April 2013 by InsuranceNewsNet

Life Annuities Health Financial

April 2013

PLUS Jay Abraham and the Preeminent Advisor PAGE 10 Private Equity Firms Eye Variable Annuities PAGE 44 Short-Term Medical Can Lead to Long-Term Business PAGE 48

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April 2013 » Volume 6, Number 4

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ANNUITY

42 Advocate Criticizes New Annuity’s Consumer Value By Linda Koco A number of annuity industry leaders are in favor of NAIC moving forward on a regulatory plan for contingent deferred annuities right now, but a consumer advocate is pushing back hard on that idea.

INFRONT

8 What Is in a Word? For Annuities, Buyers By Linda Koco NAIC’s Annuity Disclosure Working Group has been word-smithing the correct definition and guidelines of annuities in order to make them easier for buyers to understand.

By Linda Koco What constitutes a “big case” can vary, depending on where you are located and the type of client you serve. But one thing remains the same: The “big case” is not a once-and-done deal, but a relationship that can lead to a steady stream of revenue.

LIFE

32 Helping a Special Needs Client Yields Business for Life

FEATURES

10 The Preeminent Advisor

An interview with Jay Abraham The man described as “the greatest marketing mind alive today,” Jay Abraham, wants each of us to achieve preeminence. In this interview with InsuranceNewsNet publisher Paul Feldman, Abraham describes how just a few small changes in your normal way of doing business can catapult you to preeminence.

InsuranceNewsNet Magazine » April 2013

By George R. Shadie An advisor who is the parent of a special needs child gives advice on how life insurance can fund a trust to take care of a family member’s needs into the future.

36 Diversifying a Concentrated Stock Position with Life Insurance By Russell E. Towers If your clients are starting to ask you about spreading their financial risk, you can ease their fears by providing them with a financial solution that provides stability and a tax-free benefit.

By Linda Koco The industry is in the early stages of a general rebound, according to a Deloitte report, and private equity is taking notice.

48 RTHRO T- M

44 Private Equity Firms Eye VAs, Even as Others Exit Market

S L SHO TEREMDICA TMEERMDICAL

20 Rethinking Big Cases

HEALTH

48 Short-Term Medical can Lead to Long-Term Business

By Mike Watts The market for short-term medical insurance is vast. Providing consumers with the most affordable option to get them by can position you to be their advisor when they are ready for permanent health insurance.

FINANCIAL

52 More than Half of Gen X, Y Lack Financial Basics By Robert Dixon LIMRA research shows that Americans age 20-47 are in need of expert advice as they face crucial decisions on savings and investments.

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ALSO IN THIS ISSUE April 2013 » Volume 6, Number 4

60 N AIFA: How to Wow Your Clients

By Ayo Mseka NAIFA members reveal their secrets to going the extra mile to satisfy their clients.

62 LIMRA: Saving for Retirement Should Be a Priority By Cecelia Shiner The members of Generation Y are decades away from retirement but they have some tough financial decisions to make if they are to have sufficient funds to pay for their non-working years.

BUSINESS

54 A Lose/Win Situation By Bob Davies Help your clients to eat properly and you will not only safeguard their money, assets and lifestyle for retirement but also preserve their health.

64 W ill You Finish this Article?

By Larry Barton Research shows that our attention spans are getting shorter, but those advisors who devote attention toward getting an advanced designation will reap rewards throughout their careers.

INSIGHTS

58 MDRT: Three Ingredients to Reeling in ‘The Big One’ By Christine Khemis Before you can land that big case, you need to make sure you and your team are prepared to attract and serve your highprofile client.

EVERY ISSUE 6 Editor’s Letter 18 NewsWires

30 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 Director of marketing Anne Groff and sales Technology Director Joaquin Tuazon

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13 INN 04.13 April 2013 » InsuranceNewsNet Magazine 5

WELCOME

Letter From the EDITOR

Empathy Springs Eternal Jay Abraham, in the second part of the interview feature this month, reminds us that success comes when you are not looking for it. It comes to you as you are busy helping other people. That’s the lesson we learn and relearn: the harder you work for others, the closer success sidles up to you. That thought ought to warm even the coldest heart, particularly now as spring wraps her arms around us. But we know April is also the cruelest month. Snow sometimes falls on fragile shoots and some of history’s heartbreaking events clustered around April. In modern times we’ve had some terrible massacres in this month: the Virginia Tech shooting, the Oklahoma City bombing and Columbine. The list is long with an astounding number of awful events and you sure don’t need me to dredge all that up. But I will mention the assassinations of April. Abraham Lincoln was shot on the 14th, just days after Gen. Robert E. Lee surrendered. And, of course, April is usually the celebration of Easter, the commemoration of a holy sacrifice and rebirth. This month also saw the violent end of another who preached nonviolence, love in the face of hate and of reaching salvation through grace. April 4 is the 45th anniversary of Martin Luther King Jr.’s assassination in one of the most difficult years of American history, 1968. That day was calm after a stormy night, when King seemed to foresee his fate much as Jesus did in the Garden of Gethsemane. King spoke in a church on April 3 as thunder banged on the roof. His equal rights campaign had been battered by impatience from African-Americans eager for change. Many had called for violent reaction to the brutality brought against them in their daily lives and against their peaceful protests. King was in Memphis to support a sanitation strike, a strategic move that even some of his own advisors doubted. He was tired from travel, after his flight was delayed by a bomb threat. He was physically and 6

InsuranceNewsNet Magazine » April 2013

emotionally exhausted from more than a decade of holding tight to a dream that sometimes only he could see. Soon after King started speaking that night, people knew it wasn’t the usual address. He spoke about the sweep of history leading to that moment. King recalled when he was stabbed in the chest many years before, grateful that fate had allowed him to live and make a difference, particularly in delivering the historic I Have a Dream speech that moved a divided nation. King spoke that night of the constant threats against him but said they no longer mattered because he had been to the mountaintop. The last few lines flew out to the stunned crowd.

Like anybody, I would like to live a long life. Longevity has its place. But I’m not concerned about that now. I just want to do God’s will. And He’s allowed me to go up to the mountain. And I’ve looked over. And I’ve seen the Promised Land. I may not get there with you. But I want you to know tonight, that we, as a people, will get to the Promised Land! And so I’m happy, tonight. I’m not worried about anything. I’m not fearing any man! Mine eyes have seen the glory of the coming of the Lord! King was so spent after his last public utterance that he had to be helped back to his seat. The next day, another historic figure appealed to love and understanding after King was shot. Robert F. Kennedy was at a campaign stop in a dangerous part of Indianapolis, about to speak to a crowd unaware of what happened. Police advised against his appearing but he did anyway, facing anguished screams as

he informed attendees of King’s death. Kennedy reminded the crowd of King’s dedication to love defeating hate. Toward the end of his brief remarks, Kennedy said: “Let us dedicate ourselves to what the Greeks wrote so many years ago: to tame the savageness of man and make gentle the life of this world.” That night, cities erupted in riots, except for Indianapolis. Kennedy made a difference in that city, at that moment, with empathy. He recalled how he had lost his own brother to violence. The previous night in Memphis, King calmed the fright felt by people in that storm-battered church by sharing his own fear. Empathy is at the core of Jay Abraham’s strategy of preeminence, which he describes in this month’s interview with our publisher, Paul Feldman. Many jaded readers might roll their eyes at that notion, thinking it’s kind of namby-pamby, completely unrelated to sales. But empathy is the first step to making a difference in anything. It’s understanding the anxiety of a near-retiree scared of outliving her money, knowing the terror of your child’s first day in school, feeling the frustration of an assistant who can’t find his footing. Putting yourself in their place is necessary to providing guidance to a better place. It might not even be a matter of saying different things, but the same thing in different ways, maybe softened with kindness. Just like in 1968 and in 1865, we live in bewildering and often cruel times. We have enough harshness and anger. We all need more people who “make gentle the life of this world.” Shouldn’t that be you? Steven A. Morelli Editor-in-Chief

LIFE INSURANCE

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INFRONT

What’s in a Word? For Annuities, Buyers If advisors thought it was sometimes tough to explain annuities to clients, it is even more difficult to come up with guidelines. By Linda Koco

“D

o annuities earn money, interest or a return?” That was among the many questions that regulators and annuity industry participants took up in early March during a phone conference on a consumer document about deferred annuities. The ensuing discussion may be of interest to annuity advisors, because the questions raised in the session touch on issues that advisors sometimes encounter when defining and explaining deferred annuities to consumers. Consider: “If an annuity is described as a product that is earning money, how does that differ from receiving an income?” asked one session participant in response to the question about whether annuities earn money, interest or a return. If you say that annuities produce earnings, that suggests the value will be positive, but that is not always the case, said another. Well, said another participant, “value” is a term that consumers will get. Yes, agreed another, that’s a term that can go either way, positive or negative. “Value” is good, said a third person, as long as we remove the term “earn,” which suggests only positive changes. A consensus formed around the idea of speaking about deferred annuities in terms of policy values, not earnings.

It’s not easy

Exchanges like this should be of interest to annuity advisors, who encounter similar challenges when going over key points about deferred annuities with their customers. What is the correct definition, and what will the client understand? Most would agree, this 8

InsuranceNewsNet Magazine » April 2013

is not as easy as describing a pencil to a grade-schooler. The discussion, and many more like it, occurred during a “word-smithing” session on a proposed new Buyer’s Guide for Deferred Annuities from the National Association of Insurance Commissioners (NAIC). The terminology and concepts decided upon in sessions like this, subject to consumer input, will go into that guide. The guide only discusses deferred annuities, pointed out Jim Mumford, who heads the NAIC Annuity Disclosure (A) Working Group that hosted the session and who is Iowa’s First Deputy Commis-

sioner. It will update the NAIC previous buyer’s guide which was published before the NAIC had adopted its suitability and disclosure models, Mumford said. The session ran for more than two hours. The bulk of it focused on eyeballing words, sentences and passages in the proposed guide in light of whether they are accurate, too specific, clear enough and/or helpful to consumers. Following are a few more examples of the word-smithing exchanges. (Since many people participated in the discussion and since not all identified themselves when speaking, the various speakers are not identified here.)

timely issues that matter to you

Illustration

What is an illustration? One participant said the document’s current definition of “illustration” is not good. (It appears in a callout box along with definitions of “contract” and “disclosure.”) The definition in question says that an illustration is “a document that estimates the money your annuity might earn. Ask what’s guaranteed and what isn’t and what assumptions were made to create the illustrations.” Instead, the commenter suggested saying it’s a document that shows how the product works, not what the value is. How about inserting the term “personalized” into the definition, as in “a personalized illustration?” someone else suggested. One person suggested a definition that conforms more to the one used in the NAIC disclosure model regulation. But the disclosure model definition is more technical, responded another, pointing out that what’s needed is something more consumer friendly – such as, it “shows how your annuity might work, based on the assumptions.” Maybe it should say that an illustration “shows how your annuity features might work” and then continue with the next sentence in the working draft (Ask what’s guaranteed and … ), said the next commenter. “That makes it clear … it’s a little more descriptive,” was the response.

Beneficiary or survivor

Another discussion explored whether the guide should use the term “beneficiary” or “survivor.” The consumer representatives who are part of the working group prefer the term “survivor,” said one commenter. That’s because they think the word “beneficiary” sounds legalistic and contractual. “I agree, ‘beneficiary’ is more a term of art than ‘survivor’,” said another. But there may be an argument for using “beneficiaries,” said a third, alluding to some deeper meanings. In response, one word-smither suggested putting the term “survivors” at the end of the document, which has a list of questions that consumers might ask. Why not say, “How do I ensure that my survivors get money from my annuity?”

Why not say “designated survivor” instead of just “survivor”? asked another. Okay, let’s work on a question for that, was the next comment. How about saying, upon the first reference, “the survivor you have designated (beneficiary) and then using the term ‘survivor’ after that?” responded the word-smither. The collective thought seemed to center around that last idea.

Other topics

On it went throughout the session. Commenters took up a wide range of other topics, peeling back statements to see what consumers might see or think. Some of the other topics included: whether consumers would understand reference to financial markets, whether

When the final document is approved, advisors should at least have some reassurance that the wording has been combed through by the country’s leading regulators and industry experts. to make reference to specific indexes, how to define monthly or daily averaging (in fixed indexed annuities), pointing out that subaccount values in variable annuities can go up and down, how best to describe a market value adjustment, and what to say and not say about partial withdrawals. At various points, Mumford would reiterate that the group needs to answer the question, “What is important to the consumer?” For example, in a discussion about whether to remove the word “risk” in a paragraph about variable annuities, he said the goal is to point out the differences between variable annuities and deferred fixed annuities, “so if you remove reference to risk, you remove the point we need to make.” Mumford did offer a suggestion on how this might be done. But for purposes

INFRONT

here, it’s worth taking a high level look at that moment – from the perspective of advisors who go face-to-face with consumers on a daily basis. Discussing risk, safety, product features and more is what annuity advisors do when educating, selling and providing ongoing service to consumers. They, like the working group experts, are always considering what to say and not say about annuities, how much to say and how to say it. They want to be clear. They want to be accurate. The few examples shown here indicates that it does take thought and effort. When the final document is approved for use, advisors should at least have some reassurance that the wording in the resulting guide has been combed through by a number of the country’s leading annuity regulators and industry experts. It will not be highly technical, like a prospectus. But it will provide a balanced overview that might help facilitate discussion. It might even provide advisors with suggested language to use, if they get stuck on one point or another. Also worth noting is that consumer representatives have been providing input all along the developmental process, Mumford said. During the session, the group often referred certain points back to those representatives for further review and input. This too may be a source of reassurance. The session participants included regulators from several states plus representatives of several major industry trade groups, including National Association for Fixed Annuities, Insured Retirement Institute, American Council of Life Insurers, American Academy of Actuaries and National Association of Insurance and Financial Advisors. Also speaking were representatives of a few insurance companies. The group plans more discussion. Once the proposed guide is in final draft form, the working group will send it on to NAIC’s Life Insurance and Annuities (A) Committee for consideration. 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.

April 2013 » InsuranceNewsNet Magazine

In last month’s interview, Jay Abraham, the marketing leader and sought-after consultant, mapped out the four steps to greatness. In part two, Jay explores another important concept – preeminence, which is about distinguishing business, marketing and advertising as the standard of what is possible. It’s the concept at the center of his best-known work, Getting Everything You Can Out of All You’ve Got.

The Preeminent Advisor

reeminence comes from the Latin word “praeeminer,” which means “rise above or excel.” It’s a type of high status or distinction for anyone considered to be the best at something. People with preeminence include the president, billionaires, and legendary athletes such as Michael Jordan, whose preeminence filled stadiums with raving fans and drove fear into the hearts of his opponents. For insurance advisors, being preeminent is based on empathy. It’s knowing how clients think and feel, building a practice from that understanding, and then fulfilling that need like no one else. Figuring out what people want and need is always the hard part. It’s easy to imagine devoting many hours and dollars researching the market, surveying prospective buyers, yada, yada, yada. But Jay says you don’t need to do that. In fact, he argues that you can take the same time, effort and money that you are already spending and simply tweak what you’re doing for enormous gain. Great, you say, how do you figure out what the magic tweak is? That’s the process that Jay talks about in this interview with InsuranceNewsNet Publisher Paul Feldman.

FELDMAN: We have talked about the four steps to greatness but I also wanted to discuss preeminence, which has always been a key concept of yours. How does that concept apply to people and their business?

It gives you uncanny insight into what people want and why they act and react the way they do. It turns clients into friends for life. It strengthens your passion and connection with everyone in your life, inside and outside of business. Preeminence is based on one thing – empathy – but I don’t believe one size of preeminence fits all. It’s a dynamic concept that has to be translated to the role you are going to play in the market. You can be a preeminent ice cream vendor because you make a wonderful process out of stopping for 10 minutes for a beleaguered adult who is stressed out of his gourd. You acknowledge the person and you make that moment regenerative and nostalgic. You’ve got to understand what role you are playing. So, I am not at all suggesting that it’s the same answer for everybody. But there is an answer for everybody. There are many examples of mediocre companies catapulting themselves to positions of preeminence by analyzing what it takes relative to their market niche.

FEATURE

FELDMAN: Can you give us an example of that? ABRAHAM: We had a client that was a very large furniture store generating $40 million in business. We saw that they were spending a couple of hundred thousand dollars a month in full-page ads in their newspaper on Sunday. Those ads would drive a finite number of leads into their store. We wanted to find the easiest first step for the business to make a difference. So, that wasn’t going to be changing the ad, although we could have done that. It was changing the dynamic that occurred when people walked into the store. The normal dynamic people are used to is, “Hello, can I help you? Is there something you want?” And most people say no and then there’s disengagement and the power is lost, correct? FELDMAN: Sure. That is a typical experience in most stores.

FURTHER READING Get the full scoop and read part 1 of the Jay Abraham interview featured in the March issue of InsuranceNewsNet Magazine at www.bitly.com/ INNM0313_Abraham

ABRAHAM: The strategy of preeminence is a powerful yet simple strategy that can transform your business or career. It draws people to work with you instead of your competitors. April 2013 » InsuranceNewsNet Magazine

FEATURE

The Preeminent Advisor

ABRAHAM: We tested 33 different ways of greeting people in the store. We used the same lead flow, same person and the same time so there was no real change other than what they said. We didn’t do anything to their business model that might have been intimidating to the business. The winning greeting tripled the number of buyers from the people who went into the store. So, of the 2,000 visitors a month, instead of closing 150, they closed 450, three times more. This by doing nothing different other than changing what was said in the beginning of the relationship. But that’s not even the biggest impact. The average sale went up. And that’s not even the biggest impact. People kept coming back. That’s not even the biggest impact. People coming back told other people and it’s on and on. And it was only the first thing we changed because we wanted to be nonthreatening to the business.

