appointment

We conduct the second appointment in front of the computer with a screensharing app called join.me that we described earlier. Our presentation slides demonstrate the three ways people can be taxed, as well as the history of taxation and the market history. We compare that with the indexing strategy, plus any other concepts in which the clients may be interested, such as financing themselves to wealth. At the end of the second appointment, we show the opportunity their plan could create for wealth growth, tax savings and retirement income. They get excited about what they are seeing and then we take it away with “there is some bad news.”

The Third Appointment

From here, we let them know they need to qualify, and we move to a third appointment in which we take the application. This whole process is managed with hundreds of hours of tested scripting. We also use “Presupposition Questioning Strategies” such as: “When your advisor got together with you and discussed the next market crash and how to keep your money safe, what kind of plan did you come up with?” Or, “When you looked at the amount of taxes you’ll pay on your 401(k) distributions, what amount did you come up with?” We also follow up with a host of persuasion tools that make sure the client is educated and comfortable at all times. Some of the tools we use are a direct mail follow-up campaign, emails driving them to videos we’ve created that are entertaining and instructive, and books that explain the concept quickly and easily. Ultimately, this has given us the best of both worlds, a great income that continues to grow and a lifestyle that can’t be beat. A friend of mine who is learning how to do this recently told me, “My goal is to move to Costa Rica and sell cases from the porch on my beach house!” He can do it. And so can you! Ethan Kap is co-author of Safe Money Millionaire and partner at Producer Mastery, an FMO that provides appointments, leads and a virtual selling system to agents and advisors across the U.S. Ethan can be reached at ethan.kap@innfeedback.com.

July 2013 » InsuranceNewsNet Magazine

LIFE

How to Stay Motivated Over the Summer Months R ecognizing why it’s hard to find the time to accomplish what you need to do, and coming up with a plan to combat your lethargy, will help you to achieve your goals, even in the midst of the summer doldrums. By Bob Davies

magine coming home after a hard day of appointments and disappointments. Today is the day that you intended to make some “two for one” calls. It’s the day that you planned to make calls to some high-net-worth business owners on behalf of your fund-raising efforts for the hospital foundation for which you volunteer your time and leadership. You have the time set aside and then you get interruptions, one after another. You remember that you have to attend a webinar that involves one of your client’s issues. Then you have to review data from a questionnaire and prepare a present financial position. Now you’re all set to make your calls, but one of your clients calls you and says his accountant doesn’t understand the value of the premium financed insurance aspect of his estate plan. Next, you get a call from an attorney regarding some trust work. Then you need to prepare some client files for a compliance review. After that, you are told that there are some suitability issues with your annuity sale to an 80-year-old client. You still haven’t made any of those calls, but you will – right after you research competitive products and investment preferences for another client. Next, there is an issue with switching groups of funds. After you handle that, you see there is a problem with a commission and that requires you to make a call. Next, your assistant needs to see you to go over his or her progress on the tasks you assigned regarding your upcoming strategic alliance event. 38

InsuranceNewsNet Magazine » July 2013

Another call comes in about your fund allocations and the investment options not being aggressive enough in a guaranteed living benefit annuity. Your assistant then informs you that a doctor’s office is slow to provide records for another client and that your anti-money-laundering paperwork is missing. This is followed by a policy coming back rated and it’s one thing after another. Before you know it, you are absolutely exhausted as you grab your briefcase and head out the door for home. Oh, by the way, you never did make any calls. Ever had a day like this? When you get home, you find that you have no energy and you are not motivated to do anything that involves any effort. All you want to do is sit in your favorite chair and watch television. Your spouse asks you to help the kids with their homework and you simply say, “Not tonight, dear!” It would appear that you are not motivated. There is no such thing as an unmotivated person. In the circumstances I just described, you are very highly motivated to use as little energy as possible. That is a very highly-motivated state. Your body is geared to conserve energy. You will move as little as necessary and conserve your resources. Now watch how you can shift your motivation in an instant. You smell smoke and, as you look in the kitchen, you see flames shooting up the wall over the stove. All of a sudden, you get a surge of energy as you jump out of your chair, grab your favorite kid and run out of the house. What happened to your physiology and how did you go from absolutely exhausted to extreme high energy? It’s simple. You changed what you were in light of your circumstances. When you first came home, you were in reference to how hard your day was and how so many non-stop interruptions kept you from doing what you had in-

tended to do. The result of that reference point was exhaustion. In the second case, you were in reference to a dangerous and potentially-catastrophic fire, and your physiology responded with great energy and focus. It’s all about your reference point. Check out the illustion on the opposite page. Is square A darker than square B? As you look at this, it becomes obvious that the truth is, yes, square A is darker than square B. It’s an obvious truth. Would you put a hundred bucks on this? If you said yes, you’d lose it. The two squares are identical. I know it doesn’t look like they are, but you can’t trust what you see. It’s about what they are in reference to. Square A is in reference to the white squares and the open white space. That gives it the appearance of being dark. Square B is in reference to the dark squares surrounding it and that gives it the appearance of being light. Copy the picture and cut out square B. Put it on top of the first picture over the original square B. Now change its reference by physically moving it to the top of square A. It will look like it is changing colors right in front of your eyes. It never changes colors. It changes reference points and your eyes do the rest. Back to your tough day at the office. When you first came home, you were in reference to all of those obstacles. With that as your reference, your body was motivated to generate the lethargic, energyconserving state. When you changed your reference point to the smoke and fire, your body responded in kind. It was never an issue of being motivated. You always are motivated. So how do you stay motivated during the summer months? You prepare. Take a look at your calendar and decide the times you will be working and the times you will be taking off. Next, decide what you want to accomplish during the days that you are working. Here are the steps to take.

HOW TO STAY MOTIVATED OVER THE SUMMER MONTHS Ask the following questions:

[ 1] What do I want? What am I building? Why bother? How much is enough? [ 2] What do I need to do to have what I want? [ 3] What do I need to do this week to have what I want? [4] What will I do this week? Next, put it into a behavioral contract. Make a specific declaration of what you intend to do one week at a time, and then have someone else hold you accountable to get it accomplished with a consequence if you don’t. That is the key. The key component of behavioral contracting is changing your reference point. If you would have had a contract that you would make three calls from your “hit list” that day and, if you didn’t, you would give $100 to the person you most dislike in your office, then you would have found the opportunity to make the three calls.

It’s absolutely amazing how behavioral contracting works. It taps into human nature. You are genetically coded to avoid the highest level of perceived pain and to seek comfort. This is not a preference, this is an instinct. This is how we all are genetically coded for survival. In the case just described, instead of being in reference to how busy you were, your brain would recognize a higher pain – the $100 penalty – and you would find the opportunity to make those calls. The other thing you can do is time-blocking. Give your assistant certain times that he or she can visit with you and instruct your assistant not to interrupt you unless it’s for an important and urgent time-sensitive issue. Block out time on your calendar to make those calls. Put the activity in a behavioral contract and you will ensure that you see the opportunity to take the action. What’s really happening under the surface is you are avoiding the highest level of perceived pain, the $100 penalty.

LIFE

Time-block your summer. Be precisely prepared. Make decisions about what you want to do and what you need to do. Put short-term accountability in place with a painful consequence for non-performance. Take it one week at a time. Of course, I recommend that you have ongoing passions and goals, such as eating properly and exercising. The fitter you are, the better you will feel and the more you will get done, whether the “getting done” means relaxing or accomplishing tasks. That’s how you stay motivated over the summer. Bob Davies of High Performance Training holds a master’s of education degree in psychology from Springfield College, and a bachelor’s degree in health from Rutgers University. Bob can be reached at Bob.Davies@ innfeedback.com.

Does square A look darker than square B? Look again. Answer: Square A is in reference to the white squares and the open white space. Square B is in reference to the dark squares surrounding it. If you put square B on top of square A, you will see that both squares are the same level of darkness.

July 2013 » InsuranceNewsNet Magazine

[ANNUITYWIRES] DIA Sales Climb in 1Q While Fixed Annuity Sales Take a Hit Sales of deferred income annuities (DIA) reached a record high in first quarter 2013, according to the Beacon Research Fixed Annuity Premium Study. Results for these products increased for the fifth consecutive quarter and were nearly 150 percent higher than a year ago. The success of DIAs helped overall income annuity sales grow 1.4 percent year-over-year. But the industry continued to be affected by the ongoing low interest rate environment. Total fixed annuity results were $15 bilFirst quarter results lion in first quarter, down 11.7 percent from a year for the top five study ago and 7.7 percent for the quarter. However, fixed participants rate market value-adjusted (MVA) annuity sales dipped only slightly from the prior quarter, sugTotal Fixed Annuity Sales (in $ thousands) gesting that consumers are willing to accept some potential interest rate risk in exchange for higher Allianz Life 1,163,724 credited rates. Indexed annuity sales decreased 7.9 Security Benefit 1,105,733 percent for the quarter to $7.8 billion, and fixed New York Life 1,079,443 rate non-market value-adjusted (MVA) annuities fell 8.1 percent to $4 billion. Income annuities American Equity 929,899 dropped 8.2 percent. Jackson National 743,682 Allianz was once again the top fixed annuity company in first quarter 2013, followed by Security Benefit Life, New York Life, American Equity and Jackson National. Security Benefit Life moved to second place. New York Life remained in third place, American Equity moved up a notch to come in fourth, and Jackson National rejoined the top five in fifth place. Total U.S. annuity sales for the first quarter were $49.6 billion, down 2 percent from the fourth quarter in 2012, and down 6.6 percent from the first quarter in 2012.

