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January 2013
Learn How to Present Like Steve Jobs PAGE 12 Case Study: How a GMWB Rescues a Client’s Retirement PAGE 36 Seeing the Future Through the Fog of Health Reform PAGE 42
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January 2013 » Volume 6, Number 1
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ANNUITY
36 Case Study: How a GMWB Rescues a Client’s Retirement By David L. Goodrich Variable annuities with guaranteed minimum withdrawal benefits can give your clients the peace of mind, knowing they will be financially independent for life.
38 Iowa’s New Regulations Could Boost Indexed Annuity Sales By Michael J. Prestwich A new rule strongly recommends that producers provide an illustration to consumers before selling an indexed annuity. This rule could give producers a valuable tool in their sales arsenal.
HEALTH
20 INFRONT
8 On Guggenheim, Sun Life Financial, and Annuities
20 Products for a Safe Trip Through a Turbulent 2013 By Linda Koco Today’s hostile environment of low interest rates, high market volatility and continuing regulatory pressure requires products with the flexibility to adapt in an improving economy.
By Linda Koco The Guggenheim/Sun Life Financial deal forces a look at what is and what could be.
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28
42 42 Producers See Future through the Fog of Health Care Reform By Susan Rupe The health insurance marketplace is changing as a result of the Affordable Care Act, and advisors find themselves in the role of educator and guide.
FINANCIAL
LIFE
28 Why Stories Sell
By Bill Whitley Attract more clients and motivate them to take action by developing compelling stories and becoming proficient at telling them.
FEATURES
12 H ow to Present Like Steve Jobs
An interview with Carmine Gallo Carmine Gallo is the communications coach for the world’s most admired global brands – including Apple, Coca-Cola and Intel. He talks with InsuranceNewsNet’s publisher, Paul Feldman, about his work with former Apple co-founder Steve Jobs and how you can become a master of the art of presentation.
2
32 My Big Debate with Fees
InsuranceNewsNet Magazine » January 2013
By Juli McNeely An advisor struggles with the question of whether to move her practice from commission-based to fee-based, and how it will affect her ability to serve her clients.
48 Has the Interest Rate Decline Finally Hit Bottom? By Linda Koco Interest rates are still uncertain. But if it turns out that rates really have bottomed out, the coming 12 months could bring sighs of relief.
BUSINESS
50 How to Talk To Anybody About Anything By Bryce Sanders Seven scenarios to help you start the conversation and keep it going, while laying the groundwork for a future meeting.
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ALSO IN THIS ISSUE January 2013 » Volume 6, Number 1
INSIGHTS
54 NAILBA 31: Industry Leaders Look to 2013
61 NAIFA: What Advisors Need to Know About the Makeup of the New Congress By Diane Boyle A quick look at who’s who in Congress as the political scene quiets down from a divisive election and gears up for a new year.
Industry leaders gaze into their crystal balls and tell InsuranceNewsNet what they believe will be the key factors driving their business in the coming year.
56
62 LIMRA: One Size Doesn’t Fit All
By Norah Denley LIMRA research examines how advisors are using social media in their practices and what support they need from insurance companies in order to be effective.
56 Special Report: NAILBA Panel – Fighting on Price a Losing Battle The question of competing on price vs. service struck a chord among representatives of brokerage general agencies during the panel discussion, “Adding Value as a BGA” at NAILBA 31.
60 MDRT: Five Key Elements for Top Production
64 64 T he Importance of One Voice
By Larry Barton Larry Barton of The American College discusses why all industry trade organizations need to join forces to present a consistent and amplified message to Congress and the public.
By J. Leland Davis How to develop five crucial components of your practice and combine them to create a template that will not just serve – but amaze – your clients.
EVERY ISSUE 6 Editor’s Letter 18 NewsWires
26 LifeWires 34 AnnuityWires
40 HealthWires 46 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 Copywriter Kathryn Rolston CHIEF OPERATIONS OFFICER Jim Barton Creative Director Jake Haas PRODUCTION EDITOR Natasha Clague Senior graphic designer Carlos Centeno graphic designer David Bullock
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WELCOME
LETTER FROM THE EDITOR
A New Year’s Dawn BY STeven a. morelli
My dog saves me every morning. I might be fretting about the trouble lurking ahead or shaking off a bad night’s sleep, but I have committed to walking with Clarabella every morning. It’s frosty in the winter and sticky in the summer, but then the blood gets pumping, the sun starts rising and I am grateful for the new day. It took me a long time to learn that we treasure what we put the most time, work and love into. Not the things we buy or the money we compile. It’s just like dragging your sorry self to a gym every day until one day you realize that you feel pretty darn good and it’s not such a chore to work out. It’s like when you sit through your child’s high school graduation and realize it was all worth it. Nothing valuable comes easy. This month’s interview feature focuses on the presentation secrets of Steve Jobs. But I’ll let you in on the mystery – it was hard work. He practiced for hours and drove others crazy with details until he made his presentation look effortless, like he was just chatting with you. But Jobs was well aware that the eyes of the world looked upon him and that he had a revolution to unfold. Yet it looked like he had something special to show you, and only you. I urge you to go to YouTube and check out his iPhone presentation from 2007. Looking at it now, it is astonishing to realize that it was one of those moments when you can mark time with a pre- and a post-. But it was a simple presentation, as engaging as his devices. Jobs was famously difficult and demanding, although his efforts paid off for him and for the rest of us. Yet for all his seemingly antisocial tendencies, he wanted to be surrounded by his family as he approached death. As he gazed at his children, his last words were, “oh, wow.” In December, most of us looked at our children and those closest to us with more gratitude as others faced the
6 InsuranceNewsNet Magazine » January 2013
unimaginable in a small corner of New England. Many of us asked why this world is so unforgiving and hard. But it means we are constantly learning to be thankful. Steve Jobs said, “Death is the single best invention of life.” Every end promises a new beginning. Every night means a new day. I learn each dawn to be grateful for that. And for the dog that walks me. Steven A. Morelli Editor-in-Chief
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January 2013 Âť InsuranceNewsNet Magazine
7
INFRONT
Timely issues that matter to you REUTERS/Mark Blinch
Sun Life Financial President and CEO Dean Connor speaks at the company’s annual meeting in Toronto.