FELDMAN: Do you have any idea why that greeting worked better than the others?

same full page for an ad but realized that some of them had five times the impact of another while others actually had a negative impact. So, I learned testing ABRAHAM: We realized that it put con- and variability. trol of the selling situation in the hands So once we had that process working, of the salesperson. The visitor is going to we moved to their advertisements and answer, “Well, I’m here for a French bed- begun testing new headlines. The headroom suite.” Then the salesperson says, line is really 80 percent of the ad. It can “Oh, is this replacing another one? Do double, triple, quadruple, up to 21 times the effectiveness. Then we tested the description of the furniture. Each one of these tests multiplied the yield. We didn’t Know what spend another dime on advertising or on the furniture great Get a road store. Didn’t spend another looks like, map to minute embracing them at greatness. specifically the door but we changed the for you. dynamics. In that case, there were about 10 different leverageable dynamics.

Four Steps to Greatness

FELDMAN: That’s amazing example of big impact occurring from a small change But I have to ask: What was the winning greeting?

Stay the course. Success is not a straight, or easy, road.

InsuranceNewsNet Magazine » April 2013

you have French furniture in the rest of your home? Is it a condo? Are you moving in?” And then it’s an advisory role. That ties to being a trusted advisor. FELDMAN: That shows the power of testing, because you can stumble on the right answer and figure out the reason later. What else did you do with this client? ABRAHAM: First, I should tell you about how my life changed in 1960 when I read Reality in Advertising, a book written by the advertising legend Rosser Reeves in which he did all these analyses of ads and commercials. He saw that the community had the same 60 seconds or the

FELDMAN: You are well known for the work you have done when it comes to leads and marketing. What is the one thing every one of our readers should know?

ABRAHAM: I used to be in the lead generation business – I’ve done so many things in my life. It was 30 years ago and to this day most people still don’t understand. A lead is not a lead. There is a different quality of leads, different convertibility, leads that turn into different categories or types of business, leads that produce different kinds of referrals and so on. Most marketing people and business owners think tactically when it comes to leads, but in order to grow exponentially, you must think strategically. I have found that when it comes to lead generation and marketing you need to have multiple support columns like the Parthenon in Athens. I call this the Parthenon model, because it is built around several pillars of activity. It is majestic, strong, stable, sustaining and robust. Unfortunately most businesses have one primary column for lead generation and marketing that leads to 90 to 100

“There are four reasons that few if any perform even remotely close to greatness. When you realize how to operate in that rarefied strata of greatness, the impact, the performance, the results, the connection, the relevancy that emanate from it is asymmetric. It’s geometric.”

ABRAHAM: The winning phrase was this: “And what ad brought you into the store today?” Now, we didn’t know this would work, which is why we tested many greetings. I come from a school that understands variability, where we find the different ways to do the same thing to discover the one that will out produce others by as much as 21 times. That different method will take the same time and effort with the same interaction and capital and leverage it for as much as 21 times better result. But then it gets mind-blowing because that’s true of almost every one of the 20 or 30 impact points with customers and clients. There are so many ways that you can take the same time, effort, money and multiply and re-multiply the yield. The opportunity is fixed – what you do with it is variable. 12

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FEATURE

The Preeminent Advisor

Power

Parthenon

When it comes to lead generation and marketing, you need to have multiple support columns like the Parthenon in Athens. This is the Parthenon model, built on several pillars of activity to be majestic, strong, stable, sustaining and robust. percent of their business. I call this the “diving board” which can only lead to gradual business growth. If you can move your business from the diving board model to the Parthenon model, you will no longer be dependent on that one primary activity. But that one activity will actually improve as all the other activities will reach out and impact that one activity. FELDMAN: How do you help clients do things differently? Even though they approached you, I would think there is still a reluctance to do things differently. ABRAHAM: The first thing is they have to see how much more is possible. They’ve got to be able to see objectively without being embarrassed or self-conscious about what they are doing now 14

InsuranceNewsNet Magazine » April 2013

versus what they could be doing differently. And that requires them to sort of travel a little or a lot outside their own world and see what’s different. FELDMAN: How do you help people see that path? ABRAHAM: I say, let’s look at your perspective – what’s your philosophy on this? That’s the first question: What’s your ideology? And then the second thing is: Why? The third is: How are you acting on it? What are you doing every day? How are you using your time? How are you using your opportunities? What is the driving force? What are alternative ways to do these things? FELDMAN: You made the point that the alternative ways of doing things don’t

have to cost more money, time or effort. How do you get that point across? ABRAHAM: Well, I can use for an example a health/exercise regimen that’s very popular now – the P90X. Everyone basically comes up with a particular exercise regimen. You’re going to be a weightlifter or a runner or do yoga or whatever. And this guy did research and found out that’s good, but if you break it up and you do different workouts every day, your muscles don’t get lazy. You can just multiply the outcome for the same or less effort and it has more sustainability. But it can’t happen until you question, in a constructive way, how you are using the elements of your situation. First, you’ve got to break down forensically and question what you are doing.

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FEATURE

The Preeminent Advisor do that. I’ve got none of the muscle anymore but I was happy because I had done it. Then he makes me do 12 pushups and three sit-ups. I used to be able to do 800 push-ups. He doesn’t say, “Jay, do 800 push-ups.” We tell people, “Don’t just jump in and do something.” Get a context of all that’s possible so you can get excited. And that’s the stimulus and the carrot that will drive you on. But first, find the easiest, simple change that will require no additional effort. FELDMAN: You’re talking about vision a little bit there. And something we talked about last time was getting a vision of what greatness looks like – the first step to greatness. It seems like some people have a very specific picture, like making $2 million a year and having a 10-person agency in two years. If people are envisioning something like that, is that what you mean or might that be limiting? ABRAHAM: There are three implications of what you said. When somebody says something like that to me, I ask, “Why?”

Nothing happens unless you have a keen it pragmatically in a way that reinforces FELDMAN: What do you mean by breaking it down forensically? ABRAHAM: It requires critical thinking, which most people don’t do. It requires thinking about every time you have an interaction or just a meeting, discussion, observation with anyone who has a piece of the puzzle that you don’t. It is being able to take a moment of reflection and say, “Wow, what is it about that person and that interaction that was special?” I’m not talking merely in the context of your profession. If I go to McDonald’s and have an extraordinary experience, the first thing that I do is stop in midstream and think: What did that young woman or man do that was so engaging that I felt special? That they made me 16

InsuranceNewsNet Magazine » April 2013

feel that they were personally making this meal something wonderful for me or my family? Or they were personally taking care of it? FELDMAN: One of the messages I got from what you have been saying is that it’s important to have small successes, learn from them and move onto the next one. Is that right? ABRAHAM: Yes. I had my neck operated on about two years ago. And I used to be just an animal. I had a 44-inch chest and a 28-inch waist and I could do – I’m not saying to be a braggart – but I could do 400 dips at a time. Now I’m in physical therapy and the therapist asks me to do 10 slow push-ups and he makes me feel proud that I can

And they will say, “Well, because my average person produces $100,000 of profit for me and I want to make $1 million, so I need 10.” And I say, “OK, but what if you could get your average person to produce $300,000 and generate five referrals each a month and you didn’t have to do have all the overhead?” So the first question is why. Second is: Why are you accepting your current standard as being the fullest potential possible? Third is when you start shifting their focus to this greatness or preeminence and being value-based. Everyone says, “Well, we give great value.” But it’s nowhere even remotely close to what it’s like to be operating in a preeminent role.

The Preeminent Advisor Once you infuse your organization with this sense that they are the most trusted advisor for life for not just everybody they sell to but everybody they interact with, it fuses their being with a whole heightened sense of purpose and a whole different distinction. Then you grow people who have to maximize because they are on a crusade to add value. They know that your organization protects, advises and contributes so much on a higher level to the prospective client that it’s a disservice to that client to allow your competitor to sell to them. It’s not because you hate the competitor but because you guys are so much more heightened in what you do for clients. Then you grow faster because everyone is performing at optimum. It doesn’t happen instantly. It’s not like the book The Secret where you think and you utter some kind of a meditative thing and everything just manifests itself. Nothing happens unless you have a keen understanding of the factors and you do it pragmatically in a way that reinforces your belief in yourself and the process.

FEATURE

GET THIS Visit www.insurancenewsnet.com/preeminence to download a free report written by Paul Feldman and Jay Abraham. As a special gift to InsuranceNewsNet readers, we have created an exclusive 36-page report that could transform and transcend your business to new heights. Download it for free today!

For more details see page 59. agencies? Can I really stay in the game long enough to retire with security? He says when you realize how much more is possible, you will shift the question. It will no longer be: Am I worthy of this goal? It will become: Is the goal worthy of me? Because you can raise your game many times. I’ve seen people

Look up in Webster’s the definition of a customer. It’s trite. It’s someone who buys a commodity or a service. When you refer to them as a customer, it means you are not treating them as anything more than that and you have accepted that you are nothing more than a commodity.

understanding of the factors and you do your belief in yourself and the process. But, that stated, why only 10 employees when you can have 20? Most people suspend such a low ceiling of aspiration and performance on themselves because they don’t realize how much is possible. FELDMAN: How can people realize what is possible and then act on it? ABRAHAM: Here’s a great quote from Bob Proctor, a coach and speaker. He said, “Most people in business struggle in life with the wrong non-verbalized question.” They are tormented with the question: Am I worthy of this? Can I really grow from two salespeople to 10 in four years? Can I really grow my income in this commoditized, ultracompetitive market? Can I really compete against these bigger

redouble and double again their results once they shifted their focus from mediocrity to preeminence. It starts with the commitment to yourself that you are not going to accept a fraction of what life has to give you and what you have to contribute to it. FELDMAN: How does being preeminent transform a business – and a life for that matter? ABRAHAM: When you are preeminent, you think of your role as being the benefactor, the multiplier, the creator of value for your client. The reason it’s about the client is if you call them a customer, then you’ve already submitted to the world of marginalization and commoditization.

If you call them a client and you see your role as their most trusted advisor for life and you really understand not just abstractly but in a granular way what executing that role looks like, you will start treating them always as a client. When you look up the definition of client, it is someone who was under the care, the protection, the well-being of the market. Now, am I saying that everybody is going to do it? Of course not. I’m saying the ones who do will inherit the world. They distinguish themselves. They are not price-oriented because they are preeminent. They are seen as the greatest, most trusted source to whom their clients want to turn.

April 2013 » InsuranceNewsNet Magazine

[NEWSWIRES]

GE chief says Americans must pay more for health care bitly.com/QRpaymore

WHEN IS QUITTING GOOD FOR EMPLOYERS?

Consumers Would Buy What From Health Care Exchanges?

IRAs and annuities

criticall illness insurance

life insurance

56%

disability insurance

67% dental plans

Ever think of buying financial products – such as life insurance and annuities – through the new health care exchanges? Apparently some people do. 50% 45% 30% LIMRA reports that 45 percent of consumers say they would be interested in buying life insurance through the exchanges, and approximately 30 percent would buy IRAs and annuities. What’s more, 50 percent say they would be interested in getting disability insurance that way; 67 percent, dental plans; and 56 percent, critical illness insurance products. This has led the LIMRA researcher to conclude that exchanges “may of-

fer the industry a new way to reach Americans and help them protect their financial security.” If that is the case, what would happen to the competitive

landscape at the distribution level? That’s a question advisors might want to explore – like, ASAP. The federal exchanges will start running in January of next year and certain private exchanges are already running or in the works.

LOWER THE PRICE OF LTCi AND WE’LL TAKE A LOOK

If you want to interest consumers in buying long-term Onle care insurance, offer a lowproduct. That’s Sa w! er-priced what John Hancock LongNo Term Care Insurance found out from a recent survey it did on consumer interest in buying longterm care insurance. The interest grew from 14 percent when shown a traditionally priced policy to 30 percent when shown a lower cost policy, the Boston

carrier says. Both policies offered a three-year benefit totaling $164,000 and a 90-day elimination period, but the traditional policy’s benefit amount grew compounded based on Consumer Price Index increases while the lower cost DID YOU

KNOW

policy’s benefit grew gradually based on performance of the general account that funds the policy. The survey covered people aged 45 to 65 with household incomes greater than $70,000 and investable assets of more than $100,000. The finding that lower price gets attention may prompt a lot of agents to say, “No duh.” That’s because they’ve encountered a lot of customers who don’t want to buy due to the perceived high cost of the coverage. But now, says Laura Vail Wooster, vice president-marketing at Hancock, “there is data to prove that lowering the cost of long-term care insurance is critical to making this coverage more accessible to a broader population,” The obvious next question: Are lower-cost longterm care policies on ramp?

Twenty-seven percent of investors say $1 million is the minimum wealth level for being considered rich while 18 percent say it’s $2 million and 16 percent say it’s $5 million. Source: Spectrem Group

InsuranceNewsNet Magazine » April 2013

If a business client asks for an assessment of confidence in the economy, advisors might suggest they look to their “quit rate,” or the rate at which workers voluntarily leave their existing jobs. In December 2012, 2.2 million Americans quit their jobs, according to EmploymentCrossing.com, citing figures from the Bureau of Labor Statistics. That’s up from the 1.8 million voluntary quits in June 2009. Harrison Barnes, CEO of EmploymentCrossing, sees the increase as a positive sign in the economy. His rationale: “An increasing number of Americans are not going to quit their jobs unless they have another one lined up or are sure of getting another job soon.”

SPEAKING OF EMPLOYMENT

If quit rates are up, where might the departing workers be going? At least some of them are trotting over to insurance and financial services firms. Big carriers like The Guardian and Northwestern Mutual have already announced substantial sales force increases. Even smaller firms have been adding on. American Income Life, McKinney, Texas, says its producing

agent count is up 18 percent from a year ago, to 5,176.

This won’t be an across-the-board trend, though. For instance, LPL Financial, the large independent broker-dealer that handles insurance as well as securities, is planning to start job cuts in the third quarter as part of a repositioning strategy, according to a Financial Planning report. And although a February Harris Poll found that 21 percent of American adults believe the job market in their region is good, 48 percent describe their job market as bad and 31 percent say it’s neither good nor bad. Still, Jeanne Branthover, a managing director at Boyden New York, says that in 2013, “we’re already experiencing a real shift in financial services firms setting a strategy to include hiring this year.” It’s a hopeful sign.

[NEWSWIRES] THE DIFFERENCE THAT MARRIAGE MAKES

In terms of life insurance ownership and retirement savings, married folks are at the head of the pack, especially married men, according to an ING study on marriage and money. The researchers found that 95 percent of married men are most likely to have life insurance, while 84 percent of single women are likely to have it. In addition, married men

h ave the most life insurance, with a face amount averaging 4.5 times annual income. Married women have 3.5 times income; divorced men, 3.4 times; divorced women, 3.2 times; and single men and women, just 2.7 times. As for retirement savings, ING found that individuals who are married or living as married have independently saved $40,000 more for their retirement that those who are single. Once again, married men are in the lead – their average retirement savings balance was 51 percent greater than that for single men and 8 percent greater than that for divorced men. Married women also out-saved their single counterparts, by 28 percent. The findings open up a couple of business model possibilities for advisors: Focus advice and sales efforts on married men, whose track record indicates they are interested in and receptive to life and retirement savings services; develop a targeted program to reach singles, some of whom who may be underinsured for life insurance, and under-savers for retirement, because they have not yet gotten a nudge from a professional advisor. Not blaming, just saying…

QUOTABLE The rich have trained themselves to expect big things to happen, and as a result they are bold, aggressive and fearless in their pursuit of wealth. — Steve Siebold, author of the book, “How Rich People Think”

RIA Comp Is AUM-Based Ever wondered how most registered investment adviser (RIA) firms are compensated? The question comes up as more insurance producers consider joining or creating an RIA firm. AUM Turns out that 94 percent of RIAs are paid based on a percentage of assets under management, according to RIA in a Box, a New York RIA 55% registration and compliance service. More than Hourly 10% 43% Performance- half (55 percent) charge clients on an hourly basis, Fixed Fees BAsed Fees while 43 percent charge fixed fees, the firm says. Just 10 percent receive performance-based fees. Incidentally, although money management is the RIA’s major service, insurance is not far behind. More than one-third (37 percent) of RIAs have staff members who sell insurance products, RIA in a Box says. No surprise there.

94%

HEALTH-CARE SPENDING HEADING UP SOME MORE

Employees may not realize it, but their employer is likely to be spending in the neighborhood of $8,800 a year per worker for health care. That staggering amount comes from an Aon Hewitt survey of large and mid-size employers. In addition, employee premiums and out-of-pocket costs are averaging $5,000 per year, the Lincolnshire, Ill. firm says. The foreseeable future has more of the same. That is, employer spending on

health care will continue to rise by 8 percent to 9 percent a year, the researchers

predict, citing as a factor “worsening population health issues, including obesity, smoking and failure to comply with medications.” Feeling the pain yet? Amazingly, 94 percent of the surveyed employers say they will continue to offer health benefits to employees in the next three to five years. But there will be changes. Almost two-thirds of these employers say they plan to move away from a traditional “managed trend” approach to one that requires workers to take a more active role, Aon Hewitt says. In other words, look for more pay-for-performance bonus programs and more private health insurance exchange programs.

METLIFE’S VENTURE INTO BANKING ENDS

In February, MetLife got the green light from federal authorities including the Federal Reserve to shed its status as a bank holding company. This brings to end a decade-plus venture into banking that started in the wake of the newly-enacted GrammLeach-Bliley Financial Modernization Act of 1999. Met had demutualized in the late 1990s and then entered the banking business through the 2001 purchase of the nationally chartered Grand Bank. Met renamed its acquisition MetLife Bank and took up online retail banking in the newly convergent financial services world. But then the recession of 20072009 upset the banking-cart nationwide and worldwide. The financial downturn spurred Congress to pass the DoddFrank Act of 2010 and the Federal Reserve to implement bank holding company oversight. MetLife took a look at the new climate and decided it was time to get out of banking. In January 2013, it

did just that, completing the sale of its depository business to General Electric Capital. Now, with the sign-off from the

Fed, the 135-year-old company is a bank holding company no more. Lessons learned? We’re waiting for the insurance and financial services historians to weigh in on that. April 2013 » InsuranceNewsNet Magazine

by Linda Koco

The big case is not just one big number these days, but the key to a stream of big cases. 20

InsuranceNewsNet Magazine Âť April 2013

Rethinking Big Cases

hen Damon Winter sold his first big life insurance case back in the 1980s, it was a term life policy with a $1 million face amount. He had only been in the business a few years, so it seemed like a big case at the time. The Oregon producer remembers having felt “deep satisfaction” over writing a case that large while also helping the client to obtain coverage that was badly needed to protect a thriving business. But he says he quickly realized that the case was “not that big of a revenue generator.” This got him to thinking about big cases from a new perspective – in terms of total revenues and not just face amount or first-year commission. Now a member of the prestigious Million Dollar Round Table (MDRT), Winter focuses his big case strategy on sales that produce recurring revenue streams. Along with Winter, producers all over the country are reinventing industry notions of the big case, to the point that today’s big cases really aren’t your father’s big cases. That is, there is no universally recognized face amount or product type for big cases. Rather, advisors more often speak of the cases in terms of premiums, commissions, fees, assets under management, total account value, customer value or some combination of those factors. What’s more, the dollar amounts they ascribe to the cases vary widely. That’s due to the vast differences that exist in advisor experience and expertise, business location, practice model, target market and case characteristics (commercial or personal, individual or multi-life, and term, perm, variable or indexed). Today, the big case can be thought of as a strategy, a thought process and an approach to the insurance needs of wealthy clients. If that sounds a bit nebulous, that’s because it is. But make no mistake, landing a big case is still the big story in life production, and the “heavy hitters” are widely revered for their success and expertise, as well as the inspiration they instill in others.