DES MOINES: INDEXED ANNUITY CAPITAL OF THE WORLD?

Quick! What comes to mind when you think of the financial capitals of the world? New York? London? Hartford, Conn? How about Des Moines, Iowa? Des Moines? Are you kidding? Out in the heart of America’s heartland, Des Moines has become the indexed annuity capital of the world. Consider the following: American Equity Investment Life, Aviva Life & Annuity, EquiTrust Life, Midland National Life, ING, North American Co., The Principal Life Insurance, Farm Bureau Life, all companies either based or having annuity operations in Des Moines-West Des Moines, have racked up more than $7.8 billion in indexed annuity sales in the first quarter of this year, according to first quarter statistics by Wink’s Sales & Market Report. 40

InsuranceNewsNet Magazine » July 2013

Together, those companies control more than 35 percent of the indexed annuity market, according to Wink’s. So how did

Des Moines get to be the world’s indexed annuities capital, anyway? “Iowa’s premium tax rate is very competitive,” indexed annuity expert Sheryl J. Moore, president and chief executive officer of Moore Market Intelligence, said in an interview with InsuranceNewsNet. “As a result, insurance companies have flocked here.”

MAJORITY OF IA CARRIERS ADDING NEW FEATURES

A majority of the companies offering income annuities have added features designed to address consumer concerns and attract new sales, according to the latest LIMRA/CANNEX study. Many income annuities now include

features that offer retirees increased access to cash or liquidity in case of an

Brought to you by:

unforeseen need. Other features include

death benefits to address the event of a premature death and flexible income options to keep up with inflation. All these features are designed to make income annuities an appealing part of anyone’s portfolio. “There is a disconnect between the need and the amount of sales,” said Lowell Aronoff, CANNEX CEO. “Retirement income research universally suggests that income annuities should be a core product for nearly all retirees. Yet sales of these products are still fairly modest.”

NEW EMPHASIS ON DIAs

DIA

A recent LIMRA study suggests a growing interest in deferred income annuities as nine companies currently offer one and an additional eight companies are planning to introduce their own deferred income annuity (DIA). The majority of these DIAs have been launched in the last few months. Sometimes referred to as a longevity, deferred payout or advanced life-delayed annuity, the DIA pays income to the policyholder starting at least 13 months from the policy date. Whereas the immediate income annuity is appropriate only for those looking for income starting immediately, the deferred income annuity would appeal to someone in need of guaranteed income later, such as the 77 million baby boomers

in the U.S. While still a small percentage of the overall income annuity market, the study also showed that deferred income annuity sales reached more than $1 billion in 2012.

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

Who Will Win The Next Annuity Iditarod? Annuity carriers with first quarter sales drops don’t need to feel like the last musher on the Iditarod Trail. They have plenty of company.

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July 2013 » InsuranceNewsNet Magazine

ANNUITY

Rethinking the Ideal Buyer of Annuities T hose entering their 50s traditionally haven’t been ripe for the income or annuity conversation, but this situation is changing for a number of reasons. By Kenneth L. Brown

ver since the leading edge of the baby boomers became eligible for Social Security in 2008, many financial professionals have been focused on helping this large, important 42

InsuranceNewsNet Magazine » July 2013

population segment transition successfully from accumulating assets to turning those assets into a reliable income stream. Not surprisingly, this transition has been accompanied by a surge of interest in both income security and annuities. According to a 2012 survey by the Insured Retirement Institute (IRI) and Cogent Research, about 84 percent of financial professionals said they were having more retirement income-focused

conversations than they had five years earlier. In the same study, 70 percent of financial professionals who sell annuities revealed that their clients actually had asked to purchase an annuity. Often, for these retiring boomers, the solution of choice is the single-premium immediate annuity (SPIA). These SPIAs are designed to take a fixed sum – often from an individual retirement account or 401(k) rollover – and turn it into a predictable income flow. The effective-

RETHINKING THE IDEAL BUYER OF ANNUITIES ness of this solution hinges on the idea that the annuity buyer indeed has chosen to retire, has a good sense of his or her other income sources, and knows what role the SPIA will play in delivering income.

Late Boomers?

What sometimes is forgotten in the quest to serve those in the leading edge of the baby boom are those other boomers – the ones in the boom’s trailing edge who are entering their 50s. Although clients in this age range traditionally haven’t been ripe for the income or annuity conversation, this situation is changing for a number of reasons. One reason for the change is simple anxiety. Many 50-year-olds are seeing that their parents have robust traditional pensions that, combined with Social Security, provide a decent retirement income. By contrast, 50-year-olds may feel that such security is increasingly out of reach, especially without defined benefit pension plan payouts and with persistent signals of potentially-eroded federal retirement benefits. As such, many of these clients may harbor a simmering concern about the quality of their retirement lifestyle. Accordingly, many of these younger boomers are getting an early start on recalibrating what their retirement vision might be. They realize that increasing lifespans, combined with potentially constrained finances, might be inconsistent with the traditional vision of a retirement that includes vacation homes or aroundthe-world excursions. Additionally, in other cases, they may shun the idea of leaving the workforce, instead intending to scale back work hours or start their own businesses. For some, they simply want to open up their schedules to spend more time with family and friends.

The Annuity Conundrum

This combination of clients’ income anxiety and free-form retirement expectations creates a unique challenge for financial professionals. Such clients are not yet ready to retire, and thus do not have enough clarity about future income needs for a SPIA solution to fit. In some cases, deferred income annuities can play a role, since buyers can delay their income start date and get

higher monthly income payments at a time when they need that income. Still, there is a drawback. These annuities, like the SPIAs, generally provide limited to no flexibility in terms of clients’ access to their contract values that have been accumulating. Some clients in their early 50s, who see the possibility of an altered financial situation in their future or who just want more flexibility with their retirement income, may see this option as too restrictive.

New Model Emerging

For these trailing edge baby boomers, there is an emerging product type that aims to strike a balance between providing guaranteed lifetime income and affording enough flexibility if their financial circumstances change. This new variety of fixed annuity fuses certain features of a deferred income annuity, tradi-

The combination of clients’ income anxiety and free-form retirement expectations creates a unique challenge for financial professionals. tional fixed annuity and fixed index annuity to provide income, access to their contract’s value and potential “income base” growth through index credits. This new product concept hinges on providing owners with an incentive to keep their money in the annuity for longer periods, while still giving them flexibility for times when they might need to access their contract values. The incentives built into the new concept can come in two forms and those incentives are applied toward the benefit value. The first of these is a guaranteed “step up” in benefit value for owners who defer income payments. For example, if a client were to defer taking money from the annuity for five years, the benefit value base will get a boost. The longer

ANNUITY

the owner delays taking money from the annuity (subject to terms of contract), the greater the benefit value base. The second incentive built into this new concept involves the opportunity to capture potential growth of the income base based on changes to an index (such as the S&P 500® Index) during each contract year. This potential growth through income credits (which is subject to an index cap), combined with the “step up” benefit just described, may give the client a higher benefit value base, which is used to determine the amount of income payments.

Freedom to Move on

For trailing edge boomers, these new income fixed annuity products may even alleviate their uncertainty about locking into SPIA annuity contracts. For example, if a client determines after 10 years that he or she has enough income security from other sources, or if an inflationary period makes the annuity seem less desirable, the client can forego taking advantage of the “step ups” and index-linked income credits, take money out of the annuity contract value and move on.