On Guggenheim, Sun Life Financial, and Annuities The Guggenheim / Sun Life Financial deal forces a look at what is and what could be. By Linda Koco
W
ouldn’t you know it? Once again, just when the annuity industry had stopped talking about the Guggenheim Partners expansion into “the annuity space,” the Chicago–and New York–based private equity went and made another annuity-infused deal. The natural question is, will this deal have much impact on the annuity market? First, an overview of the deal. This time, Guggenheim Partners made their move through a company they own
8
called Delaware Life Holdings. This firm has agreed to buy the domestic U.S. annuity business and certain life insurance businesses of Sun Life Financial, Toronto. It will be a cash transaction, for $1.35 billion. Once the deal is done, the company’s name will change to Delaware Life Insurance Co. Sun Life provided these other highlights: The sale includes Sun Life Financial’s domestic U.S. variable annuity, fixed annuity and indexed annuity products, corporate and bank-owned life insurance products and variable life insurance products.
InsuranceNewsNet Magazine » January 2013
The transaction is expected to close by the end of second quarter 2013, though that’s subject to regulatory approvals and closing conditions. Guggenheim Partners will provide services to the company including investment management.
Market Impact
On the surface level, this deal would appear to have no overpowering market impact on the U.S. annuity business. After all, Sun Life Financial had already announced in late 2011 that it would stop selling new annuities. So most annuity professionals have been all but expecting the Canadian company
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9
INFRONT
On Guggenheim, Sun Life Financial, and Annuities Image via Getty
to find a buyer for the existing annuity businesses. Not surprisingly, Sun Life Financial’s market share for annuity sales in the United States has fallen, making the impact of the deal all the less significant for producers. For example: the firm’s variable annuity sales, which had ranked in 16th place on LIMRA’s list of U.S individual annuity sales in third quarter 2009, did not even appear on LIMRA’s Top 20 chart in third quarter 2012. So too with indexed annuities: The firm had ranked in 18th place on AnnuitySpecs.com’s list of indexed annuity sales in third quarter 2009, but three years later, the company did not even appear on the Annuity Specs’ list of indexed annuity players. True enough, the seller – Sun Life Financial – is Canada’s third-largest life insurance company. But that claim to fame does little to influence how the recent deal affects the U.S. annuity business. So annuity professionals might just slough off this piece of industry news as a bit of idle chatter, nothing more.
Beefing Up the Annuity Business
On second thought, however, the deal does have a kernel of significance. That is because it represents one more sign that Guggenheim Partners is continuing to beef up its annuity and insurance business. Before the Sun Life Financial purchase, Guggenheim Partners had already created or purchased Guggenheim Life and Annuity, Security Benefit Life, Standard Life of Indiana (reinsured life and annuity book), Equitrust and Industrial Alliance Insurance and Financial Services of Quebec. In addition, unnamed wags have trotted out the Guggenheim Partners name as a possible suitor for Aviva US, a big indexed annuity writer based in Des Moines, Iowa. The Iowa carrier has made no such announcement to date, and neither has it confirmed the speculation. Still, the mere linking of the Guggenheim name to such a potential purchase has had an effect on the industry — by stirring up uncertainty about the firmness of the market and the go-to places for new cases. That uncertainty has taken on a life 10 InsuranceNewsNet Magazine » January 2013
Alan Schwartz, Executive Chairman of Guggenheim Partners based in Chicago and New York. of its own. For instance, it has spurred some annuity carriers to respond competitively to the notion of private equity expansion into the business. Last month, for example, Allianz, the top-selling indexed annuity player according to AnnuitySpecs.com’s rankings, sent out a marketing piece that raises questions about what hedge funds, private equity groups and money managers are doing in the annuity business. “Are they controlled by outside entities that don’t have insurance background or experience?” the Allianz message asks. “Do their products feature rates that are far above what the competition is offering?” The Allianz document does not mention names of firms to which it is referring. But it is hard to imagine that readers would not view the message as an arrow aimed straight into the beating hearts of the private equity companies that have been buying up annuity assets in recent years. These companies include not only Guggenheim Partners but also Apollo Global Management and Harbinger Capital Partners. The Allianz message may also serve as a prod to the conscience of producers
who might be toying with whether to represent carriers owned by private equity companies. In this sense, the message is an “are you sure you want to do this?” kind of communication. All of which goes to suggest that anyone who thinks the insurance and annuity business is not competitive is largely off track and/or misinformed. One could even argue that the industry is even more competitive now that the environment of prolonged low interest rates and sustained market volatility is forcing shake-ups everywhere. The players are jousting, and the private equity players are part of the action. For these reasons, then, the Guggenheim/Sun Life Financial deal does have meaning for the annuity industry. It awakens ideas about shifting sands, suitable partners and future destiny. That’s not an immediate and overpowering impact, but it forces a look at what is and what could be. Business forms and flourishes on just such thoughts. 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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Steve Jobs showed us how a presentation can be a revolutionary event. Carmine Gallo shows how you can revolutionize your business by changing how you present.