A Look Back

To understand the big case world of today, it helps to remember where it

came from. Fifty years ago, life insurance agents focused mostly on face amount. They would speak enthusiastically if they sold a whole life policy with a $30,000 face amount, and a $100,000 whole life policy was a jaw-dropper. Due to inflation and a host of business trends, those face amount numbers crept up. By the mid-1980s, a $100,000 whole life case was considered “nicesized,” recalls Winter, who is a financial planner at Majestic Eagle Agency in Clackamas, Ore. In the next decades, the face amount benchmark rose to $1 million, $5 million, and more – a development helped along by lower rates due to new actuarial tables and also more rate classification categories. Along the way, advisors took to mixing in various kinds of life policies – term, whole life, universal life, variable universal life, first- and second-to-die plans and, in recent years, indexed universal life – and distribution business models expanded to include not only career, but also independent, brokerage and alternate. With so much transformation, new thinking about big case parameters inevitably emerged. The production requirements for MDRT membership expanded right along with the industry trends to where they are today. Long considered the minimum benchmark for entering the realm of the big case hunters, they are still viewed that way. But advisors are setting other, more personalized big case benchmarks, too. For Stephen N. Mathieu, the benchmark is commission. For instance, he recently wrote a $500,000 whole life policy with a $30,000 annual premium. The commission will be $20,000 to $25,000. “That’s a decent-sized case in the personal market,” he says. But in the business market, a goodsized case would produce a commission of $75,000, adds Mathieu, who is the president and investment advisor representative of Legacy Financial Solutions, Manchester, N.H. For cases that involve both insurance and investments, he includes the commission from both types of products in assessing the value of the case. What about producers who write a lot of term or universal life in the personal market? Mathieu thinks they might be

FEATURE

The MDRT Benchmark in 2013 Membership in the 2013 Round Table is based on the following production methods. Members must achieve one of these: • Commission/Fee Method A minimum of $90,000 of eligible commissions paid. • Premium Method A minimum of $180,000 of eligible paid premium. • Income Qualification Method A minimum of $154,000 in annual gross income from the sale of insurance and financial products is required. A minimum of $45,000 must be income from new business generated during the production year. Further, a minimum of $45,000 must be derived from income associated with risk-protection products.

April 2013 » InsuranceNewsNet Magazine

FEATURE

Rethinking Big Cases

Ben Feldman, legendary agent, sold $1.8 billion of insurance policies for New York Life in his career. Feldman once held the world record for the most products sold (by value) by a salesman in a career, in a year ($100 million), and in a single day ($20 million) A few years before he died in 1993 at 81, when was asked what his biggest case was, he answered:

“I can’t say. I haven’t written it yet.”

InsuranceNewsNet Magazine » April 2013

better off measuring a big case by face amount rather than premium. His reason: “The value provided to the client is always the true measure of the end result. If the agent or broker has provided a maximum amount of value for a fair price for minimum money expended, that’s a job well done.” The state of the agent’s career development makes a difference, too. “For someone in the business only three years, a $15,000 commission would be very large, especially since the family and small business cases often pay much less,” Mathieu said. Mathieu recalled that when he went to his first MDRT meeting, he had produced $140,000 in commissions that year when the minimum requirement was only $50,000. “I felt good about that,” he says. “But then I met guys who were getting four or five times what I had made, and I began to realize that there was a long way for me to go before getting to the really big cases.” This awareness had a profound impact on him. “At MDRT, you see potential much greater than you had imagined. You get to talk to people who tell you what they are doing to land those really big cases, and you realize that the walls you have around you are self-imposed. At MDRT, you get to see what’s going on outside of those walls.” Those comments speak to the power that big case lore has in the life of many producers. They say that hearing about big cases inspires and informs them, while introducing them to concepts that may help them build the expertise they need to move to the next level – and thus to be of even greater value to clients. For them, it doesn’t matter that the big case definition has become a relative term in comparison to 50 years ago. It matters that big cases exist, and that the producers keep telling those stories. Incidentally, Mathieu said that even though he measures big cases by commission, he thinks in terms of service. “I don’t even know what the comp will be on any one product until I write the case and see the number after the fact,” he said. His focus is on picking the policy that fits the client’s needs, he said. “I want clients to walk out of my office know-

ing that I did something that made them better off than they were when they walked in, even if it turns out they don’t need life insurance but they do need to go to an accountant or an attorney.” Stephen N. Mathieu’s big commission case: “This was my first big case. It was for an older woman. She needed a $2 million life policy in charitable trusts and $2 million in various investments for which we were compensated on an annual basis. The life policy comp was $60,000 first-year plus premium renewals, which ran for five years until she died. The investments generated $20,000 a year, and when she died, the investment value had grown to $3 million. I already had my CLU and ChFC, and that was critical, because it took all that education plus doing all the little things along the way to gain the knowledge and confidence I needed to write larger cases. I believe that these cases come along when you know how to bring them to fruition.” A number of advisors say premium is the primary measure they use in determining whether a case is big or not. That’s because premium reflects revenue, and revenue provides the basis for earnings on which the advisor will live and build the practice. Robert Miller provided a case in point. “For me, $100,000 of premium is a big case,” said the partner at Miller-Pomerantz and Associates, New York City, and immediate past president of National Association of Insurance and Financial Advisors (NAIFA). That’s not a benchmark for all advisors, he cautioned. In New York City where Miller works, the cost of living is quite high, so $100,000 in premium makes sense. “But for the majority of life insurance producers, if you earn $30,000 on a sale, that’s a big case.” In some areas, a big case could be $37,000 a year in premium for a $5 million 20-year term policy for a woman in her 50s, he said. Even that is relative, however. “The average client of NAIFA members grosses under $100,000 in income a year. So, a case with a $5,000 premium is a big case,” Miller explained. For someone making $5 million a year, it wouldn’t be a big case at all. When he does talk about face amount,

Do MEDICAL Miller typically looks at what the client needs. In his practice, he says he doesn’t even talk to people wanting under $1 million because, in New York, such a death benefit won’t go very far if the client has a stay-at-home spouse, two kids to put through college and a mortgage to pay off. Big case work is not without disappointments. Miller told of an “old, crotchety lady with health problems” who had agreed to coverage that would earn him several hundred thousand dollars in premium. “It took eight months to issue the policy, and we got it written at Table F,” he recalled. “But when I went to deliver it, she nixed the deal. She said, ‘I’ve realized I hate my children so I’m not buying it.’ ” That was “painful,” Miller said ruefully. “I had spent so much time and energy on it, and I got nothing out of it.” He admitted he was depressed about losing the case – “but only for one night.” The very next day, he was back selling, and he has landed other big cases since then. Robert Miller’s big premium case: “Several years ago, I wrote a monumentally large case for one of the largest corporations in the world. It entailed writing several thousand separate whole life policies on the employees for a total premium of $150 million. It took 1.5 years and a lot of work. There were times when we had it and then didn’t have it. But we did get the case and we received a percentage of the premium over the next seven years. It was like having an annuity for seven years.” Sherry K. Barton, a New York Life agent in Oklahoma City, uses premium as her measure, too. “I’m commission-based, so I look at the premium,” she explained. But a big case for her is different than it is for producers in Miller’s neck of the woods. In Oklahoma City, the cost of living is much lower than it is on either coast, she points out. “A $350,000 home in my town would be phenomenal. It would have 4,000 square feet, a big backyard and a circular drive. In California, such a home would cost maybe $1 million, but not here.” As a result, many of her clients do not need as much coverage as they would if they lived on one of the coasts.

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FEATURE

Rethinking Big Cases

Stay in touch with the client, because lives change, and you never know what will happen.

InsuranceNewsNet Magazine » April 2013

Among her 3,000 clients, Barton has six cases that she describes as big. Each has a $1 million whole life policy for which the client pays monthly premiums of $1,000 or more. Some of these cases took 20 years to land, Barton laughed, explaining that some began as term life policies that the clients later converted to whole life. To land a big case like that, Barton said she gets in front of a lot of people and writes a lot of smaller cases, even ones with premiums as small as $75 a month. Then, she said, she stays in touch with the client, “because lives change, and you never know what will happen.” Apparently, that approach works. She has qualified for MDRT for 25 consecutive years. Sherry K. Barton’s big premium case: “One man started out paying $242 a month for a $1 million term contract. It was related to a loan he was making from a bank. Then, three years later, he called saying he was in the chips and wanted to convert. He did convert – into a $1 million whole life policy with a monthly premium of $2,300. For me, that’s a huge case.” Dick Weber, president of The Ethical Edge, Pleasant Hill, Calif., used to be a commission-based producer, but for the last 20 years, he has been working on a fee basis, as an insurance expert on cases brokered by someone else. In his business model, fee-based advice is not a replacement for the life insurance broker. The independent expert’s role is to provide sophisticated analysis from a life insurance perspective strictly on behalf of the policy owner (insured or trustee), but in collaboration with the insurance broker and other team members. There is another fee-based advice trend that is also developing, noted Weber, who is national president of the Society of Financial Service Professionals. This other trend may add to the confusion about how to define and strategize over big cases. The old “monolithic model” of company-agent-client is starting to break down, Weber explained, and some advisors are starting to work on a feefor-service basis. These individuals may measure their cases based on the size of the fee, but even if they hold insurance

licenses, they may lack the insurance expertise required to place big cases, Weber said. They may not know about sophisticated underwriting approaches, for example. Or they may not know the carriers or the reinsurance issues, or how to optimize the insurance for the client. They may not know about what happens when the insurance is held in a trust, or about the fiduciary liability issues related to trust ownership. In his view, “the only way the feebased advisor can bring the benefit to a big case client is to have a licensed and experienced insurance broker in on the case, too.” It’s not enough to rely on the advanced sales specialists at the insurance companies to provide this expertise, he maintained. Although there are exceptions, “few of them know how to sell insurance.” Selling skills are definitely needed when working big cases, he said. Dick Weber’s big fee case: “A large national accounting firm was working with a closely held business and the family. The firm was concerned about a decision that had been made to buy a $250 million no-lapse universal life policy on the 29-year-old owner, and so wanted me to serve as an independent life insurance expert to review the company’s decision. Among other things, I found that the future value of a fixed death benefit had not been taken into account. There were other problems too, but the end result was that it became a $350 million case, involving 17 carriers and policies in a portfolio that was 30 percent whole life, 20 percent guaranteed death benefits, and 50 percent overfunded variable universal life. It took a year to complete and I received a $50,000 fee. No other big case has been as sophisticated or challenging for me as this one, and I felt every bit as good about it as I did on previous big cases where I was the broker who placed the business.” Some producers take a type of combo approach to assessing a big case. Mike Kiley is in this category. The chief executive officer of Chamberlain Group, an Irvine, Calif., independent brokerage firm, said that for him, “it’s truly a big case if you have a face amount of $100 million or more, a premium range of

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FEATURE

Rethinking Big Cases

$300,000 and up, and reinsurance arrangements that need to be ‘managed.’ ” Reinsurance management? That’s right, he said. When a big case is on the table, the carrier or carriers under consideration may retain only, say, $30 million of total face amount. They may have automatic reinsurance to back the next $20 million, and if the face amount is higher, something will need to be done about the reinsurance. Sometimes, additional carriers are brought in, but these companies may have reinsurance arrangements that conflict with those of the other insurers. The advisor who is on such a case will need to decide not only which product is best for the situation and which carrier has that product, but also which carrier has a suitable reinsurance relationship, Kiley said. If other carriers are involved, the producer will also need to look at whether the reinsurance relationships result in gaps or overlaps in reinsurance. In addition, the advisor needs to manage the underwriting process, Kiley said.

“You need to know everything that’s in the medical profile, including where the client travels, how often, and what hazardous activities the client may be involved in.” This is critical, he said, “because the carrier will pull its offer if new information arrives in this area while the policy is being written. The underwriters will want the fresh information.” At his firm, then, a big case is not just a matter of premiums and face amount. It’s also a case that requires reinsurance and underwriting management. These are skills that will help the producer set up the ideal portfolio for

the client, Kiley stressed. “You need to structure the case properly in this market. And keep in mind that in some situations, it will make sense to diversify carriers and products because of the reinsurance relationships as well as capacity issues.” Mike Kiley’s combo-factor big case: “A big case will be one that has, say, $100 million in premium on the parents, who could be owners of a family-owned business. The case might include $300,000 to $500,000 in premium for coverage on the children in the family. So the case will entail multiple

The advisor needs to manage the underwriting process. “You need to know everything that’s in the medical profile, including where the client travels, how often, and what hazardous activities the client may be involved in.”

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InsuranceNewsNet Magazine » April 2013

12651 - 2013/1/24

3/12/13 11:39 AM

Rethinking Big Cases

“I am looking for cases where I will enjoy working together with the client over a long period. The first measure for me is not how big is the asset, estate or potential revenue stream. The first question is, are we a good fit, and can I truly help the client?” millions a year in premium, and it will require a producer who can do reinsurance management as well as underwriting management.” Damon Winter, the Oregon producer mentioned at the opening of this article, has a type of combo approach, too. He looks at big cases in terms of the total revenue they create for his firm, preferably recurring revenue. Total revenues could include premium from whole life insurance written with renewals, universal life with levelized commissions and assets under management on the investment side.

This means that a big case, in his practice, is not always known by a total big number up front. Instead, he is looking for a substantial recurring revenue stream, from multiple sources per case, so that the business will have an attractive value when the time comes to transition his practice to another rep later on. “Without recurring revenues, who will want to take it over?” he asked. “Without a business continuity plan, what will the clients and beneficiaries do? Clients do ask what will happen if I go out of business.”

FEATURE

For these reasons, Winter’s referral-driven practice uses a relational business model, not transactional. “I am looking for cases where I will enjoy working together with the client over a long period. The first measure for me is not how big is the asset, estate or potential revenue stream. The first question is, are we a good fit, and can I truly help the client?” Another measure is, “is this account going to be profitable?” He said he works on commission and fee. Virtually all the bigger cases in the firm are estate planning cases with minimized taxation a key focus. “If it works out that the client will need new life insurance, I would expect the client to implement with me,” Winter added. Damon Winter’s total revenue big case: “Years ago, a widow in her 80s had money in annuities. Her goal was to pass that money on to her children when she died. But since the children would have to pay ordinary income tax on the gain, we put together a strategy using gifting that resulted in a lifetime guaranteed death benefit universal life

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April 2013 » InsuranceNewsNet Magazine

FEATURE

Rethinking Big Cases

BIG CASE

Gotta-Haves

Big case producers need big case capabilities, said Dick Weber, president of The Ethical Edge, Pleasant Hill, Calif. Here are a few of capabilities that he thinks are most important for advisors to be highly effective in this market.

» Provide pre-underwriting review services. Producers in this market agree

that it is important to assess the medical records before approaching the insurance company. To do this, have an independent underwriting review. If the review uncovers specific medical issues, this will help direct the team to the most appropriate insurance companies, Weber said, adding this is especially important to do when the case involves $5 million or more in new death benefit.

» Do additional underwriting. The pre-review should explore avocation and financial issues too. “The larger the case, the more important it is to do the financial underwriting,” Weber said. » Have a system for selecting the lead carrier. This system should include

analysis of carrier reinsurance issues, and how to optimize the case with reinsurance in mind.

» Evaluate fiduciary issues. Producers may have good reasons for selecting

just one company, but they need to make sure that the trustees know that trustees have liability exposures to the beneficiaries, Weber said. The beneficiaries just might ask, “Why did you put the full $50 million with just one company, or that particular company?” he cautioned.

» Consider diversification. Even though one carrier might have the best strucCARRIER 1

CARRIER 2

CARRIER 3

ture and benefits to meet the need, still consider splitting the case between two, three or more carriers, depending on case particulars. Make it a practice to hold a discussion about this with the fiduciary and other interested parties and be prepared to offer a diversification plan. “This helps minimize the fiduciary liability issues,” Weber said.

» Make efficient choices. When planning retirement income, for example,

structure the plan with product diversification, tax diversification and duration diversification in mind. “You could have other assets hold the equities,” Weber said. Remember, he added, “it’s about doing the right thing for the client, in the broadest context.”

policy being written on the woman with a first-year premium north of $40,000 and a fairly low renewal commission. She was rated preferred and lived 12 more years. Upon her death, the business continued through the children and grandchildren, on whom we wrote universal life policies that paid renewals, term life policies, variable annuities with trailers, and assets under management. So the recurring revenue stream continued, and expanded, with the second and third generations.” 28

InsuranceNewsNet Magazine » April 2013

Do Big Cases Really Matter?

With so much variety in big case depiction, an inescapable question arises. In the grand scheme of things, does having what peers consider to be a big case even matter? It absolutely does matter, said Kiley. “A lot of the work we do is joint work that’s brought to us by an inexperienced advisor. The cases come to us because the advisor knows we can do big cases. That’s important to the client, to the underwriters, and ultimately to the advisor.