Starting the Conversation

No doubt, trailing edge baby boomers are still at an age when their continuing contributions to tax-deferred plans are critical to pursue maximum potential asset accumulation. Thus, consideration of any annuity product must be done after weighing the pros and cons carefully. Still, this new product concept gives financial professionals the opportunity to start a conversation about income with clients in their early 50s. By doing so, these professionals have the opportunity to address what might be deep-seated, hidden concerns about future income security – and build the foundation for relationships that may endure throughout their clients’ retirement years. Kenneth L. Brown is the vice president of sales development & strategic support for ING U.S. Insurance Solutions’ annuity and asset sales business, overseeing marketing, product development, regional wholesaling, sales training and development, and wholesale operations for the company’s annuity business. Contact Ken at kenneth. brown@innfeedback.com

July 2013 » InsuranceNewsNet Magazine

ANNUITY

Market Value Annuities are Back on the Sales Radar S ales figures for MVAs are a sign of annuity market dynamics now in the making, with consumers accepting more risk in return for slightly higher interest rates. By Linda Koco

little-discussed annuity sales trend is lurking in the fixed annuity sales numbers for 2012. This is the subtle advantage that market value adjusted annuities appears to have gained over fixed annuities that do not have a market value adjustment feature. Specifically, in 2012, sales of market value adjusted (MVA) annuities fell by nearly 24 percent compared to 2011, whereas sales of non-MVA annuities fell by 33 percent, according to Beacon Research. MVA products are fixed annuities that might either nick certain withdrawals made during rising interest rate environ44

InsuranceNewsNet Magazine » July 2013

ments or bump up the withdrawal amount during falling interest rate environments. That MVA numbers might not sound like a big deal, since both MVA and nonMVA sales were off substantially and since the entire annuity industry pretty well took a pasting last year. Still, Judith Alexander, director of sales and marketing at Beacon, believes the comparative sales performance between MVA and non-MVA annuities bears watching. It is a sign of annuity market dynamics now in the making, with consumers accepting more risk in return for slightly higher interest rates.

The MVA design

To understand that, it helps to recall the nature of MVA annuities. Such products are fixed annuities that typically make an “adjustment” to annuity withdrawal amounts if the owner makes an

early withdrawal (before the end of the policy’s surrender charge period) and if the withdrawn amount is greater than the policy’s annual penalty-free withdrawal amount. The adjustment can be positive or negative, based on whether prevailing interest rates at time of withdrawal are lower or higher, respectively, than rates were at time of policy issue. During falling and very low interest environments such as today’s, MVA annuities get more industry attention than they do in higher interest environments. That’s because carriers view MVA products as a deterrent to “disintermediation,” which is the risk that policyholders will, once interest rates rise again, cash in their older, low-interest-paying annuities and invest elsewhere. The thinking is that owners of MVA annuities will not want to do that because

MARKET VALUE ANNUITIES ARE BACK ON THE SALES RADAR the value they receive will be reduced by not only the surrender charge but also the MVA. Disintermediation is something the fixed annuity industry typically wants to avoid. That’s not only because it leaves carriers with fewer policies on the books to balance out their other in-force business but also because disintermediation can be costly. Carriers feel the cost impact if they must sell investments at a discount when the policyholder makes an early withdrawal. The investments sold would be the ones the carrier had originally purchased – at lower rates – to support the annuity from which the policyholder now wants to take early leave. It’s this disintermediation-fighting capability that makes the MVA an attractive product for annuity companies to sell during low interest environments. Not insignificantly, the products have a plus for consumers, too. In many, if not most, MVA annuities, consumers can get a more competitive interest rate than available in non-MVA annuities. For rate-hungry consumers, that can be a strong selling point. There is a trade-off, however – namely, consumers assume the risk of seeing a potential MVA nick on early withdrawals they might make sometime in the future when interest rates are higher. In the MVA annuities he has seen, Robert J. Chester, state insurance examiner in the Connecticut Insurance Department, said the higher rates are showing up as comparatively higher guaranteed minimum interest rates, interest crediting rates and/or annuity purchase rates (used in annuity income calculations). The rates aren’t a lot higher than rates in non-MVA annuities, he noted, but they are noticeable.

Back to the numbers

Beacon Research noticed the shifting relationship between MVA and non-MVA sales while preparing its industrywide fixed annuity sales study for 2012, a study that found industrywide fixed annuity sales were down by 11.6 percent for the year. The study also found that non-MVA annuities far outsold MVA sales – by $18.8 billion to $4.6 billion, respectively. By comparison, those sales came in well below the 2011 results of $29 billion and $6.3 billion, respectively.

That’s not all Beacon found, however. The researchers also noticed that MVA sales fell by a lower percentage than the non-MVA sales (23.6 percent versus 33 percent, respectively). A look back indicates that this trend actually surfaced in 2011. According to Beacon’s numbers, MVA sales had fallen 3.1 percent that year from the year before, whereas non-MVA sales had fallen by 5.5 percent. The gap between the two was not as substantial as in 2012, but the firming up on the MVA side appears to have started then. One carrier in particular made MVA headway in 2012, according to Alexander. That was New York Life. “It shifted much of its fixed rate business from non-MVAs to MVAs, pushing its MVA market share to 16.7 percent, from just 2.7 percent in 2011.”

“We’ve seen more new MVA products filed in the past year or two than previously, and that includes MVA features in indexed annuities as well as traditional fixed annuity policies.” — ROBERT J. CHESTER State insurance examiner in the Connecticut Insurance Department

Most MVA products use the multiyear guaranteed annuity (MYGA) design, and the average sales-weighted interest guaranteed period elected in those products was 5.3 years, she pointed out. By comparison, the average in 2011 was 6.2 years. That drop in the average guarantee period, in just one year, “shows that consumers and advisors don’t want to make long-term commitments, especially now, most likely because they are expecting rates to go back up.” How did the non-MVA annuities fare by comparison? In 2012, the weighted average interest guarantee period was 2.98 years, down from 3.2 years in 2011. But most of the non-MVA products are single-premium deferred annuities

ANNUITY

(SPDAs) with interest rates that renew yearly, Alexander pointed out. For that reason, the interest guarantee period is less important in the sense of consumers making a long-term commitment to the credited rate than with the MVA products, she said. “The rates on non-MVA SPDAs in 2012 were so low as to be unattractive,” she said. For example, in banks, their sales fell by 44 percent over 2011, whereas MVA annuity sales in banks fell by only 12 percent.

What does it all mean?

Rates are so low that it is difficult for carriers to sell non-MVA products in this environment, Alexander contended.” The carriers risk a lot if they do, including the risk of disintermediation if rates suddenly rise.” If a carrier is going to be in the fixed annuity market, “there is little that could happen that is worse than having huge policy surrenders occur that they didn’t plan on,” Alexander added. “It’s terrible for carriers.” Actuaries are pretty good at predicting surrenders when interest rates rise, she allowed, but if rates jump, “surrenders could go through the roof.” The impact would be especially acute since yields on insurer investment portfolios have been declining gradually. The declines happened as carriers replaced maturing higher-interest earning investments with new low-interest investments bought during the low-interest rate environment. So, there may be more MVA annuities in the not too distant future than there are now. The Connecticut department is already seeing an increase, Chester said. “We’ve seen more new MVA products filed in the past year or two than previously, and that includes MVA features in indexed annuities as well as traditional fixed annuity policies.” The annuity carriers are “starting to eat their own,” he observed. “They’re not going to make it up with interest, so they’re looking for ways to reduce risk as best they can.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@ innfeedback.com.

July 2013 » InsuranceNewsNet Magazine

[HEALTHWIRES]

Employers Gear Up for Health Care Changes bitly.com/QRgearup

A Healthy State for Older Adults If you want to find healthy older adults, you’ll have to look to New England and the Midwest, while the least healthy seniors may be found in the South. A new report lists the five healthiest states for older adults as Minnesota, Vermont, New Hampshire, Massachusetts and Iowa, while the least healthy states for seniors are Mississippi, Oklahoma, Louisiana, West Virginia and Arkansas. The listings are published in the inaugural edition of America’s Health Rankings Senior Edition: A Call to Action for Individuals & Their Communities, by the United Health Foundation. State-by-state rankings of health for the rest of the U.S. population were published earlier this year. Criteria for rating the states included annual dental visits, volunteerism, availability of food, drug coverage, hospitalization rates and the availability of home health workers. Also taken into account were smoking, chronic drinking, physical inactivity, poverty, falls, hip fractures, premature deaths, teeth extractions, nursing home availability and flu vaccines. “Chronic illness is unnecessarily high among seniors,” Rhonda Randall, senior advisor to United Health Foundation and chief medical officer, UnitedHealthcare Medicare & Retirement, said in a statement. “The coordination of care for seniors, particularly the 50 percent of the population with multiple chronic illnesses, is complex and increases pressure on our country’s caregivers and our health-care system.”

CDHP ENROLLMENT ON THE INCREASE

Enrollment in consumer-directed health plans (CDHPs) conM M tinued on its upward 2010 2012 trend, from 28 million in 2010 to 33 million last year. This was according to an analysis of the Mercer National Survey of Employer Sponsored Health Plans commissioned by the American Association of Preferred Provider Organizations (AAPPO). In fact, CDHPs showed an enrollment growth that no other type of insurance plan saw that year, with 13 percent of all

28 30

workers in employer-sponsored plans choosing CDHPs. Survey results show

that the trend is likely to continue in the near future as well, with 48 percent of employers of all sizes expecting to offer a CDHP in the next five years. DID YOU

KNOW

Meanwhile, another study showed that CDHPs reduce the long-term use of outpatient physician visits and prescription drugs. Employee Benefit Research Institute (EBRI) used data from two large employers: one that adopted a health savings account (HSA) plan for all of its employees in 2007, and another with no CDHP. The research found that after four years under the HSA plan, there were 0.26 fewer physician office visits per enrollee per year and 0.85 fewer prescriptions filled, although there were 0.018 more emergency department visits. Additionally, the likelihood of receiving recommended cancer screenings was lower under the HSA plan after one year. Although usually offered alongside more traditional health plan designs, CDHPs are slowly increasing as employers’ only health insurance offering.