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InsuranceNewsNet Magazine Âť January 2013
How to Present Like Steve Jobs very conversation is a presentation. That’s Carmine Gallo’s core belief and he’s learned from the best by watching Steve Jobs, the master presenter. As communications coach, Carmine has worked with some of the best known brands in the world, such as Intel, Google, Disney and Coca-Cola. But he is adamant that no one needs a multi-million dollar marketing budget to be effective at communications. A person just needs the will and a pad of paper, or perhaps an iPad. Carmine wrote a number of books, but is perhaps best known for The Presentation Secrets of Steve Jobs. Steve Jobs learned how to be engaging and completely convincing in a presentation. For example, when he introduced the iPhone in 2007, we never looked at phones and how we communicate in the same way again. Over the span of one presentation, a revolution occurred. Does that mean that every presentation that you give is a revolution? Not necessarily. But considering what Carmine Gallo has to say about crafting presentations can give you a revolutionary approach to all your communications. In this conversation with InsuranceNewsNet Publisher Paul Feldman, Carmine peels back some of the basics. FELDMAN: What makes a great presentation? GALLO: Let’s talk about inspiration first of all. Inspiration means to elicit a fervent enthusiasm, to get people excited, to get people fired up about you, your brand, your product. All presentations that are inspiring have essentially three different areas. They need to be specific, they need to be memorable and they need to be emotional. If you’re trying to talk to me about an annuity product, a new life insurance product, I need to understand it. What is it exactly? What’s an annuity? You can’t get me to that next phase of the sale unless I understand what you’re saying. You need to make it memorable. How can I repeat it to my wife when I get home? I need to be able to repeat it to somebody. You also need to make it emotional because most people forget or they simply don’t know that in order for inspiration to occur and to connect with someone on a far deeper level you need to touch a person emotionally. FELDMAN: You have said there are three ways of preparing the communication or the presentation. Would you explain that? GALLO: The first step is to create the story. All too often, especially if presenters are giving that PowerPoint presentation, they go right to the slides. FELDMAN: I think this industry struggles on that – communicating about a complex product and then you’ve got compliance neutering what you’re saying. It becomes almost incomprehensible. GALLO: Yes. They don’t sit down and say to themselves if you
FEATURE
Carmine Gallo says Steve Jobs taught us how to keep our messages simple, accessible and effective. were to write an article about this particular product, what’s the story behind it? Why did it come about? Who needs this particular product? Why is this product being offered now? What’s the newsworthy element of this product? Then we can start delivering the experience. How are you going to differentiate yourself from the thousands of other life insurance and annuity salespeople out there? What kind of experience are you going to offer when you communicate with me so that at the end of the conversation I am truly inspired? FELDMAN: Most people think of Steve Jobs as a natural communicator, but that wasn’t the case was it? GALLO: Yes, a lot of people told me that over the years. “Steve Jobs, he was naturally charismatic. He made it look effortless. I’m not like that.” It really disturbs me to hear that because neither was Steve Jobs. Steve Jobs wasn’t like that in 1976 when he was a young kid just starting out in the spare bedroom of his parent’s house. He wasn’t like that in 1984 when he launched Macintosh. There is YouTube video of him from back then. He was very stiff and reading from notes. He was not a gifted speaker. Nobody’s born a gifted communicator who can deliver a great PowerPoint presentation or who can talk persuasively about complex products. People practice it. And, obviously, the more you do it, the better you get. But, if you continue to speak in a way that’s confusing, convoluted, uninspiring and just not memorable, you can practice all you want and that doesn’t help either. So, you have the components first and then you can refine and rehearse. FELDMAN: Do you think presenters rely on PowerPoint too much for their presentations? January 2013 » InsuranceNewsNet Magazine
13
FEATURE
How to Present Like Steve Jobs
“Once in a while, Steve Jobs would use a technical term, but then the next sentence would be, ‘To make it simple,’ and then he would say what it is.”
GALLO: A lot of people think we should never use PowerPoint. But I think they’re wonderful complements to complex content because there’s something that’s called “picture superiority.” That simply means that information is more readily processed by the brain when it is presented as text and images instead of text alone. It’s pretty common and well-known in the field of neuroscience. When you deliver information verbally, people remember about 10 percent of the information. Add images, and retention goes up to 65 percent. Now, let’s go back to the original question about PowerPoint. Forget PowerPoint. The visual display of information is important. It is an important complement to your brand, your product or your package of products. I’m sure within your industry there are a lot of marketing materials that show graphs, charts and how much more money you would have in retirement, that type of thing. You need to have that, but don’t lock yourself into thinking, “I have to have a PowerPoint with it.” It’s more when you have visual information to complement the conversation. Maybe that’s the overriding principle here. It is important to have the visual, but it doesn’t have to be a traditional PowerPoint slide. 14
If you’re talking about a particular product. Talk about a person or a couple who used the product and found a great deal of financial success or comfort from it. How about a real picture of the couple? “And here’s Bob and Betty, and they’re clients of mine. Let me tell you a little bit more about them.” And the customers are going to feel an emotional connection to them because stories about real people are emotional. You’ve got to think creatively about the images you use. So many people use clip art or the free images that Microsoft includes in PowerPoint. Everyone uses those images and it can make your information less memorable, if not boring to the audience. Brains crave variety and your visuals should deliver variety, not familiarity. I don’t understand why so many people have to use clip art or stuff that isn’t emotional, images that don’t represent anything. They’re just sort of metaphors for something, like a “golden egg,” which is totally overused in the financial services industry. You’ve got to get back to: What is my story and how do I use images to complement it? FELDMAN: How do you create a “great” story? GALLO: A message map is an awesome
InsuranceNewsNet Magazine » January 2013
way of helping to create a story and creating a pitch that anyone can understand in 15 seconds. It also gives me an outline for a much broader story. I used to do this for very large clients when I was in a PR firm, and they paid many thousands of dollars for a session to create a message map. But, a message map can be created by anybody for free just by sitting down with a notepad or a Word document. I will use an example from Apple because I wrote this in conjunction with my Apple research. I’ll use the new MacBook Pro. It’s a computer but people can replace it with a financial product. The first thing you want to do is the very first thing a journalist would do. Step one is to create a headline. What is the one overarching message that I want my customer to know about this product? If they could only know one thing, what would it be? If a customer walks into an Apple store, what’s the one thing you want them to know about the MacBook Pro, the new notebook computer? You could say, “The new MacBook Pro is built for the highest level of performance.” That would really catch your ear: built for the highest level of performance. So, in one sentence it tells what it is and who it’s made for. But, here’s the most important thing about a headline. Make sure that it fits in a Twitter post. No more than 140 characters. If you start writing a headline that’s more than 140 characters, it becomes very long and very convoluted. A headline is just supposed to grab my attention. Here’s the brilliance of Steve Jobs. Over the years, regardless of the product that he announced, every product had a Twitter-friendly headline that went along with it. It was only one sentence, but it was the most salient summary of the product and he always repeated it. For example, when he came out with the MacBook Air, which is their ultrathin notebook, he said, “What is the MacBook Air? It’s the world’s thinnest notebook.” That’s it. It’s the world’s thinnest notebook. That’s all you know, but it actually tells you a lot. You may want to
How to Present Like Steve Jobs know how thin it is. How did you get it so thin? Where do you compromise by having a thin notebook? There are questions you have, but we’re going to fill in the rest of the story. FELDMAN: What is the next step after you condense the idea into a headline? GALLO: Offer three supporting messages. What are the sub-messages? They
may not be as important as the overarching headline, but they are important. I need to know them. So, they could be benefits. For the MacBook Pro, what are the three components? One is, it has the world’s highest resolution display. That’s consistent in all of Apple’s marketing. It’s called “the retina display.” It’s an important component of the headline – built for the highest level of performance.