“Everyone needs to know that you have the experience and expertise to write those cases properly. The bigger the case, the more steps are involved and the greater the complexity.” So big case skills are good for the clients as well as for the advisor’s business. 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.

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April 2013 » InsuranceNewsNet Magazine

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LIMRA: Third Consecutive Year of Life Sales Growth

Life policies sold

8% Universal Life Sales

Individual life sales continued their upward slog from a disastrous 2009, according to the latest 2011 2012 LIMRA survey. The number of life policies sold in 2012 grew by 1 percent for the year, making it the third consecutive year of positive growth. The last time anyone saw consecutive years of sales growth was 1980-1981, when policy count grew 3 percent and 7 percent, respectively.

Fourth quarter 2012 was the first since 2006 in which all major product lines experienced growth. What were the driving forces behind this positive

– albeit small – change? According to LIMRA, corporate sales was a leading factor, as were anticipated product changes related to revisions to Actuarial Guideline 38. Universal life led the charge, increasing by 8 percent over 2011. Indexed UL soared 42 percent in the fourth quarter and improved 36 percent for the year. IUL now represents 30 percent of total UL premium, and 12 percent of all individual life insurance premium. “We haven’t seen a quarter in which all of the major product lines experienced growth since 2006,” commented Ashley Durham, senior analyst, LIMRA Product Research.

AIG Plans to Rebuild Life Business Outside the U.S.

The next chapter in the saga that is AIG will see that company rebuild life insurance sales outside the U.S. After divesting its operations in Asia and Europe to help repay a taxpayer bailout, AIG’s chief executive officer said he plans to

expand the company in China by taking a $500 million stake in People’s Insurance Co., a Chinese carrier.

Robert Benmosche, who became AIG’s CEO in 2009, is now targeting emerging markets like China and Turkey for growth and seeking to increase sales to consumers as the company scales back from some more capital-intensive business coverage. AIG reached a deal last month with HSBC Holdings to sell some insurance in Europe, paying $55 million to be DID YOU

KNOW

the exclusive seller of non-life products to the bank’s customers in Turkey and France. The U.S. insurer said that it had agreed to take full ownership of an Israeli business that sells consumer coverage. AIG has said it is working to cut expenses by $1 billion from 2010 by the end of 2015. “Some days you wish you could have a simple company,” Benmosche said. “But then we wouldn’t be AIG.”

Lincoln Financial Offers 2013 Trends

“What’s old is new again” was a theme as a Lincoln Financial Group executive gave his predictions on what will drive the individual life and annuity business in 2013. Mark Konen, president of Lincoln’s insurance and retirement solutions business, said he sees continued

MetLife was the largest life insurer in the nation in 2012, with a bit more than $16 billion in premiums written. Source: NAIC

InsuranceNewsNet Magazine » April 2013

demand for what he called “financial solutions that offer a level of predictability–whether that’s in the form of a death benefit, a living benefit, asset protection or the elimination of the ‘use it or lose it’ risk of some products.” Some of the trends he sees for 2013 include: Innovative and non-traditional life insurance solutions. Variable universal life insurance, which he predicted will make a comeback from its popularity in the 1990s. Life combination products, such as linked-benefit products with long-term care riders.

Mass. High Court To Decide Life Insurance Case

An 80-year-old West Yarmouth, Mass., woman says that in 1998 her former financial advisor sold her a $2 million life insurance policy that was inappropriate for her age, income and net worth. As a result, Jane McInnes is in

court, trying to recoup more than $1 million from the advisor, Karl McGhee Jr., and

the firm he was associated with at the time, LPL Financial. “I was thinking it would be nice for my boys,” McInnes said of the insurance policy she purchased. McInnes, a widow, has two adult children and lives in a senior housing complex. Her income derives from the proceeds of the sale of her house. At the time McInnes purchased the life insurance policy, McGhee – as her advisor – had estimated her net worth was under $500,000, court records state. She and her attorney maintain that the policy sold by McGhee was too large. McInnes first filed her complaint on Sept. 28, 2011, alleging that McGhee failed to disclose the overall details of how the policy operated and its costs and risks. She also alleges he intentionally misrepresented facts about her investment, breached his fiduciary duty by failing to inform her of many aspects of the policy and intentionally inflicted emotional distress.

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— FOR PRODUCER USE ONLY — For more information on the Income Protector, issued by Oxford Life Insurance Company® please refer to policy forms IP200, GLWB100, GLWB120, DA520, Rev. 3-2013 ©OLIC312013 April » InsuranceNewsNet Magazine and state-specific variations where applicable. Not Available in all states. A comprehensive description of the policy benefits, costs, exclusions, limitations and2013 terms is available upon request.

LIFE

Helping a Special Needs Client Yields Business for Life life insurance advisor and A father of a special needs child discusses how advisors can help their clients in creating a trust that carries out their wishes and provides for their family members. By George R. Shadie

y combining patience and compassion with your professional expertise, you can help families care for their special needs children while opening up a potentially lucrative market for your practice. From my experience on both sides of this issue, here are answers to some of the questions I am most frequently asked about providing for children with special needs:

Question: How can a trust serve a client with a special needs child?

Answer: If your client has responsibility for a special needs child (SNC) – or any individual with special needs – he may not know that as long as the child owns or controls as little as $2,000, that sum of money will prevent him from getting future government support for such necessities as food, clothing, health care and shelter. Worse, the government can come back and ask for the cost of these services to be repaid! Can you imagine the disaster that will happen when the government asks for its money back and there is no advocate and your client is deceased? A competently drafted Special Needs Trust (SNT) will prevent this. In addition to necessities, the SNT will provide funding for items that government programs do not, everything from toothbrushes to television, computers and recreation. For example, in the SNT and letter of intent I have for my son, I’ve outlined that the trust will fund trips to Disney World, and will provide funding for his other interests. The wording of an SNT must be carefully crafted and exact in what is 32

InsuranceNewsNet Magazine » April 2013

to be provided and what is not. This is where it is so important to include a competent and experienced attorney in the process.

Question: Where does life insurance come into the picture?

Answer: New or existing life insurance policies are an effective way to fund the

testamentary trust at some future time. You should apply for the life insurance as soon as you think the client recognizes it’s the best funding method for the trust. But do not rush the process! It’s not unusual for the process to take up to a year. Why? Because every parent of an SNC thinks their child will be cured, that there will be some magic pill that will make everything

Helping a special needs client yields business for life better. Sometimes, one or both parents will be in some form of denial. Do not take away their hope! Be patient and you will be rewarded. A second-to-die policy is very cost effective. They tend to involve insurable interest parties other than the parents. Often, the insurance is funded by grandparents or other family members who may be in a better financial situation than the parents and who have a deep, emotional desire to help. If economics is an issue, use convertible term, but make sure the policy is converted within the contract period and that the term can be converted to a second-to-die policy. If using universal life, make sure you also use the guaranteed death benefit, no lapse rider. But do this carefully and get a signed statement to protect yourself so that your clients understand they must make the required premium payments on time to avoid a future lapse. Other policies from other “insurable interest” parties can be used. Pensions, individual retirement accounts, annuities or invest-

Creating trusts to minimize probate costs and death taxes becomes paramount in transferring your client’s assets. ment accounts are all means of funding a testamentary trust. Sometimes the attorney may be creative in funding the trust. I know of one instance where a very valuable antique car was used to fund a trust. You must be very careful that the wording of the beneficiary on the policy is the same as the SNT (for example, the Special Needs Trust for Joseph Smith). Be careful of the ownership of the policies, as it could affect estate taxes down

When these 2 services come together, the picture becomes clear. A partnership between a Registered Investment Advisory Firm and the Fixed Annuity business can result in insurance agents DOUBLING THEIR ANNUITY PRODUCTION while growing an investment advisory practice that creates recurring income.

LIFE

the road. Sometimes it’s necessary to have the life insurance owned by an Irrevocable Life Insurance Trust (ILIT).

Question: What about long-term care insurance?

Answer: Long-term care insurance also can and should be part of the plan. If the parents’ long-term care needs are not covered, it could result in a future depletion of the needed assets for the Special Needs Trust.

Question: What needs to be done in order to create a Special Needs Trust?

Answer: The most crucial step in all of this is for your client to have his own written will. Also, make sure the beneficiary on the policies and contracts reads exactly as it appears in the SNT and estate documents (e.g. The Special Needs Trust for Joseph Smith). You must make sure that the asset used to fund the trust is stable at the time it is needed and not subject to volatile market conditions. Guaranteed death

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April 2013 » InsuranceNewsNet Magazine

LIFE

Helping a special needs client yields business for life

Trusts are valuable legal estate planning tools, which must be properly drafted and executed by competent and honest individuals. Basically, there are two types of trusts:

revocable

irrevocable

Controlled by grantor

Not controlled after funding

The grantor is the person creating the trust. Both have two sub-types, inter vivos (funded during the grantor’s lifetime) and testamentary (funded upon the grantor’s death through the grantor’s will). benefits and cash value riders on variable annuities are mandatory to avoid this problem. A solid, knowledgeable, financially astute and stable trustee is also a paramount need. Have contingent trustees, custodians and guardians, in case someone can’t serve.

Question: How do you help your client prepare a letter of intent?

Answer: While not a legal document, the letter of intent it gives guidance to future guardians and trustees as to how the parents would like their special needs child to be treated after they have passed on. Be sure to review this with the team. A letter of intent is used to express the parents’ wishes; it is not an enforceable agreement. If it were enforceable, it would take away the discretionary nature of the special needs trust. A letter of intent includes instructions to the trustee and guardian regarding the type and level of care your client would want to have provided. 34

InsuranceNewsNet Magazine » April 2013

There are also living trusts, primarily designed to avoid probate and have limited, specific use. Creating trusts to minimize probate costs and death taxes becomes paramount in transferring your client’s assets. Based on the size of your client’s estate, a competent, trusted attorney can save the estate costs and heartache upon the client’s demise by making sure your client’s wishes are efficiently and fully carried out. The most crucial step in all of this is for your client to have his own written will.

Question: What is the best way to avoid problems with a trust?

Answer: The best way for your client to avoid a trust pitfall is to be careful about choosing the members of the trust team: attorney, certified public accountant, financial professional, trustee and a needed advocate and guardian. Have contingents in these areas. Make sure these parties have agreed to serve and are familiar with your client’s documents and intent. The client will need to participate in joint meetings with all parties. Do a regular review with all. Sometimes a letter of intent will help clarify your client’s wishes, which cannot always be detailed in a trust document. While it has no legal basis, it gives the parties involved more detailed information on the client’s desires and wishes for his beneficiaries.

Conclusion

The Special Needs Trust market can be lucrative for you, both financially and emotionally. Very often, it will result

in multiple ongoing sales. But I caution you, do not rush the process. Remember to do a detailed fact finder. When you formulate the plan, you must meet with all members of the team and the extended family with permission and input of the parents. There is peace of mind for the family and great satisfaction for you in the wonderful and noble humanitarian service you have provided. You can make the special needs child’s life more worthwhile and help him reach his full potential. Wouldn’t you want this for your child? George R. Shadie, AEP, CLU, an agent with New York Life in Wilkes-Barre, Pa., is the parent of a special needs child. In his role as an advisor and a concerned parent, he has made numerous presentations on special needs trusts to various professional organizations representing insurance advisors and autism advocacy groups. Contact him at George.Shadie@innfeedback.com.

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Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York admitted insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2012 Securian Financial Group, Inc. All rights reserved. F78462 1-2013 DOFU 1-2013 A04768-1212

Minnesota Life and Securian Life are highly rated by the major independent rating agencies that analyze the financial soundness and claims-paying ability of insurance companies. For more information about the rating agencies and to see where Minnesota Life and Securian Life’s ratings rank relative to other ratings, please see our website at www.securian.com/ratings.

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it is accessible to the general public. April 2013 » InsuranceNewsNet Magazine 35

LIFE

Diversifying a Concentrated Stock Position with Life Insurance I f you’re a financial advisor and some of your clients are equity-heavy, you might need to have a conversation about life insurance. By Russell E. Towers

ome of your clients have concentrated stock portfolios they won’t need for retirement income during their lifetimes. These portfolios may range from individual shares of one publicly traded company, to shares of stock in multiple publicly traded companies, to a variety of stocks in a specific mutual fund. These portfolios may be personally owned or they may be owned by an irrevocable trust. These clients may be worried that a significant market downturn of the type the U.S. experienced in 20082009 could wipe out 30 to 50 percent of the equity value of their share holdings. As we surpass the market top last reached in the late 2007, could an overextension of stock holdings portend a déjà vu collapse of the stock bubble? In the words of former Fed chief Alan Greenspan, are we now in the midst of another period of “irrational exuberance?” If your clients are starting to ask you about spreading their financial risk because they fear another downturn, you can ease some of their fears by providing them with a financial solution that increases the overall stability of their portfolio, increases the value which will be inherited by their heirs, eliminates or diminishes market volatility and provides a guaranteed tax free benefit. What we are talking about is diversifying the stock portfolio by repositioning a portion of the portfolio into a single pay guaranteed no-lapse universal life policy with a competitive and highly rated carrier. The net increase in the amount inherited by the heirs can be significant for those that want to provide a legacy for their family. And the tax-free financial leverage provided by 36

InsuranceNewsNet Magazine » April 2013

life insurance is extremely attractive in this continuing low-interest rate environment. Take a look at the case study below to see how this diversification can be accomplished.

Hypothetical Facts and Results of Diversifying a Concentrated Stock Position

Mr. and Mrs. Johnson are each 65 and are entering their retirement years. They own 20,000 shares of ABC publicly traded stock with a current price of $50 per share = $1 million. The original cost basis is $200,000 ($10 per share). Their 2013 taxable income is projected to be less than $450,000, so they will pay any capital gains taxes at a federal rate of 15

percent. They will sell 10,000 shares (50 percent of their shares), pay the capital gains taxes, and place the after-tax cash proceeds into single pay no-lapse survivorship universal life (SUL) with preferred underwriting from a competitive and highly rated carrier. Here are seven steps: [1] Sale of 10,000 shares of ABC stock @ $50 per share = $500,000. [2] Capital gains taxes (20 percent combined federal/state) on gain of $400,000 ($100,000 cost basis) = $80,000. [3] Net cash after stock sale and capital gains taxes = $420,000.

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Owner/Annuitant: Assumed Issue Date: John Smith Assumes Initial March 6, 2013 Issue age: 40 Premium Amount of: $100,000.00 The Lifetime Income Benefit amounts shown below assume Lifetime Income SM Benefits. If you take the Level Income a withdrawal of option and no withdrawal shown below will any type prior to be reduced. However, s are taken prior commencing Lifetime Lifetime Income to the commence the Rider Charge Income Benefits, Benefit ment of will not reduce the Lifetime Income the Lifetime Income Income Benefit amount you will receive is locked in assuming Benefit amounts Benefits. Once Level you do not take will be reduced and any excess withdrawal Income has been in some situations started, the s. If you your Lifetime Income SM Benefits could terminate. take an excess withdrawal, the Lifetime Issue age: 65Contract Age on John Doe Contract Single Life Year Income Election Period Owner/Annuitant: March 6, 2013 Anniversary Guaranteed Lifetime t of Assumed Issue Date: $100,000.00 to the commencemen Income Benefit Annual Income if 1 are taken prior41 - 10** Amount of: Confined no withdrawals and amounts 50 * Assumes Initial Premium option Benefit Income Mar Income Must meet eligibility 06, 2013 - Mar 05, 11 the Lifetime 51 assume the Level 2023 the requirements Lifetime Income Benefits, started, amounts shown below has beenMar 06, 2023 $0.00 The Lifetime Income Benefit of any type prior to commencingLifetime Income Benefits.12Once Level Income 52 the Lifetime - Mar 05, 2024 If you take a withdrawal reduce the $7,330.40 $0.00 Lifetime Income Benefits. 13take an excess53withdrawal,Mar 06, 2024 - Mar 05, 2025 If you Rider Charge will not reduced. However, the take any excess withdrawals. Mar 06, 2025 - Mar $21,991.20 $8,143.75 shown below will be in assuming you do not terminate.14 05, 2026 54 you will receive is locked Income Benefits could Mar 06, 2026 - Mar $24,431.25 $8,957.10 Lifetime Income Benefit 15 some situations your Lifetime 05, 2027 55 will be reduced and in Mar 06, 2027 - Mar Single $26,871.30 $9,770.46 Income Benefit amount 16 Life 05, 2028 56 Mar 06, 2028 - Mar $10,583.81 $29,311.38 Income if Confined 17 Annual 05, 2029 57 Mar 06, 2029 - Mar * $11,397.17 $31,751.43 Benefit18 eligibility requirements Must meet 05, 2030 Age on 58 Guaranteed Lifetime Income Mar 06, 2030 - Mar $12,210.52 $34,191.51 Election Period 19 Income Contract 05, 2031 Contract 59 $0.00 Mar 06, 2031 - Mar 05, $13,023.88 $36,631.56 20 Year 2032 Anniversary 60 $5,510.00 $0.00 Mar 06, 2032 - Mar $13,837.23 $39,071.64 2014 21 05, 2033 61 $19,905.00 Mar 06, 2013 - Mar 05, $6,072.50 66 Mar 06, 2033 - Mar $14,650.59 $41,511.69 1 2015 22 05, 2034 62 $21,592.50 Mar 06, 2014 - Mar 05, $6,635.00 67 Mar 06, 2034 - Mar $15,463.94 $43,951.77 2 2016 23 05, 2035 63 $23,280.00 Mar 06, 2015 - Mar 05, $7,197.50 68 Mar 06, 2035 - Mar $16,041.64 $46,391.82 3 2017 24 05, 2036 64 $25,320.00 Mar 06, 2016 - Mar 05, $7,760.00 69 Mar 06, 2036 - Mar $16,201.50 $48,124.92 4 2018 25 05, 2037 65 $27,360.00 Mar 06, 2017 - Mar 05, $8,440.00 70 Mar 06, 2037 - Mar $16,542.75 $48,604.50 5 2019 26 05, 2038 66 $29,400.00 Mar 06, 2018 - Mar 05, $9,120.00 71 Mar 06, 2038 - Mar $16,884.00 $49,628.25 6 2020 27 05, 2039 67 $31,440.00 Mar 06, 2019 - Mar 05, $9,800.00 72 Mar 06, 2039 - Mar 05, $17,225.25 $50,652.00 7 2021 28 2040 68 $33,480.00 Mar 06, 2020 - Mar 05, $10,480.00 73 Mar 06, 2040 - Mar $17,566.50 $51,675.75 8 2022 29 05, 2041 69 Mar 06, 2021 - Mar 05, $11,160.00 74 Mar 06, 2041 - Mar $35,424.00 $17,907.75 $52,699.50 9 2023 30 05, 2042 70 Mar 06, 2022 - Mar 05, $11,808.00 75 Mar 06, 2042 - Mar $37,368.00 $18,285.75 $53,723.25 10 2024 35 05, 2043 75 Mar 06, 2023 - Mar 05, $12,456.00 76 Mar 06, 2047 - Mar $39,312.00 $18,663.75 $54,857.25 11 2025 40 05, 2048 80 Mar 06, 2024 - Mar 05, $13,104.00 77 Mar 06, 2052 - Mar $41,256.00 $21,197.41 $55,991.25 12 2026 45 05, 2053 85 Mar 06, 2025 - Mar 05, $13,752.00 78 Mar 06, 2057 - Mar $43,200.00 $24,074.32 $63,592.23 13 2027 50 05, 2058 90 Mar 06, 2026 - Mar 05, $14,400.00 79 Mar 06, 2062 - Mar $45,900.00 $25,275.17 $72,222.96 14 2028 55 05, 2063 95 Mar 06, 2027 - Mar 05, $15,300.00 80 Mar 06, 2067 - Mar $48,600.00 $25,645.41 $75,825.51 15 2029 05, Mar 05, 2028 2068 Mar 06, $16,200.00 81 $51,300.00 $26,299.07 $76,936.23 16 2030 Mar 06, 2029 - Mar 05, $17,100.00 82 $54,000.00 $78,897.21 17 2031 Mar 06, 2030 - Mar 05, $18,000.00 83 $56,700.00 18 2032 Mar 06, 2031 - Mar 05, $18,900.00 84 $63,000.00 19 2033 Mar 06, 2032 - Mar 05, $21,000.00 85 $67,740.00 20 2038 Mar 06, 2037 - Mar 05, $22,580.00 90 25 2043 Mar 06, 2042 - Mar 05, 95 30