IN 56 PERCENT OF THE COMPARISONS OF LIMITS on out-of-pocket costs, nonprofit plans had less expensive limits for the consumer, while for-profits had the lowest limits in only 28 percent of the cases. Source: HealthPocket

46 InsuranceNewsNet Magazine » July 2013

QUOTABLE By ensuring that people can’t be discriminated against when they buy health insurance and helping those with modest income cover the cost of premiums, health care reform could help create a new generation of self-employed entrepreneurs. — Andy Hyman, Robert Wood Johnson Foundation

HEALTH INSURANCE RATES REMAIN LARGELY STEADY

So far, health insurance premiums have remained steady in the lead up to the implementation of the mandatory insurance coverage provisions of the Affordable Care Act (ACA). Between February 1 and May 1, 2013, health insurance premiums increased by an average of 1.2 percent per plan, according to HealthPocket.

States where plan premiums increased 5 percent or more over this period include Wyoming (7.8 percent), Illinois (7.7 percent), Wisconsin (5.4 percent) and Delaware (5 percent). Lower premium increases are coming in an environment of low overall inflation. This is welcome news to consumers after a ten-year trend in the employer-sponsored health insurance market where premiums increased 97 percent, more than three times as fast as the general rate of inflation from 2002 to 2012. Though there is no certainty about what effect the ACA’s mandatory coverage provision will have on premiums starting in 2014, this topic has reached a fever pitch in Washington. Some experts say premiums will go up while others say they might decrease. Others say it might be a mixture of both depending on the type of plan and the state in which an enrollee lives. Many agree, however, that the non-employer individual and family markets are likely to undergo some potentially dramatic changes that will likely have some impact on premiums.

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HEALTH

How are You Handling the No. 1 Concern of Seniors? O lder people are worried about what will happen with Medicare. You can help alleviate that fear. By Todd Colbeck

hen Sen. Max Baucus, one of the writers of the Affordable Care Act, likened ACA to a “train wreck,” what do you think the impact was on seniors? Do you think this will cause more or less confusion about Medicare than we already have today? Are you prepared if one of your clients asks you what to do about Medicare? If you are prepared, then you are in a small minority. Most insurance advisors I talk to really don’t spend much time on Medicare Supplement (also known as Medigap) insurance. This is great news for you because it means you can gain a tremendous competitive advantage by becoming known as the Medicare expert seniors can trust. Once you have established a trusting relationship, you have earned the right to help those senior clients solve other problems around life insurance and estate planning, longterm care and related issues. I would say most advisors have vastly overlooked the Medicare market, and this opens a tremendous opportunity for you. By being able to address your clients’ concerns about Medicare, you can generate a lot of new business while helping a great number of people. The future of Medicare is actually the No. 1 concern of seniors, as you can see on a chart with this article. You can brand yourself as the Medicare guru in your community and earn additional business by addressing Medicare issues. A number of Medicare information resources are available to seniors, but only one resource can look out for seniors’ best interests by giving personal advice. 48 InsuranceNewsNet Magazine » July 2013

Senior Retirement Concerns Future of Medicare

61%

Having enough money to enjoy retirement

52%

Paying for long-term care

43% 41%

Paying for healthcare Outliving money

38%

Paying for housing

24%

One of the first places where seniors can go to get information about Medicare is, of course, the U.S. government, which regulates it. A great handbook is available online and I recommend all advisors to read it: (http://bit.ly/ innm0713-med). However, will the government provide people with information or with advice? If you said “advice,” guess again; information is about all someone can expect. Having information is one thing, understanding it is another and

benefitting from it is still another. Seniors also have organizations such as AARP as a resource. These organizations also can provide information, but how much personal advice can you obtain through e-mail, a website or an 800 number? Don’t be surprised if many of these organizations have their own products to market as well. That, of course, leaves the insurance advisor or financial professional as a potential resource. Well, if we were to

Medicare Information Sources Family/friend

27%

Government resources

23%

MD/hospital

22%

Financial professional

15%

Company that sells Medicare plans

15%

Company helps with Medicare, receives no insurance fees Social service agency Other None

Source: Allsup Medicare Advisor® Seniors Survey

8% 11%

19%

HOW ARE YOU HANDLING THE NO. 1 CONCERN OF SENIORS?

START Step 1: Decide how you want to get your coverage.

ORIGINAL MEDICARE Part A

Hospital Insurance

Part B

Medical Insurance

MEDICARE ADVANTAGE PLAN Part C (like an HMO or PPO)

Part C

Combines Part A, Part B, and usually Part D

Step 2: Decide if you need to add drug coverage. Part D

Prescription Drug Coverage

Step 3: Decide if you need to add supplemental coverage. Medicare Supplement Insurance

Part D

Prescription Drug Coverage (Most Medicare Advantage Plans cover prescription drugs. You may be able to add drug coverage in some plan types if not already included.)

(Medigap policy)

END END

If you join a Medicare Advantage Plan, you can’t use and can’t be sold a Medicare Supplement Insurance (Medigap) policy.

travel within 100 miles of your office, how many advisors really could explain the recent changes in Medicare and advise people on the best coverage for them right now based on their individual situations? My guess is that you can count them on one hand. That means you have a wide-open opportunity to become the go-to resource about Medicare. Let’s discuss how to begin. As a starter, you really should read that government handbook on Medicare and know it from front to back. Here’s why. Every underwriter has to offer the same Medicare supplement policies because they are regulated by the government. Even though the policies are the same, the premiums may differ. Each underwriter may have different rating system as well. But the policies are the same. Next, every person needs to choose between traditional Medicare and Medicare Advantage. If someone chooses

Medicare Advantage, he can’t buy MedSup. Which is better? You need to help your clients answer that question based on their situation. Medicare Advantage is more like an HMO, so will your clients’ ability to choose their own doctor be important? What if your clients move? Will health care providers be available in their new location? What if your underwriter goes out of business? Will your clients need to pass underwriting again? As for a Medigap policy, how do the premiums compare to Medicare Advantage? Can your clients use their own doctor? Is the policy portable? Should they choose Medigap Plan F? Plan N? What is the best choice? Now, if you can’t answer the previous questions, how do you think the average senior feels? How do you think that senior will feel about you if you sit him down and help him figure it all out in a

HEALTH

single meeting? I think it is much easier to understand and present this subject than it is to understand and present many of the more sophisticated types of life insurance, such as variable universal life. Once you help clients solve their Medicare issues, you easily can go back and help them resolve other issues like life insurance, long-term care insurance and annuities. Obviously, the first step is to develop good relationships with your carriers. Understand how your carriers work, how their premiums compare to those of other carriers, and how they will serve clients when they file claims in the future. Next, talk to some of your carriers’ wholesalers. Eighty percent of all their Medicare revenue comes from 20 percent of their policies. You need to find out all you can about those 20 percent and develop a presentation that incorporates that information. Your wholesalers probably will be able to help you with sales literature as well. Lead generation actually is the easier part of this. Start by calling people age 67 or older instead of calling those just turning 65. As a general rule, those who are 67 and older already have found out that they made a mistake and you can help them fix it. Let people know that you can help seniors resolve their issues around Medicare. Ask them if they or someone they know would like help. Get your pen ready and make sure you follow up. Nothing looks worse than having the person who recommended you feel embarrassed because her friend said you never called. The opportunity to get new clients by establishing yourself as the go-to Medicare expert in your community is wide open. Starting new relationships around Medicare will lead to other business such as life insurance, annuities and long-term care insurance. Deepen your relationships with your carriers and wholesalers to get good sales tools and, most importantly, follow up with all referrals. Todd Colbeck, MBA, is owner of Colbeck Coaching Group, Miami Beach, Fla. He formerly was brokerage vice president of the northeast U.S. region at American Express Financial Advisors. Contact him at Todd.Colbeck @innfeedback.com.