FEATURE
The second message could be it has flash storage, so there are no moving parts. Your computer is more reliable. The third is it comes with an Intel i7 processor, the world’s fastest processor. That reinforces the “built for the highest level of performance.” So, think about the conversation. Somebody walks into an Apple store. “Yeah, these new MacBooks. I heard about those. Can you tell me more?”
Setting the Stage for an Unforgettable Presentation
Carmine Gallo describes how a Steve Jobs presentation was like a performance in three acts. Act 1 – Create the story
A strong story will give you the confidence and ability to win over your audience. Scene 1 – Plan in analog. Truly great presenters such as Steve Jobs visualize, plan and create ideas well before they open the presentation software. Scene 2 – Answer the one question that matters most. Your listeners are asking themselves one question and one question only: “Why should I care?” Disregard this question, and your audience will dismiss you. Scene 3 – Develop a Messianic sense of purpose. Steve Jobs was worth more than $100 million by the time he was 25, and it didn’t matter to him. Understanding this one fact will help you unlock the secret behind Jobs’ extraordinary charisma. Scene 4 – Create Twitter-like headlines. The social networking site has changed the way we communicate. Developing headlines that fit into 140-character sentences will help you sell your ideas more persuasively. Scene 5 – Draw a road map. Steve Jobs made his argument easy to follow by adopting one of the most powerful principles of persuasion: the rule of three. Scene 6 – Introduce the antagonist. Every great Steve Jobs presentation introduced a common villain that the audience can turn against. Once he introduced an enemy, the stage was set for the next scene. Scene 7 – Reveal the conquering hero. Every great Steve Jobs presentation introduced a hero the audience can rally around. The hero offers a better way of doing something, breaks from the status quo and inspires people to embrace innovation.
Act 2 – Deliver the experience
Turn your presentations in visually appealing and “must-have” appearances. Scene 8 – Channel their inner Zen. Simplification is a key feature in all of Apple’s designs. Jobs applied the same approach to the way he created his slides. Every slide was simple, visual and engaging. Scene 9 – Dress up your numbers. Data is meaningless without context. Jobs made statistics come alive and, most important, discussed numbers in a context that was relevant to his audience. Scene 10 – Use “amazingly zippy” words. The “mere mortals” who experienced an “unbelievable” Steve Jobs presentation found it “cool,” “amazing” and “awesome.” These are just some of the zippy words Jobs used frequently. Scene 11 – Share the stage. Apple is a rare company whose fortunes were closely tied to its co-founder. Despite the fact that Apple has a deep bench of brilliant leaders, many observers say Apple was a one-man show. But Jobs treated presentations as a symphony. Scene 12 – Stage your presentation with props. Demonstrations played a very important supporting role in every Jobs presentation. Lean how to deliver demos with pizzazz. Scene 13 – Reveal a “Holy @#$%” Moment. From his earliest presentations, Jobs had a flair for the dramatic. Just when you thought you saw all there was to see or heard all there was to hear, Jobs would spring a surprise. The moment was planned and scripted for maximum impact.
Act 3 – Refine and rehearse
Work on your body language and verbal delivery, and make your “scripted” presentations sound natural. Even your choice of wardrobe should be addressed. Mock turtlenecks, jeans and running shoes may have been suitable for Steve Jobs but could mean the end of your career. Scene 14 – Master stage presence. How you say something is as important as what you say, if not more so. Body language and verbal delivery account for 63-90 percent of the impression you leave on your audience, depending upon which study you cite. Steve Jobs’ delivery matched the power of his words. Scene 15 – Make it look effortless. Few speakers rehearsed more than Steve Jobs. His preparation time was legendary among the people closest to him. Researchers have discovered exactly how many hours of practice it takes to achieve mastery in a given skill. Scene 16 – Wear the appropriate costume. Jobs had the easiest wardrobe selection in the world. It was the same for all of his presentations. His attire was so well known that even “Saturday Night Live” and “30 Rock” poked some good-natured fun at him. Scene 17 – Toss the script. Jobs talked to the audience, not to his slides. He made strong eye contact because he practiced effectively. With the right way of practicing, you can toss the script. Scene 18 – Have fun! Despite the extensive preparation that goes into a Steve Jobs presentation, things don’t always go according to plan. Nothing rattled Jobs, because his first goal was to have fun!
From The Presentation Secrets of Steve Jobs: How to Be Insanely Great in Front of Any Audience, by Carmine Gallo. 2010 McGraw-Hill.