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Page 1 of 1 page 3/6/2013 2:11 PM

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Prepared for John Smith t of Lifetime Income after the commencemen withdrawals prior to and Benefits are available as information on how in which Lifetime Income of Disclosure for important in any Contract Year amount shown by Refer to your Certificate payments, simply divide Benefits can be elected Contract. Lifetime Income annual payments. For monthly income tax. Benefits impact your amounts are shown as Lifetime Income Benefit penalty in addition to ordinary Phase. Additional be subject to a 10% IRS presented on this statement. prior to age 59½ may Extended Income Guarantee not continue in the 12. Taxable amounts withdrawn to 60 months and will Benefit period is limited * The Confinement Income apply. restrictions and requirements by base illustration. Page 1 of 1 page 3/6/2013 2:15 PM

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Background

if itwell, you could participate in a wonders butthe Interest credits for any contract year can bepension positive or zero. In years when index does savings other and Matt is He has a good career. portionaof40-year that upward performance. It’s possible that youhis could have 0%professional, interest credited to your annuity for any contract insurance consulting with Matt recently retired following to work his retirement years. After year. hard-earned savings continuing will be enough to last throughout He likes the idea of his a fixed indexed annuity. considering purchasing At each market anniversary, any interest credited to your annuity is automatically locked in so it becomes part of your from contractdownturns. for him—with protectionannuity’s new Accumulated Value. This means that even if the index value declines in later years, your premium and any interest that has been credited to your contract cannot be lost to future market downturns.

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4 1500 $5,000 annually. Lifetime Income Benefit of adjustment of 2% and an Initial have commenced. 5 assumes an annual inflationSM after Lifetime Income Benefits This hypothetical example number of contract anniversaries for a limited1245 on the contract anniversary 6 Increases are only applied S&P 500®

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TargetPay TargetPay Plus SM

9 10

Mon 10 th Mon 11

th Mon 8 th 9

th Mon 4 th Mon 5 th Mon 6 th Mon 7

th Mon 0 th Mon 1 th Mon 2 th Mon 3

Mon

public. SM (09/12] are issued by for use with the general and TargetPay 11[TBSIRF SM SM 15 Annuity [TBS15 (09/12)], 1430 is an 0.14% For agent use only. Not TargetPay [TBSIRF (09/12)] SM [TBS10 (09/12)], TargetBenefit see their Certificates of Disclosure for details. (03/13) TargetBenefit 10 Annuity IA. Please 12 vary by state. 1360 -4.90% limitations and availability Company, West Des Moines, charge. Product features, Aviva Life and Annuity rider available for an additional 1200 Sum of 12 Capped Monthly Index % Changes optional income benefit Mon

81287

Interest Credited for This Contract Year

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The example above is hypothetical and not guaranteed. This Monthly Cap Rate may be reset each year, subject to the contractual minimum, shown in the Certificate of Disclosure for the applicable product. 17645

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April 2013 » InsuranceNewsNet Magazine

LIFE

Diversifying a Concentrated Stock Position with Life Insurance

[4] Use $420,000 to purchase a Single Pay Guaranteed Death Benefit SUL policy = $1,803,000 face amount.

Summary of Current Concentrated Stock Position vs. Diversified Life Insurance Plan

[5] Value of remaining 10,000 shares of ABC stock @ $50 per share = $500,000.

InsuranceNewsNet Magazine » April 2013

Shares of ABC Stock 10,000

Life Insurance Death Benefit

2, 5

00 ,00

0 00 ,00

00 ,00

0 2,0

1,0

vorship UL policy may or may not be owned by an irrevocable life insurance trust (ILIT). After the passage of the American Taxpayer Relief Act of 2012, the federal estate tax exemption in 2013 is $5,250,000 for an individual and $10,500,000 for a married couple. If the $1,803,000 death benefit could be exposed to estate taxes if the SUL policy is owned personally and included in their gross estate, then an ILIT could be the initial owner and beneficiary of the policy to keep the death proceeds estate-tax-free. If the value of their gross estate plus the $1,803,000 Survivorship UL death benefit is still less than the estate tax exemption threshold, then owning the policy personally may be a good choice so that they keep control over the policy without the need for an ILIT. However, even if their gross estate will not exceed the 2013 estate tax exemption, Mr. and Mrs. Johnson may still consider the use of an ILIT for the following reasons: the death benefit of $1,803,000 is sufficiently large enough to warrant professional money management by a trustee acting as a fiduciary for their heirs, there could be state death taxes ranging from about 5 to 16 percent depending on the state death tax exemption available in the

1, 5

00 ,00

Current Diversified Position Position

Total Current Value

0,0 0

What IRR would the non-guaranteed stock have to generate in order to equal the guaranteed death benefit of the nolapse SUL policy? The 10,000 shares of stock would have to grow from a current value of $50 per share ($500,000) to a future value of $180.30 per share ($1,803,000) to equal the death benefit of the SUL policy in 25 years (age 90/90 joint life expectancy). That’s a non-guaranteed IRR of 5.27 percent over a 25year period and it assumes that at least one of the insureds will live to at least age 90. The 25-year period in this example is the joint life expectancy for the 65-year-old husband and the 65-yearold wife from Table VI of Treasury Regulations 1.72-9. The guaranteed tax-free actuarial leveraging of the SUL policy immediately provides a superior financial result that the non-guaranteed ABC stock will have difficulty matching over the 25-year time frame, especially if a bear market occurs near the end of the 25year horizon. In effect, some of the investment risk over the next 25 years has been transferred to the insurance carrier in exchange for a single premium of $420,000. (Please note that the single-pay SUL policy in this example is a modified endowment contract [MEC]. Death benefits from MECs are income-tax-free just as death benefits from non-MECs are income-tax-free.) That’s a $1,303,000 increase in the current value of the inheritance for the heirs of the client by adding a guaranteed no-lapse SUL contract to their portfolio with no additional market risk. Depending on the size of the gross estate of Mr. and Mrs. Johnson in our example above, the $1,803,000 Survi-

20,000

[7] After-tax IRR on tax-free death benefit @ Joint Life Expectancy in year 25 (Ages 90/90) = 6.01 percent.

Current Value of ABC Stock

[6] Total current value that may be inherited by heirs = $2,303,000.

state where they reside, and there could be post-death income taxes for their heirs on the value of any remaining Individual Retirement Account (IRA) funds inherited by the heirs of Mr. and Mrs. Johnson. No matter which ownership plan the Johnsons choose for their policy, personally owned or owned by an ILIT, the death benefit remains income tax free. And their minds will have been placed at ease knowing that their heirs will be guaranteed to inherit at least part of their stock portfolio without any further market risk. The plan described here provides a nice balance. Part of their portfolio is still invested in stocks to take advantage of non-guaranteed future growth of the remaining equities and part of their portfolio has been taken off the risk table in the form of a guaranteed no-lapse SUL insurance policy. It’s a strategy guaranteed to leave your clients rationally exuberant. Russell E. Towers is vice president, business and estate planning, Brokers’ Service Marketing Group. He can be reached at Russell. Towers@innfeedback.com.

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

[ANNUITYWIRES]

Brought to you by:

Guarantees Push IAs to New Heights For sellers of indexed annuities and deferred income annuities, 2012 was a good year. That’s even though industrywide annuity sales for the year fell by 8 percent to $219.4 billion, according to estimated results from LIMRA. Here’s how it shook out:

indexed annuities sold had guaranteed lifetime Indexed annuities hit a new record of $33.9 withdrawal benefit rider billion, up 5 percent from 2011, says the Windsor, Conn., researcher. These sales were buoyed by investments made into indexed annuity companies by private equity firms as well as by the fact that a record 73 percent of consumers elected the guaranteed lifetime withdrawal benefit rider, when available. That’s significant, since LIMRA found that 87 percent of the indexed annuities sold did offer such a rider. As for deferred income annuities, their sales topped $1 billion for the year. That’s a fraction of overall annuity sales, but this is probably a product line to watch all the same. In fourth quarter alone, their sales hit $390 million, up by nearly 150 percent from first quarter, LIMRA says. In addition, more carriers are entering this market and/or launching new products for it. How did the other annuity lines fare? Not so well. Variable annuity sales fell by 7 percent for the year, to $147.4 billion, and total fixed annuity sales fell by 11 percent to $72 billion, a 12-year low. Given the market volatility and prolonged low interest rate environment, these numbers probably do not surprise anyone.

WHAT’S AHEAD FOR ANNUITIES LBs G taxes

This year holds at least two distinct trends for annuities. One is that annuities

with guaranteed living benefits (GLBs) will continue to be popular with consumers, says Lincoln

Financial Group. To meet the demand, carriers will build risk management strategies into those products, predicts Mark Konen, president of Lincoln’s Insurance and Retirement Solutions business. This will help reduce equity risk in volatile markets and lead to a more consistent pattern of returns, he says, adding that it should also enable carriers to keep offering “compelling GLBs.” The other trend has to do with tax deferral – and advisors. In view of the new tax law changes, especially those affecting the affluent, the tax deferral feature in annuities will receive renewed emphasis, Lincoln predicts. Nationwide Financial has been looking at this, too, and it has found that most mass affluent investors will be affected by the changing tax landscape. Unfortunately, says Eric Henderson, senior vice 40

InsuranceNewsNet Magazine » April 2013

president-life insurance and annuities, 60 percent of these investors say they won’t meet with a financial advisor about their tax situation or are still insure. What to do? “It’s up to advisors to provide proactive counsel to help all their clients understand potential opportunities – even if certain clients may not currently acknowledge a need to have this conversation,” Henderson says.

PENSIONS COULD BE ANNUITY OPPORTUNITIES IN WAITING

The defined benefit (DB) pension market could end up being good for annuities, including producers who sell annuities. The most obvious opportunity rests with the growing potential for rollover IRA annuity business. According to a survey from Aon Hewitt, 39 percent of American employers that still offer DB plans said they are somewhat or very likely to offer lump-sum payouts to terminated or retired participants in 2013. That’s up from 7 percent in 2012.

The way it looks from here is, the more lump-sum distributions there are, the more potential opportunities for advisors to build up their rollover IRA books with annuities. At the institutional level, the opportunities have to do with assuming DB

DID YOU

KNOW

Close to half (44 percent) of Americans grade themselves a ‘D’ or ‘F’ on their annuities awareness.

Source: The Charles Schwab Retirement Survey, 2013

liabilities. That’s because some very big employers have already or are planning to transfer their future DB liabilities to annuities. For instance, Verizon has struck a deal with Prudential for this purpose. The insurers in these cases then pay the plan benefits to participants in lieu of the employer. These deals involve megabucks, have met with some controversy, and need the resources of jumbo insurers, so small business advisors probably won’t catch any of the wind. Still, someone, somewhere in annuity land will be setting sail due to these gigantic transfers.

VARIABLE ANNUITIES ON HOLD?

New variable annuity product development was “modest” during fourth quarter 2012, according to John McCarthy, product manager of annuity solutions for Morningstar. Most of the development activity centered around fee changes to existing products and revisions to benefit step-ups and withdrawal percentages, he says. And, even though two carriers did make their variable annuity benefits more generous, “a host of carriers trimmed benefit guarantees and raised fees.”

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

Pension Deficit Increases By $6B In February In February, the nation’s 100 largest corporate pension funds experienced a $6 billion decrease in funded status based on a $17 billion increase in the pension benefit obligation (PBO) and an $11 billion increase in assets.

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12.00% market value adjustment. Product and rider not available in all states. Contract and contract fmaormrket vserialue aedsjusnumbers tment. Productmayand ridevaryr not avbyailablste iantael .staMarket tes. ContraTctwelandvcoentrBonus act form seIrniedexs numbfeirxs maedy vinardexy by staannui te. MarkteytTwieslveisBsuedonus Indonex fixconted indreactx an fuoityrmis isSeriued oen scontract form Series zation Required • Full Account Value at Death - No Annuitization Required ET-MPP-2000(02-05)8.50% with rider ET-AVBR(06-09). Group Certificates •issues10.00% on Form Series ET-Withdrawal MET-PP-MP -20000C( 0(02-050) 1-with0r7)ider wiET-AtVhBRri(0d6-er0Available 9).ET-GrouApVBRC( Certificate0s6-is u0es9).on FoIrnmcome Series ETri-MdPer-20provi0C(01-s0i7o) nswithandrider ETavai-AVBRlCa(0bi6-0li9t)y. Inmaycome ridvaryer provibysionsstanadtaeva;ilainbicome l ty may vriardyerby state; income rider 1 after Year 1 MGA Commission Ages 0-75

issued on Form Series ET-IBR(06-08) and Group Certificates on ET-IBRC(06-08). Contract issuedis ubyed oEquin FormTSrusteries ELiT-IBfRe(0I6n-0surance 8) and GroupCompany, Certificates on EWest T-IBRC(0Des6-08).MoiContrances,t is ueIdAb.y ForEquiTruProducer st Life Insurance CUseompanyOnl, WestyDesAC13Moines, IMA.12-For 1Pr014oducer Use Only AC13-M12-1014 Call Fairlane Financial for your sales kit today 1.800.327.1460 27 .1 460

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tract *Bonus Paid may Over 3 Years. Withdrawals bebefore subject age 59 1/2 may result in a 10% to IRS penalty surrender tax. Withdrawals do not participate in index charge growth. Surrender of the contract and may be subject to surrender charge and ndex marketannuit value adjustment. Product y and rideris not available issued in all states. Contract andon contract form contract series numbers may vary by state. form MarketTwelve Bonus Index Series fixed index annuity is issued on contract form Series nd availabilit ET-MPP-2000(02-05) with rider ET-AVBR(06-09). y may Group Certificatesvary issues on Form Seriesby ET-MPP-2000C(01-07) state; with rider ET-AVBRC(06-09). income Income rider provisions rider and availability may vary by state; income rider r Use issued on Form Only Series ET-IBR(06-08) and AC1 Group Certificates 3-M12-1014 on ET-IBRC(06-08). Contract issued by EquiTrust Life Insurance Company, West Des Moines, IA. For Producer Use Only AC13-M12-1014

M-2584 M-2584 April 2013 » InsuranceNewsNet Magazine 41

annuity

Consumer Advocate Criticizes Contingent Deferred Annuity Value consumer advocate chimes A in during a regulator group’s call about defining contingent deferred annuities, a new line of guarantee products. By Linda Koco

consumer representative ran down a long list of concerns he has about contingent deferred annuities (CDAs) during a conference call with state regulators. Birny Birnbaum, executive director of the Center for Economic Justice, questioned the consumer value, fee structure, systemic risk issues, consumer protection safeguards, guaranty fund considerations and other aspects of these relatively new types of annuity products. Until the outstanding regulatory issues can be addressed, he said, regulators should recommend a moratorium on state approval of CDAs. The heated comments came during a call held by the Contingent Deferred Annuity (CDA) Working Group of National Association of Insurance Commissioners (NAIC). The purpose was to take comments on 16 or so recommendations that the working group is proposing for regulating CDAs. The regulatory issues have been under the microscope for more than a year. A CDA is a type of longevity insurance product that can be added to funds in a tax-qualified retirement plan or investment account held outside the annuity insurer. The products are similar to guaranteed lifetime withdrawal benefits in variable annuities in that they guarantee the consumer will receive income for life even if the value of the underlying account drops to zero.