July 2013 » InsuranceNewsNet Magazine

[FINANCIALWIRES]

Two thirds of engaged couples say they don’t want to discuss money. bitly.com/QRengaged

Yo, G’s! How’s The World Doing? For the first time in years, the Group of Eight summit was held and the word “deepening” did not appear before the phrase “financial crisis.” It was replaced with “post-” as many in the G-8 are eager to declare the worst behind us. That was according to a statement prepared at the outset of the June meeting in Northern Ireland. Actually, they called it a communique, which sounds so much more venerable and European that we are inclined to believe it. “While countries have taken steps to avoid the worst of the tail risks that faced the world economy in 2012, many of these vulnerabilities remain with us in 2013, highlighting the need for countries to press ahead with the necessary reforms to restore sustainable growth and jobs,” according to an early draft obtained by Reuters. We are also assuming that “tail risks” means we can finally sit down and relax safely. But not so fast with that La-Z-Boy. Didn’t we hear that the European economy shrank for the second year in a row? And that the Chinese are slowing down a bit? Yes, the G’s said the worst may be behind us, but isn’t that how one risks one’s tail?

INFLATION STEADY, HOUSING UP

One of these days, the Doomsayers will be right and we’ll all be on the % hand-basket express plunging to the incinerator of souls, but reality is not cooperating with them just yet.

6.8

Housing starts stepped up 6.8 percent in May, while consumer prices ticked up a mere 0.1 percent in the same month and

that was after prices dropped 0.4 percent the previous month. Health care costs also dropped, for the first time since 1975. The core rate for inflation over the previous 12 months was 1.7 percent. The unemployment rate has eased to 7.6 percent, although many have pointed out that wages have stagnated and that hardened unemployment has slipped below the statistics. This is a key reason the Federal Reserve is slow to taper its bond buying, which is clocking at $85 billion a month. As usual an utterance from Federal DID YOU

KNOW

Reserve Chairman Ben Bernanke stopped the action at the party like Dad flipping on the lights. Even though Bernanke merely said the Fed might, maybe, could perhaps stop buying bonds at quite the same rate sometime later in the year (if that’s OK?), investors hid under their desks like this is The Big One. That was the situation at press time. We suspect that by the time you read this, everybody will have put their zombie apocalypse kits back in the basement and resumed the festivities as if Gatsby yelled, “Open bar, Sports!”

GOOGLE SETTLES STOCK SPLIT SUIT

For those bored with Google stock doing nothing but rising incrementally, prepare for something completely different. The company plans to split the stock and, as a bonus, take away voting power.

While Google’s founders retain

STUDENT DEBT IN THE U.S. stands at more than $1 trillion, with 2013 college undergraduates averaging more than $35,000 in debt. Source: Certified Financial Planner Board of Standards

InsuranceNewsNet Magazine » July 2013

QUOTABLE

Today’s modern family comes in a variety of different flavors. No longer are we only seeing that classic Ozzie and Harriet structure of mom, dad and kids. Instead, we are likely to encounter a nontraditional family where women are at the center of the household. — Katie Libbe, Allianz vice president, on the Allianz 2013 Women, Money & Power Study

extra-special voting shares, each share of “A” stock held by the public will be replaced with a non-voting “C” share. The execs hold 56 percent of voting power through “B” shares, which allows 10 votes for each share. The company says this will allow Google to issue new C shares and reward employees without diluting voting power. If you’re thinking this sounds like a raw deal, that’s exactly what shareholders said in a class-action suit that delayed the split. The parties settled in June after Google agreed to compensate shareholders if the Class C value drops below the A value after a year of trading. So, put that in your search window and click “Enter.”

GUYS CONFESS INVESTING SINS

For those who might harbor doubts about the responsibility and honesty of the male members of the human species, Northwestern Mutual offers promising results from a survey. The 2013 Planning & Progress Study found that men are more

likely than women to say they’re “disciplined” financial planners (37 percent compared to 31 percent), but also that

their financial planning needs improvement (66 percent compared to 59 percent). Men are also more than twice as likely than women – 25 percent compared to 9 percent – to admit that they’ve incurred stock market losses and suffered declines in their retirement savings over the past three years, according to the survey. How’s that for admitting error and seeking forgiveness? What more can a guy do, ask for directions or something?

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July 2013 » InsuranceNewsNet Magazine

FINANCIAL

The Natural Market Evolution of Fees and Service Accelerates he past few years have been T a rapid increase in the scope of responsibilities of retirement plan advisors. By Kenneth Cochrane

ne of my favorite expressions is: “I spent a week there one afternoon.” Nothing could be truer for retirement plan advisors. Over the past three years, the changes we’ve seen could be the equivalent of the previous 20 years. Let’s start by winding back the clock. In 2009, most retirement plan advisors sold plan services and investments as a commissioned sale. Only 30 percent of plan advisors reported using service agreements to outline the scope of their services and the fees or commissions they receive. Service agreements specifically spelled out the role and responsibilities of the advisor to their plan sponsor client. They also defined in detail the advisor’s compensation for providing advisor services to the plan. Without an agreement, the scope of services was on an implicit level at best. Compensation was disclosed within a prospectus or among the many forms the plan sponsor signed during the process of hiring plan services. This arrangement could be summed up as a broker or agent relationship. The broker or agent was hired when the product was sold, and was fired when the client moved to a different product. In other 52

InsuranceNewsNet Magazine » July 2013

Graph 1: Plan Advisor Service Agreement Implementation 100% of clients 51%–99% 50% 25%–49% 1%–24% 0%

15%

words, the advisor was directly coupled to the product. Today, most plan advisors report using service agreements with the majority of their clients. We started to see these changes coming more than three years ago but, as is often the case, we weren’t sure when the proverbial dam would break or how the resulting market landscape would redefine itself. Our survey work and conversations with advisors in 2009 and 2010 indicated that a strong move toward a true consulting arrangement was taking shape. Brokers were decoupling themselves from products and providers. The implementation of service agreements was providing a defined structure to the advisor’s role. Meanwhile, the financial turmoil of 2008 and heightened awareness of fiduciary responsibilities led plan sponsors to look for more from their advisors. In response, advisors moved to truly specialize in the business. Advisors have become more so-

30%

45%

60%

phisticated by achieving designations and accreditations, examining and scrutinizing contracts more thoroughly and spending greater time developing higher levels of expertise. These advisors now approach their client as a consultant. The advisor’s pitch is to work as a separate service provider. Frequently, their first tasks are to resolve existing issues or search and recommend better plan solutions. The services today’s advisor provides can be very comprehensive, often topping more than 20 separate tasks. An accompanying graph illustrates a list of 24 services and the frequency each is offered as a standard or optional service in the plan advisor’s service agreement. Several of these services stand out as noteworthy. Three years ago, more than 80 percent of advisors considered themselves functional fiduciaries to the plans they served. While that percentage is substantial, very few advisors explicitly documented their role as a fiduciary. Today, more than 70 percent of advisors state their role

THE NATURAL MARKET EVOLUTION OF FEES AND SERVICE ACCELERATES

Graph 2: Plan advisor services, frequency each is offered as a Standard or Optional Service Investment Review - Annual Fund Menu Development Fund Replacement and Monitoring Employee Meetings QDIA Selection Investment Policy Statement Vendor Search Plan Design Consulting Plan Committee Education Plan Level Benchmarking Vendor Fee and Service Reviews Plan Level Benchmarking: Fees Plan Transition/Merger/Termination Services Recordkeeper Transition Services Investment Review - Semi-annual Plan Compliance Review Provider Management Asset Allocation Modeling 408(b)2 Audit Participant Level Benchmarking Investment Review - Quarterly Education Policy Statement

0% as a 3(21)a fiduciary in their service agreement, while virtually all recognize their role as a functional fiduciary. The second significant development is the rise of plan benchmarking. Plan sponsor demands to measure the success of their retirement plans, legislated fee disclosures and the increased sophistication of the advisor have led to new ways to examine plan results. Traditionally, investment results have been a primary determinant of plan success. But, further scrutiny has developed more sophisticated benchmarking. Advisors now present and review new metrics such as participant retirement-readiness, participant market exposure, plan and participant fees, as well as the advisor services and fees to plan sponsors. The third change is the evolution of advisor-provided participant education. While not new, the approach and scope have become more comprehensive. Indicators of these growing levels of education include the formation of plan education

25%

50%

75%

100%

policy statements, ongoing participant education programs, online and classroom participant sessions, more sophisticated and scrutinized participant level portfolio management, plan specific online investment advice, and a continued growth in automatic participant enrollment and deferral rate escalations. As we look into the future, we see the emergence of three significant trends. First, the remarkable shift to service agreements and fee-based compensation has left the market in a fragmented state. Advisors report a lack of market clarity for their offerings and fees. Natural market evolution suggests this will sort itself out over the next three to five years, the usual cycle for plans to review their service providers. But the result of this sorting process may be painful to a number of established plan advisors. Younger, hungrier, and tech-savvy advisors are beginning to push advisor fees down. In addition, many advisor firms are achieving the scale to