January 2013 » InsuranceNewsNet Magazine
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FEATURE
How to Present Like Steve Jobs
“Steve Jobs got up there and it was a brilliant presentation. He asked, ‘What’s the problem with the smart phones that are out there?’” The specialist in 20 seconds can say something like this: “The new MacBook Pros are built for the highest level of performance. They have the world’s highest resolution notebook display. We call it the retina display and I’d love to show you some video on it. It looks fantastic. It comes with all flash storage, so there’s no moving parts. It’s more reliable. It’s built for the strictest level of performance and that’s why it comes with Intel’s latest microprocessor called the i7. I can explain more about the technical aspects behind that, but, bottom line, it’s the world’s fastest processor on the market today for notebook computers.” So, in 20 seconds you’ve just given me the whole story. You’ve given me the headline: “It’s built for the highest level of performance.” You’ve got my attention. FELDMAN: How do you make a message an emotional story? GALLO: There are several ways of making a product conversation emotional and the first step we’ve already talked about is storytelling. Storytelling can be, here is how I use this particular product or here is how it has benefited my life. Let me tell you a story about Bob and Betty, two people in their 50s who were worried they didn’t have enough for retirement. Let me tell you about how this particular product improved their life or 16
gave them peace of mind. That’s a story. FELDMAN: You have talked about introducing the antagonist and revealing the conquering hero. Would you explain that? GALLO: The conquering hero is your product. Every great story has a hero and a villain. What is the villain? What is the problem in need of a solution? So, this is just sort of a natural way to tell a story, but it’s also a great way of engaging someone in a conversation, inspiring them and getting them emotionally connected to your product. Emotional connection happens when you talk about the problem that people are facing. They may not even know they have the problem. Once you get them nodding in agreement, then naturally you can take them to that next level because you’ve already made an emotional connection with them. FELDMAN: Is the hero/villain technique something Steve Jobs would do? GALLO: Yes. When Steve Jobs introduced the iPhone in 2007, most people going into the presentation that day understood that Apple would have a phone. A lot of the critics and media people asked why would we need a phone from Apple? That doesn’t make any sense. There’s Blackberry. There are a lot of smart phones on the market today. They
InsuranceNewsNet Magazine » January 2013
seem to be doing the job. People don’t even know that there’s a problem until you reveal the problem. That’s what I mean by revealing the antagonist, revealing the villain in the narrative. What’s the problem? So, Steve Jobs actually got up there and it was a brilliant presentation. It’s still on YouTube. He spent only a couple of minutes on this and he said, “What’s the problem with the smart phones that are out there?” And then he had a visual display of smart phones – Blackberry, Nokia and a few of the others. He said, “Using these, there doesn’t seem to be an issue, but there actually is. You see these keyboards here? These keyboards are set in plastic and they don’t move off the device, so that means the screen size is a lot smaller because the keyboards are always in plastic.” So, people are starting to nod. “Yeah. OK. I guess he’s got a point.” So, how can we make a better experience? Well, why don’t we get rid of the keyboard and make one giant display? “Yeah. I guess I did have a problem. I didn’t know that. That makes perfect sense.” So, now, the rest of the presentation is to reveal the hero. So, think about it that way: Problem, solution. Antagonist, protagonist. Villain, hero. But, the villain comes first just like in a great movie. Who’s the villain? Establish the villain, the problem in need of a solution. FELDMAN: You have described Steve Jobs’ Zen as “channeling the inner Zen.” Take us through that process. GALLO: Simplicity – that’s all that means. Simplicity of information. Simplicity of conversation. Steve Jobs never used jargon. When I work with engineers and technology companies, I don’t understand what they’re saying for the most part. I have to go back to material and try to figure out what did they just tell me. My brain has to work too hard to process information. Steve Jobs never used jargon. The buzz words that we seem to use in business all the time – to optimize, what does that mean? It doesn’t mean anything. So, when you’re reviewing your financial product before a customer meeting, look at the words that you use.
How to Present Like Steve Jobs Sometimes you’re restricted because you have to say things in a particular way, but there’s no reason why you can’t add one sentence to say in simple terms that means x, y, and z. Steve Jobs used to say that quite often. Once in a while he would use a technical term, but then the next sentence would be, “To make it simple,” and then he would say what it is. To make it simple – those few words will actually grab somebody’s attention. To make it simple – “Yeah. Tell me more.” By making things more simple, you have that better connection to people. Some of the financial products that advisors are selling these days are far too complex for the average person to understand, but they’re actually not that complex if you explain it simply. You have to do what Steve Jobs used to call “eliminating the clutter.” Eliminating the clutter from a product makes it easier to use, but also eliminating the clutter from your conversations. If you overwhelm me with packets and packets of marketing material or a lot of confusing, convoluted information instead of giving me that simple, clear message map, you’re going to lose me anyway. You’re going to lose my interest because I can’t follow it. I can’t tell you how many financial advisors I’ve talked to who’ve talked to me about – what’s that popular product right now? There’s like an S&P annuity out there? FELDMAN: That might have been an indexed annuity. GALLO: The indexed annuity. OK. I still don’t think I can explain it to you. But, if you gave me something like that, and gave me 30 minutes to figure it out and create a message map around it, I’d be able to explain it much more persuasively than I’ve heard it explained to me. I would go through a process to understand a story, problem and solution. I haven’t signed up for an indexed annuity because I didn’t understand what the advisor was saying. So, if you make me work too hard on it, I don’t think I need it. I don’t know. Maybe I do need it. But, if my mind is working too hard to understand what you’re saying, I’m
FEATURE
a thing as “good enough?” GALLO: I’ll be honest, the people who tell me, “I give presentations all the time” are typically the least effective presenters. Maybe you ought to look at yourself and see how you can improve to the next level. Here’s my take. Watch the Steve Jobs iPhone introduction. If you can say you’re better than that, more comfortable, more charismatic, more engaging, more persuasive, then you probably don’t need any more help. We’ll let it go.