Push Back

A number of annuity industry leaders are in favor of NAIC moving forward on a 42

InsuranceNewsNet Magazine » April 2013

“It is imperative for regulators to establish that these products can, in fact, be beneficial for consumers, and to establish the regulatory safeguards to ensure the products actually are beneficial to consumers.” — Birny Birnbaum Executive Director, Center For Economic Justice

“Given the absence of a supporting reason, we believe a formal referral for continued evaluation of solvency, which would encompass a review of capital and reserving requirements for CDAs, is not necessary.” — Lee Convington Senior Vice President and General Counsel, Insured Retirement Institue

regulatory plan for CDAs right now, but Birnbaum pushed back hard on that idea. In public remarks and written comments he later submitted to the working group, Birnbaum blasted away at how little is known about CDAs and how much more research and scrutiny his organization thinks that NAIC needs to do before green-lighting the products. “It is imperative,” he said, “for regulators to establish that these products can, in fact, be beneficial for consumers, and to establish the regulatory safeguards to ensure the products actually are beneficial to consumers.” He said his organization agrees that consumers need lifetime income insurance products, but believes that “other, better value products are available” for that purpose. But if CDA products are to be ap-

proved, he said, it is essential that “regulators establish the necessary regulatory structure to ensure fair sales, fair products, solvent insurers and consumer protections.” Birnbaum’s extensive comments, peppered at times with fiery language – such as, CDAs are a “poor value for consumers,” the products are “risky,” and “consumers cannot afford another regulatory debacle like long-term care insurance” – culminated in multiple requests for NAIC and the working group to obtain more information before deciding to move forward with CDAs. For instance: Include evaluations and estimates of the benefit ratio of CDAs – i.e., the “ratio of aggregate lifetime CDA benefits to aggregate lifetime fees paid by consumers” and similar details. This is “critical infor-

Advocate Criticizes New Annuity’s Consumer Value mation” for consumers to have in evaluating the value of CDAs, he contended. Examine and discuss guaranty fund issues before the product is approved for sale. This study should include consumer protection issues and the implications of required assessments on insurers and taxpayers in the event of a CDA insurer insolvency, he said. Obtain market data on CDAs, such as states that have approved the product, how approvals were done, insurers receiving approval, volume of sales, types of customers and characteristics of CDAs sold to date. This is essential for verifying claims of CDA proponents and for developing the roadmap from the current situation to the final regulatory framework, Birnbaum said. Conduct NAIC-commissioned consumer testing of CDAs and various required disclosures. Ensure that any working group report include analysis and discussion of systemic risk posed by CDAs. His organization “strongly” supports having an NAIC level review of “actuarial assumptions, hedge effectiveness, adequacy of enterprise risk management as part of capital and reserving requirements,” he said. Birnbaum concluded by reiterating his request for no approval of CDAs right now. “We ask,” he said, “that the working group recommend that states place a moratorium on the sales of CDAs until the NAIC and state insurance regulators have substantially completed these tasks.”

Counter-Push

Those remarks came as a surprise to others on the conference call, since Birnbaum’s organization had not submitted comments in advance of the session as is customary. The delay in submission occurred because the Center for Economic Justice did not know about the session until just a few days before it occurred, Birnbaum explained to the group. Still, the question of whether the working group should refer CDA issues out for still more study was very

much top-of-mind for industry representatives. The representatives used less flamboyant language than Birnbaum to make points, but counter-push was definitely in motion. For instance, Lee Covington, senior vice president and general counsel of the Insured Retirement Institute (IRI), said his organization opposes the working group recommendation that referrals be made to other NAIC bodies. According to the proposed working group recommendations, the purpose of the referrals would be to obtain reviews of reserving requirements, risk-based capital requirements and financial reporting requirements as they relate to CDAs.

There is one issue about which all parties seemed to be in agreement – the definition of contingent deferred annuities. “At this time, we believe it is not necessary for the [NAIC Life Insurance and Annuities (A) Committee] to make a formal referral to other NAIC committees,” said Covington, who indicated he was speaking on behalf of not only IRI but also the American Council of Life Insurers (ACLI). “We believe that a formal referral to any other committees will cause a number of states to withhold review and approval of CDA products until any relevant NAIC committee has reached conclusions,” he said in both written and oral comments. That will likely happen in one or two years, and as a result, “thousands of consumers” will not have access to CDA products, he predicted. “Given the absence of a supporting reason,” he continued, “we believe a formal referral for continued evaluation of solvency, which would encompass a review of capital and reserving requirements for CDAs, is not necessary.”

annuity

Only a limited number of companies have issued CDAs to date, Covington pointed out. For that reason, “any NAIC committee to which these items would be referred would not have enough actual data to do the requisite evaluation specifically of CDA experience.” Instead, he said, the working group should explore alternative recommended actions steps with respect to the financial regulation of CDAs.

CDAs Defined

There is one CDA issue about which all parties seemed to be in agreement, at long last. This is the technical definition of CDAs. The proposed working group definition says: Contingent Deferred Annuity means an annuity contract that establishes a life insurer’s obligation to make periodic payments for the annuitant’s lifetime at the time designated investments, which are not owned or held by the insurer, are depleted to a contractually-defined amount due to contractually-permitted withdrawals, market performance, fees and/or other charges. In their comment letters, the American Academy of Actuaries, IRI and ACLI all said they agree with that definition. Even Birnbaum, the consumer representative, told the regulators that he agrees with the definition, though he would like to see a definition for consumers too. As recently as a year ago, some interests were contending that CDAs are financial guaranty insurance policies which are issued by property-casualty insurers. Now, the working group definition seems to have settled the matter: The CDA is as an annuity contract issued by a life insurance company. Wisconsin Commissioner Ted Nickel, who led the conference call and chairs the CDA Working Group, indicated that the working group will likely vote on the final recommendations at the NAIC spring meeting in April. 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.

April 2013 » InsuranceNewsNet Magazine

annuity

Private Equity Firms Eye VAs, Even as Others Exit Market enerable insurance compaV nies ran out of the variable annuity space last year, but now private money is looking to get in. By Linda Koco

ariable annuity companies might become the apple of private equity eyes in 2013. That’s according to a new report from Deloitte, which says the appetite for insurance mergers and acquisitions among private equity firms appears to be on the rise, “especially in the variable annuity space.” The report does not name the carriers that might be likely candidates for purchase, nor does it project the number of such deals that might occur in 2013. But it does make a case for why private equity firms might be giving the variable annuity industry a once over. This news should be a heads up to variable annuity advisors, many of whom watched in disbelief last year as many carriers intentionally downsized or reined in their businesses in reaction to the double whammy of prolonged low interest rates and high volatility. Hartford Financial left variable annuity sales altogether. If what Deloitte is seeing proves out, advisors will have some new questions about the business to untangle, such as, if some carriers want out of the variable annuity business, why does private equity want in?

Appetite to Buy

The insurance industry is in “the early innings of a general rebound,” say Deloitte researchers in a report on expected insurance merger and acquisition activity in 2013. Private equity interest in this area is only one of the trends spotlighted in the report. Others include economic and regulatory uncertainty, deal complexity, tax reform and more. The discussion on private equity activi44

InsuranceNewsNet Magazine » April 2013

ty in this area involves not only the annuity and life-health sides of the insurance business but also the property-casualty, multiline managed care, title, mortgage guarantee and finance guarantee sectors. In the insurance business, volume, pricing power and economic activity “are moving in the right direction,” the researchers say of the industry’s appeal to private equity. An environment like that can offer a “good entry point” for deals among investors looking to buy an insurance company or selected assets at a low price, they note. These buyers would be firms wanting to “aggressively manage” their new acquisitions, “clean up the business” and then “quickly sell it to reap appropriate rewards.” The traditional market for insurance underwriting “is risk and balance-sheet intensive and therefore it can be hard for private equity firms to leverage their investment,” the researchers state. Even so, there has been a “recent uptick” in private equity mergers and acquisitions in the insurance industry and they expect that will continue in 2013.

Reasons

One reason for this expectation has to do with available cash. Many private equity firms today are “sitting on ready cash,” and they are looking for investment options in a low-return market where good deals can be hard to find, the researchers say. Current discount-to-book values may make a stock deal challenging, but it is “relatively easy” for these firms to offer cash for “solid companies that are trading inexpensively and need to do deal,” they explain. Another reason is that many life insurers are, as the report puts it, “trying to sell off their volatile variable annuity business.” By comparison, private equity firms (presumably, the ones that are interested in buying such carriers) “may be able to sit on the block until interest rates recover without worrying about short term profitand-loss volatility.”

It is unlikely that many annuity advisors have given much consideration to that last point, at least not in public venues. Instead, many have voiced concern that private equity takeovers of existing carriers could trigger market retrenchments as the new owners pare back operations, products and advisor support in order to boost higher return on investment. Some advisors are also concerned about the owners’ commitment to, and willingness to stay in, the insurance business for the long term. They continue to state that clients buy annuities for the long term. So, advisors generally prefer to deal with carriers that appear to be highly likely to stay in the business for the long term. Any notion that a private equity firm might be readying a carrier for a quick sale therefore sends shivers down the backs of many advisors. This concern may impact some advisors’ product recommendations and even influence their decisions about whether to contract with privately held carriers. Much will depend on how the private equity firms address these issues with advisors and the larger insurance community. Assuming the Deloitte assessment is correct – that private equity owners may be able to to “sit” on a block (book of business) while interest rates recover “without worrying about the short-term profitand-loss volatility” – and assuming that advisors start factoring that possibility into their assessment of future prospects, the “sitting” attribute may be viewed as only a short-term factor. After all, there is no telling whether the

new owners will, in fact, decide to hold on to their insurance acquisitions long enough for interest rates to recover. Even if they do, some may just wait out the low-interest era and then shake the carrier loose. That possibility may prompt some industry professionals to guess that this could happen in, say, just three or four years from now – an ownership period that is very common to private equity firms that flip their holdings frequently. Rates could always go up sooner or later, but in the absence of solid indicators about what might happen, short-term thinking tends to prevail. Then again, it is also possible that certain private equity firms will do the exact opposite. That is, they might instead see benefit in owning insurance carriers for the long term. And, if they have indicated long-term intentions to regulatory authorities while in the midst of doing their deals, the firms might also feel compelled – by ethics and/or by law – to keep those long-term promises.

The Uncertainty Factor

Right now, there are a lot of uncertainties – for instance, about whether Deloitte’s assessments will pan out, and, if so, whether often-expressed advisor concerns about private equity players will hold water. That makes this a time of wait-and-see. It pumps some edginess into the air. But the firms definitely have noses in the tent. Private equity firms made more than 100 acquisitions in the insurance industry in the 24-month period ending Dec. 31, 2012, according to a Deloitte analysis of FactSet Merger data, 2012. In general, overall activity in insurance industry mergers-and-acquisitions may see an uptick in 2013, the researchers say, noting that there has been a “flurry of activity by insurance companies” to rebuild internal mergers and acquisitions capabilities. This is in contrast to 2012, when the number of insurance industry mergers and acquisitions tracked by SNL Financial decreased by about 20 percent from 2011, they point out.

A lot has been said about Charitable Planning over the years, but many advisors don’t understand how incredibly powerful it can be for their clients. Every year, nearly 85% of Americans make annual contributions for charity, totaling $298 billion. And most of them aren’t aware of the additional benefits they can receive through simple charitable planning programs. Benefits include: • Tax deductions and income benefits while supporting charitable organizations • An immediate or deferred income payout • Programs are fully reinsured by top insurance carriers

• Can reduce Adjusted Gross Income by up to 50% with a 5-year carry-forward • Programs can be utilized to unlock or re-characterize qualified money in a tax advantaged manner • Advisors can be compensated

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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.

April 2013 » InsuranceNewsNet Magazine

[HEALTHWIRES]

Young adults may face a health insurance rate scare bitly.com/QRratescare

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Selecting health coverage can be confusing in any language, but how about in Russian? Or Tagalog? Or Farsi? The next step in implementing health insurance exchanges under the Affordable Care Act will be to find ways to reach the millions of Americans who are eligible to obtain coverage under the exchange, but do not understand English. States are recruiting volunteers who are proficient in languages ranging from Armenian to Vietnamese who can translate information and educate and market the exchange to those whose primary language is not English. Federal funding will be used to support a multi-language campaign and build a network of community-based assistants who can guide people to the right health plan and multilingual call centers. According to the U.S. Department of Health and Human Services Office for Civil Rights, organizations that receive federal funding

have to provide written notices in English, Spanish and other languages spoken by 10 percent or more of the households in the area they serve.

U.S. Census figures from every state show that Spanish and Chinese are the most common languages spoken by those who reported they did not speak English well, but other primary languages range from Pennsylvania Dutch to Ojibwe to French Creole.

Aetna offering individual health plans at Costco

Costco shopping list: Threegallon jar of mayonnaise – check! Cheese tray to serve 48 people – check! Health insurance plan – health insurance plan???

Costco shoppers in Florida will be able to purchase individual health coverage from Aetna amid

the aisles of bargain-priced appliances and birthday cakes big enough to feed an entire elementary school. Costco Personal Health Insurance program insured by Aetna includes five plans and offers medical benefits, dental options, a network of doctors and hospitals, and services, tools and information, tailored to meet the needs of Costco members. Aetna’s move to sell products through Costco is the latest in a series of ventures by insurers to sell products in shopping malls, drugstores and other retail environments. UnitedHealthcare has opened up more than DID YOU

KNOW

Texas has the highest percentage of people ever recorded without health insurance at 28.8 percent. Source: Gallup

46 InsuranceNewsNet Magazine » April 2013

1,400 kiosks in shopping malls to sign up seniors for its Medicare plans, while Blue Cross of Minnesota launched a retail test inside of Walgreens stores in its state.

Spending on Wellness Doubles in Past 4 Years

Employer spending on wellness programs has been rising like organic seven-grain bread dough, with nearly nine out of 10 employers surveyed indicating that they currently offer wellness-based incentives. This is an increase of 57 percent since 2009. Fidelity Investments and the National Business Group on Health (NBGH), in their employer survey, found that corporate employers plan to spend an average of $521 per employee on wellness-based incentives within corporate health care programs.

The survey indicated that more mid-market employers are jumping on the wellness bandwagon, where 73 percent of employers in this group plan to offer wellness incentives in 2013. Health-improvement programs – or “wellness” programs – may include everything from condition-management services (such as managing insulin treatments), lifestyle-management services (such as weight loss advice), health-risk management services (such as on-site flu shots), to environmental enhancements (such as bike racks, walking paths).

QUOTABLE The fact of the matter is navigators will be performing sensitive and significant duties. But if they give bad guidance and bad assistance, the stakes will be very high. — Doniella Pliss, A.M. Best, on the hiring of health care navigators to help consumers find coverage under the Affordable Care Act

The study also showed that 15 percent of employers surveyed are requiring employees to complete some sort of health activity - such as an employer-sponsored biometric screening or health risk assessment - in order to keep their eligibility for one or all of the company’s health plans in 2013. However, some are questioning whether your employer’s attempts to make you put down that doughnut and put out that cigarette really save the company money. In what’s being called the most rigorous look yet inside the wellness trend, independent researchers tracked the program at a major St. Louis hospital system for two years. The results showed a surprisingly large drop in hospitalizations, but increased costs for medications and outpatient visits. When those were added to the cost of the wellness initiative itself, “it is unlikely that the program saved money,” the study concluded.

Boomers Put Off Thinking About LongTerm Care Costs

The generation who once sang “I hope I die before I get old” is now singing a new tune: “I don’t wanna talk about it.” A Nationwide Financial survey showed that only 10 percent of baby boomers have discussed the topic of paying for their longterm care needs with their children and only 6 percent have discussed it with their parents. Less than half (45 percent) have discussed it with their spouses and only 23 percent with their financial advisors. Many boomers are burying their heads in the sand, with 23 percent not planning at all for long-term-care expenses. More than one-third (35 percent) said they find it difficult to discuss long-term care. And the reason why so few are talking about it? One-third of those who responded replied, “It’s depressing.”

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Petersen International Underwriters www.piu.org • piu@piu.org (800) 345-8816 April 2013 » InsuranceNewsNet Magazine

HEALTH

RT-

SHO M TETT-R-DICAL HOORRME SSH M L TMEMEREDDICICAAL

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Short-Term Medical can Lead to Long-Term Business Short-term medical might be the perfect answer for many cases – and lead to bigger business later. By Mike Watts

ith so much going on in recent years, you can’t blame health insurance advisors for focusing primarily on major medical health-care policies. 48 InsuranceNewsNet Magazine » April 2013

At first glance, the benefits of selling long-term policies far outweigh the short-term temporary market. Agents are accustomed to meeting the needs of clients interested in longer-term policies. Major medical policies give an insurer an established base on which to support their claims, underwriting and administrative staff.

These plans typically generate higher premium and last for longer periods of time, creating a longer-term return on advertising and sales investment. These are attractive advantages, but they lead some advisors to overlook smaller sectors in markets where short-term medical policies can be a better fit for their clients. These market sectors should not be ignored for a number of reasons.

Short-Term Medical Can Lead to Long-Term Business

Brokering Short-Term Medical for Small Business

Put yourself in this scenario: you are an insurance advisor for the owner of a small business. You have assisted with the selection of an excellent major medical insurance plan for your client’s full-time employees. Your client also has several part-time and temporary employees who need coverage. Placing all of them on long-term plans may not be feasible, so a more affordable option is needed. Without short-term options, you would be unlikely to assist your client, which may create the opportunity for another broker who does have solutions to renew the entire account through a single source. Many agencies have mentioned this particular replacement scenario to me and how it has accounted for significant business growth. This may be the single most important reason an insurance advisor should not overlook the options of short-term medical policies. You cannot allow a large block of business to be taken away because another agency offers a more flexible servicing opportunity. Given the simplicity of the shortterm medical options available today, why not become the one who nets those new full-term clients?

The Expanding Number of Markets

Of course, you may not believe there are enough markets that find short-term medical appealing enough to make the effort worthwhile. Actually, those markets are plentiful and they are growing. There always will be people shopping for and applying for permanent coverage. While these people are hunting for coverage, they will be uninsured. They are an obvious choice for short-term medical. In addition, if they are satisfied with your temporary coverage, they may well be satisfied with your long-term coverage as well. As someone begins a new job, there is often a waiting period before benefits begin. This means he may be without insurance for a period of time, and is a perfect candidate for temporary insurance. Depending on the position level of your client, you may even have an opportunity at providing insurance to the entire business. Keep it as an option.