FINANCIAL

drive down incremental costs and streamline their services. As a result, many established advisors will struggle to compete at reduced compensation levels. The burden of existing overhead and less efficient operations will cause many of these practices to lose market share. Closely related to the first market shift, will be a move to more professionally managed advisor practices. I have found that fewer than 20 percent of advisor practices develop business plans, understand their cost to acquire and service a customer, or have developed and executed plans to cut costs and improve operational efficiency. However, we’re beginning to see the formation of new advisor practices. The commonality of these practices is a very accomplished management team looking to leverage expertise and scale to gain significant market share. Their focus is to reduce fees and provide a professional level of servicing while streamlining operations to cut costs and gain scale. We have seen remarkable change in the population. For the first time ever, the minorities in aggregate exceed half of the population. This changing face of America will lead employers to demand more from their advisors. They’ll look for advisors to develop and deliver participant programs catering to specific cultural segments rather than simply translated presentations and materials. The final change we see on the horizon is the continued rise in plan benchmarking. While advisors, providers and consultants have developed various methods to benchmarking plans, the market lacks any standardized or universally-accepted methods. This fragmentation has led to a plethora of methods and metrics to a gauge a plan’s success without widely accepted standards. In the coming years, nationally accepted standards will emerge similar to the indices of the financial markets. These standards will begin to provide plan sponsors with a very clear picture of their plan’s success, the value of their advisor, how their plan compares to other plans and their competing employers. Kenneth Cochrane, managing director of Pulse Logic, has worked within the financial services industry for more than 30 years. He previously was senior vice president of sales at Transamerica. Contact Ken at Kenneth. Cochrane@innfeedback.com.

July 2013 » InsuranceNewsNet Magazine

Read Part 1: Four Reasons Why People Fear the Phone bitly.com/QRcall

BUSINESS

Fearing the Phone: Curing Your Call Aversion

PART 2 of a 2-Part Series

In last month’s installment, we looked at four types of call aversion and whether you fit into one of them. This month, we look at some strategies for overcoming the negative feeling that many salespeople get when they have to face the phone. By Kerry Johnson

r. Albert Ellis, the founder of rational emotive therapy, has an interesting way of dealing with phobics such as call aversion sufferers. He believes that human beings engage in a series of irrational thoughts to support a fear, whether it is a fear of heights or a fear of asking a prospect to buy. Those irrational mental processes reinforce our own negative self-image. Ellis believes that if we can interrupt and replace our internal dialogue of thought patterns, we can allow ourselves to release the extra mental baggage we carry. For example, a salesman might pick up a telephone and internally worry, “This referred lead really isn’t a very good prospect. I’ve dealt with these types before. They’re rude and curt. I really don’t think now is a good time to call. Executives like this always get lots of calls from salespeople in the morning. I think I’ll wait until the afternoon when things slow down for him.”

Four Easy Steps

Here are four steps for you to use the next time you have a bout of call aversion.

1 Observe

First, observe yourself as you experience call aversion. Pay careful attention to what you are going through.

InsuranceNewsNet Magazine » July 2013

FEARING THE PHONE: CURING YOUR CALL AVERSION Chances are, you have let your self-sabotaging irrational thoughts drag your personal esteem through the mud. Detach yourself, for once, from your emotions and simply be an observer instead of a participant. You are probably thinking, “Hey, Kerry, detach myself from my emotions? How am I supposed to do that?” One simple method for bringing about a phobia cure is a concept developed through neuro-linguistic programming (NLP). Using this therapy, a phobia sufferer watches himself in a “mental movie,” imagining himself on the screen. He sees himself experiencing the fear and all that is entailed with it. He is able to feel the heart palpitations, the perspiration and the shakes caused by anxiety. When he sees this happening, it becomes easier for him to deal with the uncomfortable emotions that brought on the fear in the first place. If you can imagine yourself as the central character on the movie screen, experiencing your heart pounding, the perspiration and the dread you feel on the telephone, you will be able to help yourself in recognizing the symptoms you are going through during call-aversive episodes. After you have run your “mental movie,” the next step is to engage in the pattern-interrupt and reward phases. From now on, when you start feeling those emotions, detach yourself by watching your mental movie. A salesperson reported testing this method. As he was about to follow up on a referral lead, he started to feel call-aversive panic. His palms became moist, his heart palpitated and he became aware of his irrational mental dialogue: “I really don’t want to make this call. I feel myself becoming afraid of the telephone. If the prospect thinks I am intruding on his time, what will I say? He won’t talk with me because he’ll know I’m new at this. He’ll probably recognize how scared I am.” The salesperson saw how his fears were influencing his logical thought.

BUSINESS

telephone call. You also can recall how easy it seemed at the time, and how good you felt during and after the conversation. Get a 3-inch by 5-inch card, write down that prospect’s name, and record every detail of how you felt during and after that call.

4 Reward

2 Pattern-Interrupt

The second step is to interrupt your aversion emotions. By recognizing when the irrational thought patterns of call aversion sets in, you can interrupt them from causing problems. Irrational thoughts seem to feed on themselves in a compounding way, like a snowball rolling down a hill. The next time you become aware that those patterns have surfaced, immediately do something physical. Stand up and walk around your office. Say out loud what you are thinking internally. One effective way to interrupt the pattern is to cause yourself some quick physical discomfort. Wear a rubber band around your wrist. When you become self-sabotaging, snap the rubber band. The sting will break the cycle.

3 Substitute

Third, immediately substitute a positive experience to replace the negative one. Clinical research psychologists William Redd and William Sleator discovered that self-inflicted negative messages have an enormous impact on future success. If you have been selling for even a few weeks, you have probably made at least one successful

Your Goals

If you are good on the phone, you’ll be light years ahead of your competition.

Finally, after every ca ll, give yourself an immediate “reward.” Whether or not you were able to speak to your prospect, reward yourself. A reward can be anything from a sip of coffee to calling your spou se or even popping a breath mint into your mouth. A reward will reinforce the telephone call and increase the likelihood that you will make another call. One financial advisor with “fear of intrusion” reported his success using this four-step technique. He felt almost apologetic for making prospecting telephone calls. Prospects often treated him as if they had absolutely no time for him. His heart would palpitate and beads of sweat would form on his forehead as he started to dial the phone number. When he finally observed his own phobic reaction, he was able to interrupt himself with a rubber band snap and recall a past successful call. Then he started to make the dreaded calls, following each one with a sip of coffee as a reward. Not only did his level of anxiety decrease, he finally was able to increase his revenues from referrals, and also call past prospects for appointments. If you are good on the phone, you’ll be light years ahead of your competition. When you learn to recognize what call aversion is and do something about it, business simply will flow to you. Kerry Johnson, MBA, Ph.D., is a best-selling author and frequent speaker at financial planning and insurance conferences around the world. Contact him at Kerry. Johnson@innfeedback.com.

July 2013 » InsuranceNewsNet Magazine

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InsuranceNewsNet Magazine » July 2013

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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.

Make a Lasting First Impression The things you do before you actually meet your prospect can set the stage for a trusting and comfortable relationship. By Nan M. Zimdars

n our profession, clients and prospects have a choice to select the advisor they trust with their financial well-being. Therefore, making the best possible first impression is critical: you only get a short time and one chance to do so. From there, developing a strong rapport with clients and prospects, both on a personal and professional level, will help your relationship stand the tests of time and the market. A first-time meeting to discuss financial affairs can be extremely nerve-wracking for a potential client. Interestingly, most people assume they are in worse shape than they actually are. They are often embarrassed, thinking they should know more, they should have more money and they should have been more responsible with their finances. Our goal is to create a favorable first impression and to reduce any anxiety a person may bring to an initial meeting. In my practice, we aim to be consistent in all we do and create a very professional environment. Naturally, we want to avoid having people come into our office and see chaos or lack of preparation. Beyond our inviting reception area and conference room, clients and prospects do not enter our workspace. Making an orderly and calm first impression can help put our guests at ease. Part of making an impactful first impression is making sure you as an advisor do not appear haphazard in any way. When a potential client comes into our office, we strive to make them feel as if they are the most important person we’ve ever worked with – it’s all about them. Once a first-timer has entered our office, and has been warmly greeted and led to the conference room by a staff member, I head toward the room. Prior to entering, but within earshot of the prospect, I address our staff, make a comment about how pleased a client is about something specific and I thank the staff member for 58