“The people who tell me, ‘I give presentations all the time’ are typically the least effective presenters.” either going to look for another advisor or I’m not going to buy your product. Is it just me, Paul, or do you think that the way these annuities are being presented is very confusing? FELDMAN: Yes. Advisors are getting very bad marketing material from the companies who are afraid to say too much. They’re scared to death of what their own agents are presenting because they’re complex products. GALLO: Well, thank you, because I thought I was just an idiot [laughter]. Like am I really that dense? I don’t quite get the benefit to me. And here’s a great question in terms of journalism principles. When I studied journalism, in my first class you needed to answer the question what’s in it for me? Why should I care? Why should the reader care? I still can’t tell you that about indexed annuities. FELDMAN: I am sure there are readers out there who feel they present very well and don’t need to improve. Is there such
FELDMAN: Steve Jobs has become a benchmark for his presentations, but most people have no idea how much preparation and work went into each presentation, do they? GALLO: I heard through a couple of reliable sources that there was a 20-minute section of the presentation, the part where he demonstrated the iPhone, that took 240 man hours to create. That included the technology behind the demo, but also the graphic design. All of that and the rehearsal time. Steve Jobs was relentless about rehearsing. He would drive people batty when it came to rehearsing because he didn’t like the way a font looked on a particular slide or he didn’t like the way the lights reflected on the computers. And people said, “They look perfectly fine. What’s wrong with the lights?” And inevitably when he tweaked it, it always looked better. That was the genius of Steve Jobs. FELDMAN: Couldn’t that standard be intimidating to some presenters? GALLO: You don’t have to go to that extreme. But it does tell you that it’s a lot more preparation in a presentation at that level than there is for the typical presenter. I would argue Apple is selling something very important – new products for them and for their brand. If you’re giving a seminar, isn’t that presentation mission critical for your brand? Put in a little more time to make it the most persuasive as possible so that people who leave that seminar say, “I want to work with that person. I like him or her and I like what he or she just talked about.” That’s the whole point.
January 2013 » InsuranceNewsNet Magazine
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[NEWSWIRES]
Study IDs largest life insurance gaps among four major groups bitly.com/QR4Groups
Donelon Takes the Lead at NAIC Louisiana Insurance Commissioner Jim Donelon has taken over as president of National Association of Insurance Commissioners (NAIC). Elected in December, he succeeds Florida Insurance Commissioner Kevin M. McCarty. Donelon was appointed Louisiana Insurance Commissioner in February 2006 and has been elected three times to the position since then. Other new NAIC officers are: North Dakota InsurJim Donelon ance Commissioner Adam Hamm, president-elect; Montana State Auditor and Commissioner of Securities and Insurance Monica J. Lindeen, vice president, and Pennsylvania Insurance Commissioner Michael F. Consedine, secretary-treasurer.
CONNING ON COMBOS: THEY’RE BREAK-THROUGH PRODUCTS
It’s no secret that high premiums, low lapse rates, weak profits and other headwinds have challenged standalone long-term care insurers to the hilt. But researchers at Conning, Hartford, Conn., see opportunity ahead in a sister line. These are combo policies – the ones that combine long-term care riders with life insurance or annuities. Combos do have higher premiums than stand-alones, allows Stephan Christiansen, director of research. But they have consumer appeal, too, because insurers have greater certainty that they will receive something from the contract, whether a long-term care or life insurance benefit. What’s more, he says, the products are “beginning to break through in terms of sales success.” Ah, but Christiansen has a cautionary note as well: Even though combos represent a “generally more acceptable risk profile to insurers,” he says, the question remains about whether the structural issues that plague standalone products will also impact growth and profitability of combos. Our boil-down: With opportunity comes risk. DID YOU
KNOW
?
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401(K) PUZZLE
The defined contribution plan world has a puzzle that needs solving. Nearly half of participants in 401(k) and 403(b) plans say they want access to automatic increase features in their plans, according to Cogent Research. But only 18 percent of Americans with retireof Americans ment plans say they are are enrolled in taking advantage of such auto-increase a feature, the Cambridge, programs Mass., researcher says. How to figure that mismatch? Cogent did a little digging and found out two things. First, only 13 percent of smaller employer plans even offer an auto-increase feature. So the issue there is lack of access to the feature, says Christy White, a Cogent principal. Second, at larger firms (1,000+ employees), nearly half of plans offer auto-increase. Even so, only 19 percent of Americans tied to large employer plans report being enrolled in auto-increase programs. White thinks the problem at the larger firms is lack of awareness about the feature. These findings must be frustrating to industry experts who have long campaigned to have auto-increase programs added to 401(k) and 403(b) plans. They tout the programs as a means of nudging more workers
18%
86 percent of American consumers have never shopped for health insurance online. Source: Connecture
InsuranceNewsNet Magazine » January 2013
to save more money for retirement – so the workers will be able to afford to retire when the time comes. Advisors might find value in the findings, however. For example, if they have clients who are not doing auto increases, or any annual increases, the advisors might want to have some discussion around that and/or suggest other ways to build up the retirement account.
A CAPTIVATING SITUATION
Between 2006 and 2011, several of the nation’s largest life insurers substantially increased their ceding of reinsurance to affiliates, says SNL Financial, Charlottesville, Va. The notables include: MetLife Inc., which increased its percentage of reinsurance ceded to affiliates up to 71.8 percent from 26.7 percent; Protective Life, up to 32.3 percent from 15.1 percent; Pacific Mutual Holding Co., up to 32.7 percent from none; and American International Group Inc.’s life business, up to nearly 80 percent from 67.8 percent in 2006. These are not so-called “pure” captives, but rather newer “special purpose vehicles” that assume third-party insurance risk. National Association of Insurance Commissioners (NAIC) is exploring transparency and confidentiality issues around these types of captives, as it susses out whether state regulators need additional regulations related to these kinds of arrangements. Advisors do not have a direct stake in this inquiry, but since reinsurance is always in the background of carrier and product availability, they do have an interest. To see more on the subject, including comments from the industry, go to naic.org and search for the Captive and Download Special Purpose VehiNAIC White Paper, cle Use (E) Subgroup of the Financial Con- “Captives and dition (E) Committee. Special Purpose Vehicles” You can also download a Word document of the NAIC white paper at bitly.com/CaptivatingSituation.
WHAT IN THE WORLD IS A PRIVATE HEALTH INSURANCE EXCHANGE?