We are still living in a down economy, and many people are without jobs. As these people are transitioning, they will be in need of coverage that will carry them until they find a new position. The Affordable Care Act allows many young people to stay on their parents’ plan for an extended period of time, but once that time frame expires, those young people will need an insurance option. As they shop around or look for a job with benefits, short-term insurance can be a viable option. For many people who no longer have a plan through their employer, they often think their only option is COBRA, which allows you to keep your major medical policy that you have had through an employer. However, after you retire or

You may not believe there are enough markets that find short-term medical appealing enough to make the effort worthwhile. Actually, those markets are plentiful and they are growing. leave that employer, you are then responsible for up to 102 percent of the cost of coverage. This is likely not a cheap option for many out of work. If someone is looking for an affordable alternative to COBRA, then temporary coverage may be the right choice. One of the largest markets for temporary coverage right now is college students and recent graduates. An unprecedented number of college graduates age 20-24 are turning to unpaid internships to enter the job market due to a 13.2 percent unemployment rate for their age group. Staying on their parents’ plans after leaving home for college can be a terribly expensive alternative and parents may not be willing to foot the bill. Instead, they can use short-term coverage until they have a more permanent option. As mentioned above, part-time and temporary workers are both an option. Many times, these kinds of positions do not include benefits. According to the Bureau of Labor Statistics, 67 percent of

HEALTH

the reported job gains as recent as September came from workers forced to take part-time employment opportunities for “economic reasons.” An employer may refer their part-time help to short-term health insurance options. This is a simple deal for brokers and that deal can eventually lead to more business from the client if the relationship is properly nurtured. If someone retires early, his carryover benefits may not include insurance. However, until that person is 65, he is still ineligible for Medicare. A temporary insurance plan can allow individuals to maintain coverage without taking a reduction in benefits until they are finally eligible for Medicare. People are coming to the United States every day. Once a foreign national obtains an immigrant visa, he may not immediately find a job. In addition, under health care reform, a five-year waiting period exists before a legal resident may obtain Medicaid or Medicare coverage. With a 22 percent growth in the number of issued immigrant visas since 2002, this is an ever-growing market. The possibilities of those who need temporary health insurance are vast. As the economy fluctuates and the job market sways, there will be people in and out of work, in between jobs and starting new jobs, and all of them may need temporary coverage. The affordability of short-term coverage should not be understated: as people hunt for the right plan, they may look to the most affordable option to get them by while they decide on a permanent option. Whether people are coming to America for the first time or returning after expatriating, they may need good coverage until they qualify for something more stable. Look at every person to whom you supply a short-term option as an opportunity. You may very well be able to turn those shortterm options into long-term gains. Mike Watts is the director of sales for HCC Medical Insurance Services, a provider of international and travel health insurance plans. He holds licenses to sell life and health as well as property and casualty insurance. Mike can be reached at Mike. Watts@innfeedback.com.

April 2013 » InsuranceNewsNet Magazine

[FINANCIALWIRES] EU Sends Yet Another PU Bomb Our Way The European Union doesn’t seem to realize that we’re trying to have a party over here in the United States. Just as we get a groove on, somebody over there wants to harsh our mellow. We have this booming stock market – setting a new Dow Jones record on a nearly daily basis and falling just two points short of breaking the S&P 500 all-time high on March 14. And it seems like any time we get things rolling, whether it’s emerging from recession or enjoying better unemployment data, Europe has to act out like a maladjusted 2-year-old on a sugar high vying for attention at Chuck E. Cheese. In mid-March it was the lovely Mediterranean island nation of Cyprus that showed up disheveled on a Monday morning after a rough weekend. According to media reports, the EU on Saturday, March 16, offered austerity-bound Cyprus a bailout but wanted in return between 6.75 and 9.9 percent of its bank deposits. Apparently, Russian oligarchs like parking their cash in Cypriot banks, and the EU didn’t want to be seen as protecting them. Whatever the reason, it set off a bank run in Cyprus and radiated a shock felt on this side of the Atlantic, slightly squelching the boom on Wall Street. But, most likely that will wear off in the familiar five stages of EU grief: Denial: “No, you didn’t!” Anger: “You certifiable Socialists!” Bargaining: “We’ll look the other way, just don’t infect Spain!” Depression: “Oh, man, Spain’s so doomed.” Acceptance: “Woo Hoo, put my 401(k) on GOOG and let it ride!”

BEWARE THE DEBT CREEP

If you have clients over 75, be aware that they might be struggling with heavier debt, but won’t tell you because, after all, they are the Silent Generation. The Employee Benefit Research Institute (EBRI) reports the average debt level

in households headed by someone 75 or older increased from $13,665 in 2007 to $27,409 in 2010. In addition, the percent-

age of such families that have debt increased from 31.2 percent in 2007 to 38.5 percent in 2010, and the percentage of income that their total debt payments represent rose from 4.5 percent to 7.1 percent. DID YOU

KNOW

More than 60 percent of investors don’t know how their providers are paid. Source: Cerulli Associates

InsuranceNewsNet Magazine » April 2013

By comparison, families headed by someone in the 55-64 category had an average debt level of $107,060 in 2010. That’s down from $112,075 in 2007, but these families still had the highest average debt level of all, EBRI says.

A LITTLE TWEETY BIRD TOLD THEM Here goes your last reason to ignore social media. It turns out that a large

majority of investors – nearly 70 percent – reallocated investments or altered relationships with investment providers because of content found through social media, according to Cogent

Research. While most investors do continue to rely on a variety of resources for investment information, consumers are turning to social media for research or to seek advice regarding investment decisions, the researchers found.

Tax bills for wealthy families reach 30-year high bitly.com/QRrichtax

QUOTABLE Heightened market volatility may be a feature of the new world of investing, but that doesn’t mean that investors must resign themselves to a portfolio sometimes at odds with their risk tolerance. — Frank Porcelli, head of BlackRock’s US Wealth Advisory business

For advisors, there is some engaging news in this. The researchers also found that social media is motivating investors to engage more with their advisors and investment firm representatives. So, get your Twitter on.

ACT THEIR AGE

It’s rude to ask a person’s age in social gatherings and it’s illegal to ask job candidates how old they are. But it’s a good thing for advisors to ask themselves as they point clients to educational resources. That’s because age has something

to do with the types of resources that people prefer to use. Consider this

finding from a study of retirement plan participants by American United Life Insurance Co. More than 60 percent of the under-40 group said they find online retirement calculators most helpful but only 41 percent of those over 50 felt the same way. The trend held true for other digital media, too. For instance, while 24 percent of 20- to 30-year-olds found mobile apps helpful, only 7 percent of the 50+ crowd said the same. In contrast, 67 percent of those over 50 told researchers that they find articles to be most helpful, compared to only 45 percent of the 20to 30-year-olds. The findings focus on preferences among retirement plan participants, but advisors in the retail market may want to take a page from that study. Where informational resources are concerned, be age-appropriate.

FAILURE is NOT an

OPTION

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Go to: RetirementIncomeChallenge.com/Modeler to compare and model the probabilities of success for various retirement income portfolios. For Financial Professional Use Only In all states except New York, annuities are issued by Security Benefit Life Insurance Company (“Security Benefit”). Security Benefit is not authorized in and does not transact insurance business in New York. Security Benefit is indirectly controlled by Guggenheim Partners, LLC. #99-00465-22 2012/12/27

April 2013 » InsuranceNewsNet Magazine

Check out Generation Y’s retirement savings habits

financial

page 62

More than Half of Gen X, Y Lack Financial Basics orking with a financial advisor W is shown to be a crucial difference between those who are knowledgeable about savings and investments, and those who aren’t. By Robert Dixon

ore than half of Gen X and Gen Y consumers admit having little or no knowledge about investments and financial products, according to a recent LIMRA study. The study supports the notion that “improving general financial literacy

InsuranceNewsNet Magazine » April 2013

could lay the groundwork for retirement knowledge. Too few consumers understand basic financial concepts and this lack of knowledge can hinder their savings efforts,” said Cecilia Shiner, senior analyst at LIMRA Retirement Research. The study found that Gen X and Gen Y consumers who work with financial advisors are more likely to be very knowledgeable about investments and financial products than those who do not (14 percent vs. 6 percent). Yet only one in five works with a financial professional. “Married Gen X and Gen Y consum-

ers are very slightly more likely than unmarried Gen X and Gen Y consumers to be very knowledgeable (8 percent versus 6 percent),” Shiner said. “Gen X and Gen Y consumers who have graduated from college are more likely to be very knowledgeable about investments and financial products than those who have not (9 percent versus 5 percent).” Baby boomers are slightly less likely to indicate that they are “very knowledgeable” about investments and financial products than Gen Xers and Gen Yers, Shiner said. Four percent of baby boomers (non-retired consumers aged 48-66)

More than Half of Gen X, Y Lack Financial Basics report being very knowledgeable compared with 7 percent of Gen X and Gen Y consumers. However, baby boomers are less likely than Gen X and Gen Y to indicate that they are “not at all knowledgeable” (18 percent of Baby Boomers versus 21 percent of Gen X and Gen Y consumers), Shiner said in response to questions from InsuranceNewsNet. She notes that comparisons to baby boomers were not a part of the current LIMRA analysis. “The increased knowledge levels could be related to education efforts on the part of financial professionals, or the fact that more knowledgeable Gen X and Gen Y consumers work with financial professionals,” Shiner said. LIMRA’s research found that among Gen X and Gen Y consumers with access to a defined contribution (DC) plan through their employer, those who have never made contributions are more likely to feel less knowledgeable about investments and financial products than those currently contributing to their DC plan. This finding suggests that if financial literacy could be improved for these

consumers, the likelihood of participating in their employers’ DC plans may rise. “I think that a lengthy retirement horizon and competing demands on income are the primary reasons why more Gen X and Gen Y consumers are not saving for retirement,” Shiner said. “They are not prioritizing retirement saving. Less than half (46 percent) of Gen X consumers and only three in 10 (31 percent) Gen Y consumers cite retirement as an important reason they are saving. This leads us to believe that immediate and near-term spending obligations appear to be taking precedence over long-term needs for Gen Y consumers,” she said. The study also found that the market opportunity to offer retirement products and insurance to Gen X and Gen Y households is growing. Some 43 percent of the nearly $3 trillion in Gen X household financial assets is invested in retirement and pension accounts, based on an analysis of the Federal Reserve Board’s 2010 Survey of Consumer Finances. Two-thirds of retirement and pension account assets are held in DC savings plans and 30 percent are in individual retirement accounts.

Financial

Source: Sowing the Seeds for Retirement: Gen X and Gen Y Markets (2013), LIMRA

On average, Gen X consumers have contributed to their current employer’s DC plan for nine years, accumulating nearly $70,000. The median income deferral rate is 6 percent for all Gen X consumers, slightly higher for men (7 percent). Given that Gen X consumers are over age 30, their income deferral rates are typically recommended to be above 10 percent. However, less than half (43 percent) are contributing 8 percent or more, LIMRA reports. Gen Y household financial assets totaled $229 billion, likely reflecting their ages and stages in life. On average, Gen Y consumers have contributed to their current employer’s direct contribution, or DC plan, for four years, accumulating slightly less than $26,000, according to the study. The median deferral rate for Gen Y is six percent, with one in five Gen Y consumers contributing 3 percent or less to their current employer’s DC plan. “There’s a lot of attention on the Baby Boomers (78 million) but there are nearly 116 million Americans aged 20 to 47, and as an industry we need to help these Americans plan and save for retirement,” said Shiner. “Most Gen X and Y Americans will have to rely solely on their savings to fund their retirement, yet few are taking full advantage of the retirement savings vehicles available to them. The decisions these consumers make today will have a lasting impact on their ability to be financially secure in their retirement years.” Gen X refers to the generation following the post-World War II baby boom, generally those born between 1965 and 1980. Gen Y – also frequently referred to as “millennials” – includes those born between 1975 and 1999. The definitions are marketing terms, not firm demographic periods, thus there are some gaps, overlaps and often disagreement as to the precise dating of each generations. The LIMRA study is based on a survey conducted in May that polled 5,296 Americans aged 20 to 84. Of those people surveyed, 884 respondents were Gen X and 720 were Gen Y.

People who work with an advisor are also more confident that they’re saving enough. Only 43% of those who don’t work with advisors were somewhat or very confident that they are currently saving enough to last throughout their retirement years. By comparison, fully 71% of those who work with advisors are confident. Likely this is due in part to the development of a retirement plan and/or the guidance on how and how much to save.

Robert Dixon, a contributing writer at InsuranceNewsNet, has extensive experience as a journalist and editor with financial publications and wire services, as well as editing regional business publications and daily newspapers. Contact Robert at Robert. Dixon@innfeedback.com.

Majority of Gen X and Gen Y consumers know little about investments and financial products

21% 60%

Not at all knowledgeable

39% Gen X

Not very knowledgeable

21% 54% 33% Gen Y

April 2013 » InsuranceNewsNet Magazine

Business

Have you ever asked your clients what life would be like if they were able to lose 50 pounds or more?

A Lose/Win Situation It might seem like it’s not your business, but shouldn’t you be concerned about your client’s health and well-being? By Bob Davies

dvisors not only help clients to grow their money for retirement, but they can also coach them to be healthy when they start to get their money back. Talk about differentiating yourself from your competitor and adding extreme high value in your service to your client. I always coach advisors that they need to give more of themselves to their clients, that they are their clients’ “life coaches” and that means not only safeguarding their money, assets and lifestyle for retirement but also preserving their health. 54

InsuranceNewsNet Magazine » April 2013

I know you’ve had a conversation with your clients where you’ve asked what money meant to them and how much is enough. Have you also asked what life would be like if they were able to lose 50 pounds or more? I’ll bet this is not on your review checklist and it has never made your product grid. Why is that? I’ll ask you to consider because you were never taught to do that. It was never emphasized at a broker/dealer conference. You just never thought about this being a part of your role for full service. Let’s look at the big picture and then we’ll come back to your circumstances and center of influence. Our nation is in the midst of a public health crisis so profound that is it undermining our well-being, our economic

competitiveness and even our long-term national security. More broadly, the costs of obesity and chronic disease have become a major drag on our economy. Escalating health care costs are a main driver of our spiraling national debt, and obesity-related illness makes up an increasingly large share of our massive health costs. The obesity crisis is therefore not just a health crisis, but a major contributor to our fiscal crisis. Over two-thirds of Americans are overweight or obese. One-third of American children are overweight or obese. Among children under the age of 6, nearly one in five is overweight. Obese people are far more likely to develop chronic diseases like diabetes, hypertension, asthma, heart disease

A lose/win situation and cancer. In short, obesity is the most urgent public health problem in America today. This could be the first generation of children in the United States that has a shorter lifespan than their parents. We spend $2.2 trillion a year on health care, over five times more than the defense budget. We pay more per person in health care than any industrialized country in the world. Yet we’re sicker than ever. Every minute a person in the United States is killed by heart disease. The U.S. government has part of the blame. Paying subsidies to farmers to produce piles of corn turned into high fructose corn syrup and soybeans turned into hydrogenated oils that are major contributors to the sweet-tasting foods that fly off the grocery store shelves but are not good for you. U.S. farmers now produce 3,900 calories per U.S. citizen per day. That is twice the amount we need. Since humans have a built-in weakness for fats and sugar, we have grown fatter every year. We subsidize the cheap calories of processed foods with our tax dollars. A profit-driven food industry has exploded and nutritionally bankrupted our caloric supply. There’s no money in healthy people. There’s no money in dead people. The money is in the people in the middle, people who are alive, sort of, but with one or more chronic conditions. One out of three people born today will develop the crippling condition of diabetes in their lifetime. Millions of others are so stimulated by sugar, coffee and energy drinks that they mask their chronic fatigue. Could there be a solution to all of these problems? A solution so simple that it’s mind-boggling that more of us haven’t heard about it nor are using it? Turning the tide of this epidemic will require leadership, first and foremost. All sectors of society must be engaged and all must take responsibility – from individuals and families to communities, institutions and government. So why is this your problem or concern? This is an excellent opportunity for you to be the source of a solution that your clients would not have had access to otherwise. Dietitians are spewing out information that is outdated, inaccurate

Business

The food plan Breakfast • 1 ounce oatmeal and 4 ounces of water • 6 ounces of protein or 8 ounces plain yogurt (no sugar in the ingredients women: 4 ounces of protein) • 6 ounces of fruit

Lunch (4 hours after breakfast) • 6 ounces protein (women: 4 ounces) grilled chicken, fish, meat, tofu, eggs • 6 ounces steamed vegetables (women: 4 ounces) • 8 ounces salad (women: 6 ounces) with 2 tablespoons of olive oil

Dinner (5 hours after lunch) Same as lunch, can eat different proteins.

You are free to change up the protein between lunch and dinner. Eat all of your food at one time, no skipping meals or spacing out the food. Never get hungry, never get full. or just too confusing. Weight loss organizations that are designed to help Americans get healthy have no incentive to create success. If they do that, then they are out of business. They create a dependency, so that people lose some weight, buy the food, attend the meetings, stay on the program or they’ll gain it all back – and that’s just what happens. You are non-partisan. You have no agenda other than to be of service to your clients and their referrals. You get by giving and I’m going to teach you how, starting right now. Why is it so difficult for people to lose weight and keep it off? The reasons have to do with our human genetic coding, the way genes are turned on and off, the triggering of hormones and other factors

that are outside the scope of this article. Instead of going in that direction, I’m going right to the solution. I’ll ask you to accept that there are physiological and biochemical events in each of us that make dieting very difficult to sustain. Also there are psychological processes at work. First, it’s perceived as being too hard. People fear cravings, they fear being hungry, they don’t trust willpower, they’ve failed before. What I’m about to share with you will take all of that away and make you look like a hero in front of your clients and their referrals. Hold a seminar on “How to Eat!” This is not a diet, doesn’t require willpower, and doesn’t require exercise. No cravings, no hunger and best of all, it’s easy. April 2013 » InsuranceNewsNet Magazine

Business

A lose/win situation

We spend $2.2 trillion a year on health care, over five times more than the defense budget. The best approach would be for you to use this food plan for 90 days. Go 90 days abstaining from sugar and flour. That’s right. Here’s the plan. It’s simple. It’s three weighed and measured meals a day, no flour, no sugar, no snacking in between. Period! Eat breakfast, four hours later eat lunch, five hours later eat dinner. Eat dinner only between 4 p.m. and 7 p.m., not earlier and not later. The first step is for you to get on the plan yourself for 90 days. I promise you that your clothes are going to hang on you and you will feel better then you have in years. You will have no problem sharing this with your clients and using it as a recruiting event based on the results you achieve. It just requires rigorous honesty on your part and a willingness to change. The food plan: Three weighed and measured meals, no flour or sugar. Step one: Get a digital body weight scale. Get your baseline body weight. Do not weigh yourself again for another 30 days. 56

InsuranceNewsNet Magazine » April 2013

Step two: Get a digital food scale. Weigh and measure every meal. This is it. Here’s what you’re going to find. Most likely you will discover that you are not eating enough at breakfast and lunch. That’s what I found. There is plenty of food here. The key has to do with the speed at which carbohydrates are metabolized into sugar. You are getting such a healthy amount of fiber in this meal plan – remember, it’s not a diet – that you are not going to be hungry. You are not going to have cravings. There is no need for willpower, it will be easy. Your body is probably getting the proper nutrition for the first time. Proper nutrition, combined with the slow and steady release of glucose into your blood stream, will cause insulin to work more efficiently to transport the glucose into your cells. When people don’t eat properly, they flood their bloodstream with fast glucose from processed foods. This causes insulin levels to rise, taking the excess sugar directly into the fat cells for storage.