InsuranceNewsNet Magazine » July 2013

Part of making a positive first impression is making sure you as an advisor do not appear haphazard in any way. helping. First impressions are registered with your ears as well as your eyes. This technique creates a first impression that shows we care, we work as a team, we are here to solve our clients’ problems, our clients like working with us and I am approachable. Some people will want to make small talk and discuss everyday subjects before diving into their finances. Others will want to get right down to the nitty-gritty. You have to be able to read body language and distinguish different personalities in order to make the correct approach. Regardless, it is vital that you build a strong rapport within minutes to be able to get to the heart of a prospect’s concerns fairly quickly. Look for common ground to build upon, but don’t stay in the safe zone for long. Move forward by asking more questions specific to why they are seeking your help. A positive response from you to the information they provide will strengthen the trust they have that you are the advisor for them. When I have a meeting with both a husband and wife, I quickly try to get a sense of the more dominant spouse. Then, I always sit directly across from the less assertive of the two. It’s automatic to make eye contact with the person sitting across from you, which is important if the other spouse is controlling the conversation. The quieter partner feels included, and I can sense from facial expressions whether clarification is need-

ed on something the partner might not bring up. Once you’ve determined their needs, try to connect with prospects on a more personal level. I enjoy reading, so I’ve used that as a connector. My clients who enjoy reading as well will suggest books to me. I make sure to read them so I can send an e-mail thanking them for the recommendation, and then I make a point to discuss the book the next time we see each other. And, I always dictate meeting notes including all soft information so I can reference it in our next meeting. “How’s your daughter doing away at college?” “How was your trip to see your grandkids?” “You were going to your son’s softball game after our last meeting. How’s his season going?” It’s such a simple concept, but it can have a significant impact. Establish unique ways to make a lasting first impression. It can be the difference in getting and keeping business. Nan M. Zimdars, CFP, CLU, ChFC, is a 31-year MDRT member with four Court of the Table honors. She is a financial planner specializing in assisting people with a goal of becoming financially independent through personalized retirement plans, investments and insurance. Her company, Nan M. Zimdars Inc., is located in Madison, Wis. Nan can be contacted at Nan.Zimdars@ innfeedback.com.

NAIFA INSIGHTS

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

This is the Best Time to be in the Industry F inancial security and peace of mind are what advisors sell and deliver to clients. By Ayo Mseka and John Davidson

he U.S. economy has seen a number of improvements since the Great Recession began five years ago. We recently caught up with John Davidson, FSS, LUTCF, NAIFA past president and chairman/chief executive officer of Davidson Insurance and Financial Services. John described some of the changes and trends he is observing in the financial services industry. NAIFA: What new products or trends have hit the industry in the last year? John Davidson: Insurance companies are looking for products that will allow them to remain profitable and garner market share. I have seen an increase in the sale of newer multi-use products like combination life insurance/annuity/longterm care insurance (LTCi) products. We also have had about a 30 percent increase in our business because of clients buying permanent life insurance, whether it was traditional whole life or universal life insurance to help fund their buy-sell agreements. They are looking for a safe place for their money and they also want guarantees. NAIFA: What other products have become more popular in the last five years? Davidson: Multiple-use products, which I mentioned earlier, are being sold by nearly all companies. A lot of these products have life insurance, LTCi and annuity components. For example, there is the Asset Preserver from New York Life, a universal life insurance product with an LTCi component. The key feature with this product is that the buyer has a 100 percent money-back guarantee from day one.

Never before has there been a greater need for insurance agents and advisors to interact with the buying public. This is good for clients who have money sitting on the sidelines, but do not want to buy an annuity or an LTCi product, and want security and guarantees. Clients put their money in these particular products and get a minimum guarantee, minus mortality and expenses. They have access to their money while maintaining life insurance and LTCi protection, without incurring any risk. Also, many firms are offering equity-indexed life insurance and annuities. NAIFA: Five years ago, what was the focus of most employers in regard to employee benefits? Davidson: Their main focus was to attract and retain quality employees, try to balance their benefits portfolio and still maintain a profitable business. With the economic downturn, the biggest problem employers faced was maintaining that balance. A lot of them reduced their contributions to employees’ health insurance plans, eliminated retirement benefits or made the plans voluntary because they could not pay for them. NAIFA: What was the employees’ biggest concern? Davidson: It was making sure that they were working for a solid company that provided them with quality benefits. Many employers were not providing a lot of retirement benefits. Companies diminished their 401(k) plans, and key person policies were not as prevalent as they had been previously. This gave us an

opportunity to talk with employees about using some of their own money to secure individual retirement accounts or individual permanent life insurance. NAIFA: Many advisors appear to be more optimistic than they were a few years ago. Do you feel more confident? Davidson: Yes. I am one of those perennial optimists. I have been on my own since I was nine years old. I have learned not only to be independent, interdependent and self-sufficient, but also to look at things optimistically. I am the guy who looks at the glass as half full, but I also want to know who drank the other half. I would say that this is the best time to be in the life insurance industry. Never before has there been a greater need for insurance agents and advisors to interact with the buying public and, more importantly, to create the environment for success and to help people understand that we are not just selling financial products. What we are selling is financial security and peace of mind. That is what we deliver. Ayo Mseka is editor-in-chief of Advisor Today, the official publication of the National Association of Insurance and Financial Advisors. Contact her at Ayo.Mseka@innfeedback.com. John Davidson, FSS, LUTCF, is past president of NAIFA and chairman/CEO of Davidson Insurance and Financial Service in Thousand Oaks, Calif. Contact John at John. Davidson@innfeedback.com.

July 2013 » InsuranceNewsNet Magazine

LIMRA INSIGHTS

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

Income Annuities are Getting a Second Look A dvisors who offer immediate and deferred income annuities can appeal to several market segments. By Mark Paracer

he aging U.S. population will spend more years in retirement than members of previous generations. In addition, they will be less able to depend on pensions and Social Security. These demographics create a need for a solution that can protect against inflation and longevity and provide for guaranteed retirement income. An income annuity, either immediate or deferred, is wellsuited to meet this need. Right now, sales of income annuities are reaching an all-time high, despite a very low interest rate environment. A joint LIMRA/CANNEX study, Features in Income Annuities, noted that in the last 10 years, income annuity sales increased more than 80 percent from $4.8 billion in 2002 to $8.7 billion in 2012. (See chart.) Current sales trends suggest that these products are poised for continued growth. In fact, LIMRA estimates that by 2014, sales of immediate annuities alone will top $10 billion. This milestone seems within reach as a few large insurance companies keep their focus on the marketplace. Deferred income annuity (DIA) sales are growing, too. Nine companies currently offer a DIA and an additional eight companies are planning to introduce their own version of this product. While they are still a small percentage of the overall income annuity market, deferred income annuity sales reached more than $1 billion in 2012. Variable annuities with living benefits remain a more popular guaranteed income option for baby boomers planning for income to be received later in retirement, as evidenced by $80 billion in sales in 2012. However, recent pullback on variable annuity guarantees has increased the deferred income annuity’s 60

InsuranceNewsNet Magazine » July 2013

Source: U.S. Individual Annuities, 4th Quarter 2012, LIMRA, 2013 and U.S. Individual Annuity Year Book — 2011, LIMRA, page 19, 2012

value proposition as the product that provides the highest guaranteed payments in that market segment. For advisors, that means plenty of opportunity. A prior LIMRA study revealed that one-third of advisors and registered investment advisors are interested in guaranteed income products. Also, two thirds of advisors who offer guaranteed income solutions find these products are usually well received by clients. Finally, advisor attitudes are shifting toward the idea that a guaranteed income solution should be used to cover non-discretionary expenses in retirement (48 percent in 2011 versus 38 percent in 2009). In fact, the benefits of guaranteed income solutions versus non-guaranteed income solutions were acknowledged by 25 percent more advisors in 2011 than in 2009. Advisors who offer immediate and deferred income annuities can appeal to several market segments. Immediate annuities are targeted primarily to those already in retirement and provide for regular income payments which commence immediately. A deferred income annuity typically is targeted to pre-retirees to attract younger investors with a long deferral period, as well as to baby boomers rolling over assets from other retirement savings plans. Recent designs have incorporated features that increase liquidity, flexible payments and other additional guarantees. The majority of immediate annuities – including nine of the top 10 companies – now offer access to cash outside of their scheduled payments in case of emergency. This liquidity may come in several forms: access to the guaranteed

payments, access to the life contingent payments or an acceleration of several months of scheduled payments in advance. All of the top 10 companies currently offer their clients a cost of living adjustment (COLA) option. Retirees can chose fixed rate increases of up to six percent or more. Other companies offer payments that are aligned with the Consumer Price Index. While it’s easy to make a case for why income annuities fit into an overall retirement plan, there are very real challenges for advisors. To start with, clients are reluctant to lock in today’s historically low interest rates. On top of that, advisors face disincentives to sales due to loss of assets under management (AUM) credits. Finally, many potential clients avoid irreversible financial decisions when they don’t fully understand what they’re buying. Despite these obstacles, however, genuine opportunities for growth exist. The challenge will be in marketing income annuities properly to educate advisors and clients of their benefits. Including an income annuity – either deferred or immediate – can help clients cover their essential expenses and allow an advisor to invest the remaining portion of their portfolio with a goal of higher returns. Mark Paracer, senior analyst for LIMRA’s Retirement Research, is the project director of several benchmarking studies on variable and indexed annuity guaranteed living benefit election rates, as well as a new survey on in-plan guarantees. He is also responsible for conducting research on retirement income. Contact Mark at Mark.Paracer@innfeedback.com

NAIFA

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July 2013 » InsuranceNewsNet Magazine

NAILBA INSIGHTS

The National Association of Independent Life Brokerage Agencies (NAILBA) is a nonprofit trade association with over 350 member agencies in the U.S. and Canada.