Public health insurance exchanges are government-established health insurance marketplaces that are being set up under the Affordable Care Act. Consumers will be
[NEWSWIRES] able to go to those public marketplaces to shop for health insurance plans. But what are private health insurance exchanges? The question comes up because a number of firms are bringing out products for the private health insurance exchange market. The terminology can be confusing. The private exchanges are marketplaces, too, but they are created by entities such as private sector companies rather than state or federal government. Employers can go to the exchanges to select health insurance plans of various insurers that the employers can then offer to their workers as benefits choices. Who pays for the plans, and how, varies by plan design and other factors. Health insurance brokers can do business clients a world of good by explaining the distinction between the two. By the way, Dan Maynard, president of Connecture, a Chicago firm that has developed a technology product for this market, is an advocate of the private single-payer exchanges. They provide an effective way for health plans to lower costs to employers, as well as enable employers to provide workers with more health plan choices, he maintains. That might be a point to raise with interested business clients.
QUOTABLE Women don’t need to choose between saving and paying off debt. They must do both to build a stronger and brighter long-term financial future for themselves and their families. — Professor Mary Quist-Newins, director of The State Farm Center for Women and Financial Services at The American College
HEADS UP ON TEMPER TANTRUMS
The American Psychiatric Association is changing the way psychiatrists define certain mental disorders. For instance, according to the new diagnostic manual the group is putting out this May, a temper tantrum could be a sign of mental illness, says an Associate Press report. At face value, that would
The Search is on for Financial Peace of Mind
61%
Although the stock market and economy have rebounded somewhat, the confidence many Americans once had has diminished, says Jay Wintrob, president of Americans age 55+ and CEO of AIG Life and Retirement. A Harris Interactive survey that his New York firm conducted in view saving enough as conjunction with Age Wave found that 61 percent of top priority American adults age 55+ view saving enough to have “financial peace of mind” as a top financial priority. By comparison, only 14 percent view accumulating as much wealth as possible as their top priority. In addition 32 percent say that they plan to look into ways to protect existing assets in response to the recent economic and financial market uncertainty, while only 4 percent plan to invest more aggressively to make up for lost time. The economic problems of the past few years not only had an economic impact on Americans, surmises Ken Dychtwald, CEO of Age Wave. “This survey reveals that the psychological impact was also substantial – and a new mindset is emerging,” he says. seem to have little importance to insurance professionals. But AP points out that the impact could be important for the insurance industry in deciding what treatments to pay for. Let’s flesh that out a bit. The changes could affect claims, for instance for health and disability insurance. Depending on the details, the changes could also affect or influence life underwriting. Field underwriters and underwriters for brokerage general agencies could feel a few waves too, for instance when reviewing cases where mental disorders are involved. For a taste of what’s ahead, the AP story mentions that “disruptive mood dysregulation disorder” will be a new diagnosis – for “children and adults who can’t control their emotions and have frequent temper outbursts in inappropriate situations.” Also, the term “autism spectrum disorder” will apply to children and adults with autism. But the familiar diagnoses of Asperger’s disorder and dyslexia won’t be in the manual anymore.
A LIGHT AT THE END OF THE TUNNEL FOR AIG
That’s right, the big New York insurance holding company has had some good news lately. In December, the Treasury sold its remaining 234.2 million shares
of AIG common stock, raising about $7.6 billion. This marks full resolution of America’s financial support of AIG, says AIG in a statement, referring to the federal government’s $182 billion bailout of AIG during the 2008 financial crisis. The Treasury continues to hold warrants to purchase approximately 2.7 million shares of AIG common stock, AIG says, noting that this should provide an additional positive return to taxpayers when sold. The total combined profit to taxpayers is $22.7 billion, said AIG President and CEO Robert H. Benmosche in a statement. The previous month brought some relief, too. That’s when a federal judge dismissed a $25 billion lawsuit that Starr International had filed against AIG. Starr is headed by none other than Maurice “Hank” Greenberg, the former CEO of AIG. According to an Associated Press report, the suit had accused the Federal Reserve Bank of New York of taking valuable assets from AIG shareholders without their consent or fair compensation.
January 2013 » InsuranceNewsNet Magazine
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F
lexible products and flexible planning strategies will be all the talk in 2013, as the life and annuity industry gears up for a year of many unknowns. The product frontier will feature designs made for sale in today’s hostile environment of low interest rates, high market volatility and continuing regulatory pressure, but with enough flexibility to adapt in an improving economy. The new products with this dual-functionality won’t be glittery but they will be durable and longer-term focused. According to some market watchers, a lot of these products will debut as the year unfolds and carriers clear off their shelves to make room for post-recession compatible products. This could open up some new opportunities for advisors, many of whom tend to gravitate to the oldies-but-goodies, 20
such as term, whole life and traditional fixed annuities, when times are tough. This time around, advisors will have other options also.
LIFE INSURANCE
“Flexibility in the face of change” is one of two product concepts that will be extremely important in 2013, predicts Louis Shuntick, senior vice president-advanced planning, Lincoln Benefit Life. For example, he says, advisors should consider attaching a “liquidity rider” to a universal life (UL) product. This rider will guarantee access, upon surrender, to the greater of the UL’s contract value or amount paid in premiums. That guarantee could increase the long-term usefulness of the UL product, Shuntick says, noting “flexibility is good for serious planning.” In general, he says, advisors need to “get away from spreadsheet selling,” where recommending the cheapest life insurance policy tends to rule the day.
InsuranceNewsNet Magazine » January 2013
Instead, he says, advisors should look for products that can build substantial cash value that is accessible on favorable terms later on via flexible features. The other important concept in 2013 will be achieving “certainty in the result,” Shuntick says. In uncertain times, products that can do this will have strong appeal.