This food plan will be easy for you. Go shopping. Be prepared. Cook your food in advance, put it into baggies and take all of the decisions about eating completely away. You now have boundaries. You know what time to eat, what foods to eat and when to stop. You can’t trust your body sensations to tell you this because you are genetically coded to binge when food is available to protect yourself from the times when food is scarce. You have to have a program, a plan. The key to stay on the plan is to have reinforcement, support and accountability. Show this plan to your doctor and I promise you it will be blessed. Something significant will happen to you in 90 days. I have seen people with big numbers use this to lose hundreds of pounds and keep it off. Once you have experienced this for yourself, you’ll be having your assistant call your clients with an “each one reach one” referral campaign. You’ll be so excited to share the new you with your clients and their friends. If they haven’t seen you in 90 days, you will get more compliments then you can imagine. If you are interested in being supported on this 90-day journey make contact with me and I’ll provide that support. Your life may depend on it. One last note. I’m a skydiver. Everyone knows that I’ve dropped 50 pounds over the last several months since skydiving is so weight sensitive. The manager of the Perris Valley skydiving facility came out of the restaurant with a plate of sugarand flour-laden food and started to sit down next to me to eat but stopped himself and said, “I’m not going to eat this in front of you” and then walked away. I kept thinking, he thinks that I’m starving. If he only knew how easy this has been. Are you ready to live excellence and then teach your clients the same? 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.

• Only NAIFA advocates on behalf of all of your clients and their financial future. NAIFA

.org/ItPays Go t o www. N AIFA. o rg/It P ays PROTECTS 7-866-2432! YOUR BUSINESS

or call 1-877-866-2432!

Insurance products have been identified as “tax expenditures” and have a price associated with them. Congress is looking for more money in 2013, and your products and your business are at risk. Join NAIFA, and you’ll be joining other advisors in speaking to State and Federal legislators with one, clear voice. • Only NAIFA represents insurance and financial advisors regardless of the products they sell or the focus of their practice.

“We intend to move

a comprehensive tax reform bill in 2013 – no matter what.” Representative Dave Camp (R-MI) Ways & Means Chairman November 15, 2012

• Only NAIFA advocates on behalf of all of your clients and their financial future.

Go to www.NAIFA.org/ItPays or call 1-877-866-2432!

April 2013 » InsuranceNewsNet Magazine

MDRT INSIGHTS

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

Three Ingredients to Reeling in ‘The Big One’ reparation, networking and P anticipating your client’s needs will help you position yourself to land that high-profile case. By Christine Khemis

anaging expectations is essential for every client, especially for the high-profile, larger cases. The functionality of practice must change and adapt to meet the needs of prospective clients. We not only have to make ourselves readily available, but we must also position ourselves as a resource and expert within the financial industry, prepared to allay the concerns of the larger client. By thinking bigger, expanding your resources and preparing yourself, landing that first big case could be just within your grasp.

Think Bigger

First look to current clients. Find out where they work, what positions they hold and what type of work they do. Be authentically interested, ask questions. This will be the key that leads you to your first – or next – big case. Once you learn more about your existing clients’ workplaces, it will undoubtedly give you an entrée to an environment with myriad opportunities. For instance, if you’re communicating with a business owner, you may want to suggest working on a plan for their business succession. Or you may want to find out if they have had a long-term care experience with a family member, the effect it had on family members, what it cost, who cared for them. This will lead to discussions about solutions available to the executive tier and other employees. You can now help them solve their financial problems. The single most important factor to keep in mind is to pivot from individual sales into a workplace or community organization environment. 58

InsuranceNewsNet Magazine » April 2013

Expand Fact-Finding

Develop relationships with other professionals who work with high-net-worth individuals, businesses or business owners. Whether these professionals are benefit brokers, estate planning attorneys or certified public accountants, partnering with them certainly will help solve problems of an expanded clientele. Understand they are most concerned about any disruption to their current relationship that might result from introducing you as a new vendor/partner. First, you must address the needs and expectations of all the departments that will be affected. Select your team carefully, research the needs of your large client and be prepared to answer their tough questions promptly and with confidence.

Be Prepared

I once heard the definition of luck is “when opportunity and preparedness meet.” We cannot expect these big cases to fall into our laps. This process takes hard work and dedication. Staying actively involved in the financial community is imperative, as it will ensure you are up-to-date with the newest information in the marketplace. When it comes to legislative and tax implications surrounding the various products and strategies we work with, we must stay current in order to offer ourselves as experts. Reach out to your community as a way to go about accomplishing this. I suggest offering to speak at industry association meetings or events, such as the Million Dollar Round Table. This will showcase your knowledge and skills in front of many individuals who may have the “big clients” who may need your specific area of expertise. Think of this speaking opportunity as a dress rehearsal for your big case.

Now What?

Like a dog chasing after a car, what do you do when you catch your big case? Part of landing this new client is understanding the need to function at the highest professional level. You must have technology readily available at your fingertips and a team that you can count on to provide a superior level of service. The work you do with this new large account will undoubtedly set the stage for your future as a financial professional. Anticipate all that can go wrong and prevent problems from surfacing. You cannot be too careful about the details. Managing expectations is key with any client, but big cases have dozens of people who are affected by the project. Whether this client is a nationally recognized benefit broker or a client who has 40,000 employees, you will be looking out for more than just an individual or a family. Not one person on your team for this high-profile client can be out of sync, as damage control is much more difficult at this level. Taking the knowledge you have acquired through your years in this profession will guide you toward discovering the right solutions and the ability to provide exceptional service. Embrace your achievements by preparing ahead of time and getting behind the wheel of that car you were chasing. Once caught, you are the one in control. Christine Khemis, MBA, CLTC, is a partner with LTC Financial Partners, Snohomish, Wash., and is one of the nation’s top longterm care insurance specialists. She is a Qualifying Member of MDRT. Christine can be reached at Christine.Khemis@innfeedback.com.

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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.

NAIFA INSIGHTS

How to Wow Your Clients aking sure your client is M happy with your service may be the best thing you can do for your practice. By Ayo Mseka

n today’s highly competitive business environment, satisfying your clients has taken center stage. Apart from providing them with the financial products and services that best meet their needs, you also must make sure they like doing business with you, will not be easily persuaded to sign up with the next advisor who comes along, and will recommend you highly to their family and friends. A happy client, it turns out, holds the key to a thriving business. Several NAIFA members identified what you can do to wow your clients – and hold on to them for life: Make birthday calls instead of sending birthday cards. Cards are easy to send, but there is no interaction with the recipient. A phone call yields much better results. The client knows you care and, think about it: Who else other than your close family members and maybe your best friend calls you on your birthday? This nice personal gesture also yields results for you, the advisor, because the client will often say to his family and friends if they happen to be having a birthday dinner: “Guess who called me for my birthday?” This places you on a favorable basis in front of his family and friends. – Gregory Gagne, ChFC Affinity Investment Group Help your clients organize their financial documents. Years back, when I came into the business, life insurance companies recommended that distributing policy wallets or company-purchased baby spoons to new parents was a good idea for building a loyal, appreciative customer base. We also also advised 60

to offer company-subsidized road atlases that customers could use in their vehicles for trips. The idea was that these “gifts” might serve as a means of pleasing our clients and holding on to them. Frankly, this process had me thinking if I had truly provided anything to my customers which made them feel appreciated. Around 10 years ago, I began focusing my efforts on providing my clients with a usable paper guide to better financial organization. I had discovered over my career that many people, regardless of their income, had difficulty in getting their financial lives arranged and in order. A good organizer does not have to be anything elaborate or unique. I feel its genuine value comes from the sincere efforts I bring in helping people better prepare for their own financial future. I let my customers know that there are five key concepts of good financial organization:

CRM tool every quarter to generate a list of clients I need to contact, just to make sure no one slips through the cracks. – Adam Solano Lakeside Financial Group Show your clients that you are really listening to them. I believe the key to pleasing a client is to demonstrate you’re truly listening to him. I ask questions that will encourage people to share details about who they are and what they love. I enjoy hearing about important memories and accomplishments. Then, I’m always on the lookout for an opportunity to capture and return that information in a tangible way.

[1] Know what you have. [2] Make a contact list of people who are important in your financial life. [3] Prepare an inventory of what you have. [4] Make sure your information remains current. [5] Keep a back-up strategy. My customers appreciate the genuine value I offer in helping to provide stability to their financial lives. Any help with financial organization is a step toward creating more loyal customers. – Ike Trotter, CLU, ChFC Ike Trotter Agency Use a customer relationship management tool. CRM software helps you track how often you interact with your clients and ensures that no client feels neglected. My assistant uses a

InsuranceNewsNet Magazine » April 2013

Give them gifts that truly make a difference. I like to give my clients small gifts that are uniquely personal. Some examples include sending sweater tights to a client who shared with me the fact that she hates the cold weather even though she lives in the northern Midwest, sending an ACT Vocabulary Prep Book to a client’s high school-age son who relocated from England, and delivering a case of difficult-to-locate diet cream soda to a retired client. All of these items were inexpensive but each demonstrated I had not just been making small talk to get to a sale. – Laurie Adams, CFP, CLU, LUTCF Country Financial Ayo Mseka is editor-in-chief of Advisor Today, the official publication of the National Association of Insurance and Financial Advisors. Contact Ayo at Ayo.Mseka@ innfeedback.com.

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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.

Saving for Retirement Should Be a Priority eneration Y needs to save G more for retirement, and persuading them to do it is easier said than done.

Gen Y’s Top Five Important Reasons for Saving* Vacations/Travel

41%

By Cecilia Shiner

eneration Y (Gen Y) is the youngest generation in the workforce (born approximately between 1980 and 1995). While these workers are decades from retirement, the choices they make today will impact their eventual retirement. Unlike their parents and grandparents who may have enjoyed pensions, Gen Y will be the first generation to have access to a defined contribution (DC) plan throughout their working lives, and will be responsible to fund their retirement solely through their savings. How are Gen Y consumers balancing the various demands on their resources? Are they currently saving or thinking about retirement? And how can plan sponsors and the financial services industry encourage them to save more for retirement? Today’s tough economic times create hurdles for Gen Y as they start their careers – and these challenges could impact their ability to save for retirement. Despite relatively high levels of education, Gen Y workers have been hit hard by the recent recession. While Gen Y consumers should be prime candidates to save for retirement, they are being sidetracked by other spending and saving demands. Based on findings in LIMRA’s Sowing the Seeds for Retirement: Gen X and Gen Y Markets, only one in three Gen Y consumers choose retirement as an important reason for saving. For Gen Y households with incomes of $100,000 or more, only 46 percent selected retirement as an important reason to save. There are several ways younger workers can save for retirement, including through their employer and on their own, as well as through taxable, tax-deferred or tax-free accounts. At present, the most popular way for Americans to save is 62

InsuranceNewsNet Magazine » April 2013

Retirement

31%

Buy/build a house or condo

25%

Starting a family

25%

Large household purchases

24%

Base: 698 consumers aged 20 to 31 currently working for pay *The top five are based on the percentage of consumers who ranked each reason as one of their household’s three most important reasons for saving (other than emergencies and unemployment).

through the workplace – and the first step to saving is access. LIMRA found that 62 percent of Gen Y workers have access to a DC plan through their current employer, and nearly 69 percent of that group currently contributes to the plan. Research shows that workplace retirement saving efforts are aided by incentives, with the most important incentive being matching contributions offered by employers. Fortunately, 78 percent of Gen Y consumers work for an employer that offers matching contributions. On average, Gen Y workers have accumulated slightly less than $26,000 over the course of four years through contributing to their current employer’s DC plan. LIMRA’s study found Gen Y’s median deferral rate is about six percent, with one in five Gen Y workers contributing three percent or less to their current employer’s DC plan. Even if a retirement savings plan is not available at their workplace, working Americans can save for retirement through Individual Retirement Accounts (IRAs). LIMRA found that 37 percent of Gen Y consumers own an IRA. Of those, two-thirds have contributed to

Check out Generation Y’s need for financial knowledge page 52

their account in the past 12 months, and one-third have rolled money from an employer-sponsored plan into an IRA. Among non-IRA owners, one quarter of Gen Y consumers are considering contributing a portion of their income to an IRA in the next 12 months. Gen Y consumers need to save more to be on track for a secure retirement; however, persuading them to save more is easier said than done. Plan designs using automatic features, as well as adjustments to matching formulas, are examples of strategies that can increase enrollment and savings rates over time. Companies should consider which are the most effective education tools, as well as the preferred modes of delivery to reach younger consumers. Another critical element is ensuring the money they save remains set aside for retirement. Plan cash-outs or withdrawals can have a significant impact on retirement income adequacy. Companies should review their counseling procedure for actions that might compromise plan participants’ future retirement security. Steps such as providing plan participants with estimates on the long-term implications of taking money out of plans might help reduce cash-outs and withdrawals. Although Gen Y’s relatively young life stage means that they have not yet accumulated many assets and currently have limited income, they represent the future of the retirement industry. It is vital for companies to remind them why saving for retirement must be a top priority, and how saving even at modest levels at the start of their career could help them secure their future retirement. Cecilia Shiner, M.A., FFSI, ALMI, ACS, senior analyst, LIMRA’s Retirement Research, is responsible for conducting major primary research projects conducted within LIMRA’s Retirement Research Unit. Contact her at Cecilia.Shiner@innfeedback.com.

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April 2013 » InsuranceNewsNet Magazine

the last word

With Larry Barton

Will You Finish this Article? Pursuing an advanced designation takes a great attention span, along with consistent commitment and hard work. But it will lead you to a competitive advantage and financial rewards.

The average attention span has dropped from more than 12 minutes in the 1990s to just over five minutes toda...

By Larry Barton

he other day, I ran across an interesting study that Lloyds TSB Insurance did several years ago in the U.K. They found that the average attention span has dropped from more than 12 minutes in the 1990s to just over five minutes today. The pace of our lives has become so frantic that everything from news to public policy has to be reduced to an overly simplistic sound bite just to gain any traction in the crowded public mind space. It’s actually very unlikely that you’ll finish reading this article. But I’ll soldier on because I believe the ability to concentrate on an issue or set of issues is rapidly becoming a competitive advantage. As an educator, I see this every day. The agents and advisors who commit the time and effort needed to earn an advanced designation or a master’s degree do substantially better across all aspects of their careers. Professional education at a high level takes consistent commitment and hard work – and the attention span to learn – but the payoff can be dramatic. For years, we’ve talked about the increased average earnings that come from completing advanced designation programs. Last year when it came time to update our study of designation outcomes, we decided to go further. We wanted to look at such factors as leadership, retention and compliance incidents for designees as compared to those without credentials. What we found was astounding. Before we get to the results, I want to comment on methodology. Most studies about the impact of designation on compensation or other factors are self-reported, meaning advisors submit their own estimates of earnings and other data. While results from that type of sur64

InsuranceNewsNet Magazine » April 2013

vey can be directionally right, the figures are not as accurate as getting actual data from employing companies. We decided to approach firms willing to provide aggregate data across a number of key performance areas for almost 32,000 financial services field representatives on a confidential basis. Their commitment of data analysts to the project was the only way we were able to complete the study in a meaningful way. First, the results on compensation. Financial advisors with a CLU or ChFC are more productive at every career stage. Overall, advisors with a CLU earn 22 percent more than those with no designation, and advisors with a ChFC earn 51 percent more. By mid-career, those who have either or both of these marks have 40 percent higher aggregate productivity than those with no designation. There’s also an advantage for new agents who pursue professional education. Those who complete the LUTCF skills training program early in their careers are earning 72 percent more by year four than those without the designation. They also have 90 percent longer average tenure, meaning their survival rate in the business is much higher. The curriculum of this program is focused on product basics, how to prospect, meeting client needs and so forth. What I found especially interesting is that career-long learning is key. If an advisor stops his or her professional education at LUTCF and doesn’t go on to pursue another credential by mid-career, the earnings advantage drops to only 7 percent. What about leadership? As you might expect, holding a CLU or ChFC is one predictor of advancement into field lead-

ership. The data show that those in field leadership roles are 59 percent more likely than their peer group to have earned one or both of these designations. One area we had never explored before was the impact of professional education on compliance-related incidents. For all of those compliance officers out there: 81.4 percent of compliance issues come from advisors who do not hold a CLU or ChFC. The more professional education an advisor has, the more ethically consumers are served. Here’s to all of the financial advisors out there with the attention span – and the dedication – to pursue real professional education. It makes a difference for the advisor, for companies and – most importantly – for the consumers we serve. When I was meeting with representatives from the Consumer Financial Protection Bureau about their good work regarding senior designations, it was encouraging to discover their interest in not just discouraging “weekend” credentials, but also in encouraging the pursuit of meaningful professional education because of the inherent advantage to consumers. I appreciate those whose extended attention span got them all the way through this article. As always, I’d enjoy hearing your thoughts and comments and invite you to visit The American College website to view our Designation Outcomes Study. 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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