Market Yourself T he most successful producers understand that a sound marketing plan is a vital element of their practice. By Raymond S. Phillips

eing a brokerage general agent provides a unique perspective on the insurance industry. We have the opportunity to work with an array of different organizational structures ranging from the most well-defined institution all the way to the single-person firm. I’m always intrigued and amazed at how a professional can weave his way into the fabric of a family or small business to have a genuine impact on that entity’s financial security. I’ve been fortunate to work with a number of quality firms and individuals over the years, and I have had numerous opportunities to observe the traits of the most successful producers. I was influenced by a tremendous producer at an early point in my career. When I asked him about his secret to success, he said that I had to understand this: He was not an insurance agent, he was not a financial planner, he was not a consultant, he was first and foremost a marketer; “…and I market myself,” he added. He had a robust practice containing elements of consulting, insurance sales and financial planning, but none of those happened without his ability to market himself. That was a long time ago and, since then, I’ve been fortunate to rub shoulders with many successful people in the insurance business. Many of them are extroverts. Many others are introverts. Some are extremely technically oriented. Others are more relationship oriented. There really is no consistent personality or demeanor among these producers. But the common thread is that all of them are excellent marketers (often without their recognizing it). Their approach tends to be entrepreneurially focused as they realize they’re really not salespeople. They are business people, and appropriate marketing is a vital element of any good business. A fundamental trait that is common to most successful producers is the recognition that it is vital that they continue 62

InsuranceNewsNet Magazine » July 2013

to provide insight as their clients’ situations change. Sounds pretty elementary, doesn’t it? Successful producers recognize they have clients, not customers. Holding consistent face-to-face reviews with their clients to discuss existing insurance strategies or overall financial plans allows successful producers to keep tabs on their clients’ changing needs and goals. Clients can be educated on different types of policies to address their needs and goals, and their current portfolios are reviewed to make sure their products are performing as initially planned. Referrals become a likely byproduct of attentive interaction with clients. Another producer explained it to me this way: “When I do an insurance review with a client, invariably I find they need additional coverage, they need a different type of coverage, or I get referred to two or three other people to work with.” Prospecting becomes much easier when you are attentive to your in-force clients. I’ve seen many successful producers offer periodic seminars and workshops to introduce new concepts (and old concepts!) to clients and prospects. They have systems in place for effective follow-up and interaction with their attendees in order to build up their prospect list. Being visible is another consistent attribute of star producers. They tend to be active in their community, church and other organizations. They place themselves in situations where they have what I’ve seen referred to as “customer collisions,” i.e. putting themselves in positions where they are interacting with clients and prospects in a setting outside of their business relationship. I recall the time I complimented a producer on his new car, a silver Mercedes-Benz. He said, “Do you know what I do every Friday? I take it to the west side of town, where there’s a place that hand washes cars while you wait. Now, often my car isn’t that dirty, but I take it every Friday. Know why? Because there are other owners of such cars standing there waiting for their cars to be washed, and after you see them a number of times, you start to talk. And over time a

Appropriate marketing is a vital element of any good business. relationship is built and I’ve developed a prospect.” The power of social media can aid in “being seen.” Used effectively, an active LinkedIn, Twitter or Facebook presence continues to remind people of the plans that have been implemented. That social media presence helps build your brand and introduce concepts to prospects. A friend of mine who is a marketing coach developed this motto in reference to the use of social media tools: “If you’re not e-visible, you’re invisible.” Newsletters and other proactive contacts via e-mail, phone call, or even “snail mail” correspondence can be an effective way to “be seen.” They provide enhancement to the producer’s brand and creates an informed customer base for future strategic discussions. I’m always impressed by the true professional’s concern for clients. I’ve often said, “The most successful people in our business are not on a sale. They’re on a mission.” The monetary aspect of what they do is almost secondary to their commitment to doing right by a client. There’s a sense of obligation to provide appropriate coverage to a small business owner or family – an excitement in the opportunity to find a solution to a constituent’s problems. That sense of obligation has fueled many successful practices. As a brokerage general agent, I’ve seen all shapes and sizes of producers and organizations. I have come to the conclusion there simply is no “right way” of being successful. However, there is a consistency. The successful producer approaches his or her practice as a small business. They understand that, like any small business, the foundation of success can be found in solid business acumen, not the least of which is a sound and methodical marketing plan. They recognize that marketing breeds sales and that, in essence, they are all marketing themselves. Raymond S. Phillips, CLU, LTCP, is the president of Pittsburgh-based The Brokers Source, Ltd., and the 2013 NAILBA Chairman of the Board. Contact Ray at Ray.Phillips@ innfeedback.com.

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Request the free 70/30 Formula NOW at www.RoyalFundFormula.com July 2013 » InsuranceNewsNet Magazine

THE LAST WORD

WITH LARRY BARTON

Let’s Weaken Retirement Planning! The Obama Administration’s proposal to limit tax exclusions on retirement savings will have a devastating effect on the nation’s economy as more Americans reach retirement age. By Larry Barton

hope you did a double take at the title of this piece. With an estimated 7,000 Americans reaching retirement age every day for the next decade and a half, and 60 percent of workers currently having less than $25,000 in savings and investments, who could possibly think it’s a good idea to create any disincentives for retirement savings? Apparently the White House does. The President’s budget proposal for fiscal 2014 suggests limiting the tax deductibility or exclusion for contributions made to individual retirement accounts, defined benefit plans, or defined contribution plans for anyone who has accumulated amounts enough to create an annual benefit indexed for inflation of $205,000, payable in the form of a joint and survivor benefit starting at age 62. Under current conditions, that means the maximum accumulation for a 62-year-old would be about $3.4 million. That’s a proposal that only affects the rich, right? And shouldn’t those who have been more fortunate pay more? I absolutely support progressivity in the tax code and believe that the affluent should pay a little more than they currently pay (which is still too much without any meaningful government investigations into Social Security disability, Section 8 and food stamp fraud). This proposal, however, is fraught with problems. It will ultimately impact more savers than you think. The cap will fluctuate based on discount rates over time. In fact, the Employee Benefits Research Institute has done a preliminary analysis suggesting that even in recent years the $3.4 million cap mentioned earlier could have been as 64

InsuranceNewsNet Magazine » July 2013

low as $2.2 million based on available annuity rates. They also suggest that, at that threshold, as many as 6 percent of retirement savers who are younger now could be affected by the inflation-adjusted cap by the time they reach retirement age. Administratively, the proposal is a disaster. Think about the constantly changing maximum accumulation thresholds and how those will be managed, communicated, and misunderstood from year to year. Make retirement saving confusing, and people won’t save as much, even at higher income levels. An editorial last month in The Washington Post called the White House’s startling plan “Obama’s modest proposal to cap retirement entitlements.” We’re not talking about “retirement entitlements” here; what we’re talking about are personal retirement savings. There’s a big difference. These funds represent the life’s work of the successful people in this country who have built businesses, run family farms, created jobs and have been diligent about saving for their retirement. How can we talk about the retirement crisis in this country and in the same breath create new roadblocks to those who are trying to plan effectively for their futures? To me, this is not a partisan issue. The exceptional “American experiment” has always functioned best when the rising tide lifts all boats – when we equalize opportunity, not outcomes. The recent trend toward trying to guarantee equal outcomes is leading us down a dangerous path, not because the impulse to do so is ignoble but because the strategy simply does not work for any segment of society. If you think I’m wrong, just take a look at

the no-growth economies and hyper-unemployment our friends in the Euro zone enjoy. The Brits were the smartest: cheers to the late Margaret Thatcher who voted to keep the British Pound. History will prove that she was not only an able statesman, but she understood economics at its core. The American College convened a Forum on Retirement Security on Capitol Hill last month. Keith Hickerson of my team led in-depth discussions with legislative staff, policy makers, thinktank representatives and academics on what types of policy approaches might fundamentally change the trend of retirement savings in this country. What we found is encouraging: there is more agreement than disagreement on what types of legislative solutions will work. The New York Life Center for Retirement Income at The American College is leading that effort. Our new Doctor of Philosophy in Financial and Retirement Planning program will help shape public policy in the future. If you think new caps on retirement savings are moving us in the wrong direction, let your member of Congress know. As always, I’m interested in your thoughts as well, whether we agree on this particular issue or not. The broad issue of how to build retirement security in this country is a critical dialogue to have, and I’m interested in what you think! Larry Barton, Ph.D., CAP, is president, CEO of The American College and holder of the O. Alfred Granum Chair in Management at The American College, based in Bryn Mawr, PA. Contact Larry Barton at Larry.Barton@innfeedback.com.

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