Guaranteed Universal Life
Those possibilities are important for advisors to keep in mind because one very popular type of life policy is expected to lose some, if not all, of its luster in 2013. That product is guaranteed universal life (GUL), the universal life (UL) contracts that include secondary guarantees on the death benefit. Experts predict prices for GUL will go up and availability will go down in 2013. That’s because revisions that National Association of Insurance Commissioners (NAIC) adopted for Actuarial Guideline 38 (AG 38) will take effect in January. These revisions increase the reserves carriers must hold for GUL products.
Products for a Safe Trip Through a Turbulent 2013
As a result, experts say, carriers will increase GUL premiums. That change, combined with low interest rates and high capital requirements, will put a “ton of pressure” on these products, predicts Bobby Samuelson, a life insurance authority who is executive editor at The Life Product Review. “It’s as if the legs were chopped off an Olympic jumper who was already trying to run with 50-pound weights,” he says. In fact, he says, “I do not foresee any situation where UL pricing will go down in 2013 or sales go up.” Mike Murphy, vice president-advanced markets, American General Life companies, predicts “some companies will even exit certain GUL products.” As for the remaining products, “these will get more expensive.” “Some companies have financing in place for the higher reserves, so AG 38 will have less impact on GUL price and availability at those carriers,” Murphy says. “But we could see the smaller companies exit the market, because they can’t be competitive any more. There could be moratoriums on sales, too, if the companies can’t get it together (on
AG 38) by Jan.1. Or maybe they will just eat the cost of the higher reserves until they can do what they need to do.”
Indexed Universal Life
GUL’s troubles do not mean that advisors will have no more UL to sell in 2013. Far from it. Many executives are predicting that a newer form of UL – indexed universal life (IUL) – will be 2013’s rising star. And, yes, they say flexibility is one of the reasons why. “We continue to see a lot of growth in the IUL market,” says Murphy. “Even some big carriers have entered the market.” He attributes this in part to the IUL’s bottom side protection and upside potential, which are features that he says appeal to consumers. In addition, he says, some IULs are coming out on a GUL chassis. That means the policy owner can lock in the death benefit as well as have the protection and potential of the indexed product. Louis Slagle, sales director at Minnesota Life, agrees that a secondary guarantee in an IUL has market appeal. “People will still want secondary guarantees,” he explains. Another reason IULs should grow and
FEATURE
expand in 2013 is their cash accumulation potential. Simply put, “advisors are recognizing that IULs are cash value products and because of that, they will have more flexibility down the road than GULs,” Slagle says. That will be important to advisors who serve the growing pre-retirement market. “Most IULs are designed to take someone out to retirement, when it’s time to take an income stream,” explains Greg Schwabe, national marketing director, First American Insurance Underwriters. By comparison, GULs are only for mortality protection, he says. Samuelson of The Life Product Review says the IUL market will face its own set of challenges, however. For instance, he predicts that the number of producers who are willing to sell IUL will flat-line. “And other distributors are skeptical because they think IULs are complicated and their long-term performance is uncertain.” For those reasons, he believes the growth rates IUL has seen in recent years could begin to slow. Even the accumulation potential of the product could cause hiccups. That’s because producers who formerly sold GUL for the death benefit will not be interested in selling IULs built for accumulation, Samuelson predicts. January 2013 » InsuranceNewsNet Magazine 21
FEATURE
Products for a Safe Trip Through a Turbulent 2013
But even Samuelson sees potential in the IUL market. Some carriers will start marketing new types of IULs in 2013, he explains. These are IULs designed for death benefit sales, not accumulation. The products will pay lower commissions, have lower policy charges and caps but offer more competitive premiums than accumulator IULs, he says. Their arrival will enable GUL marketers to “pivot to IUL products,” he continues, and this will help create a new IUL market. Samuelson also predicts that a new, more flexible generation of IULs will emerge to meet market needs. These will be ULs that offer both an indexed bucket and a fixed bucket, he says. They will combine features of current assumption UL and IUL, but be sold as UL, not IUL. The carriers will position the products as being “not much different than current assumption UL, only the customer has the option of going into an indexed account in addition to the general account,” he adds.
Combo Universal Life Policies
Another UL policy that will get more attention in 2013 is the combo UL, predicts Ann Eads, vice president-carrier relations, LPL Insurance Associates. Also called hybrids, these policies combine UL insurance with long-term care (LTC) protection. There will be more such products on the market in 2013, and combo sales will grow, Eads predicts. That’s partly because there is greater awareness of the need for long term care than ever, she says. In addition, carriers offering stand-alone LTC policies have had difficulties with pricing and claims experience, and consumers’ dislike of the use-it-or-lose-it nature of the traditional LTC policies, she says. So, by comparison, the combo policies look attractive, she says, explaining that “the customer knows that the benefit will always be used – for care or at death.” That kind of flexibility has and will have appeal, says Eads.
Mike Sause, president and founder, Annuity Marketing Service, sees the same thing. In fact, he says that advisors are specifically asking for combo policies, and Michael Smith, president, The Brokerage, says sales of combos are already “up, up, up.” Other types of combos may emerge in 2013, predicts Jerry Hartman, chairman and CEO of Insurance Network America. These might include contracts that combine UL with critical illness benefits or some other types of coverage.
Term Life, Whole Life and Variable Universal Life
What about the old standby life policies – term, whole life and variable life? Term life products will face challenges, Samuelson says. “In a low rate, commoditized market, which is very competitive, price pressure is increasing and availability of product is declining. For instance, in the 30-year level term market, prices are up and availability has declined.” Some carriers have left the 30year market altogether but others may re-enter, adds Murphy of Wisconsin. Fidelity Life is focusing on selling term life insurance in the mid-market, to households with annual incomes of $35,000 to $100,000, says Jim Harkensec, president and COO in the Chicago office. These are non-medical products where the carrier uses pharmaceutical databases, motor vehicle records and MIB reports to get the underwriting information it needs. For fraud detection during up-front screening, it checks Lexus Nexus. A lot of companies are coming out with faster issue non-medical products, says Harkensec. “It’s an easier way to reach and underwrite in the mid-market, and to do it profitably.” Whole life insurance will continue to have market appeal in 2013, executives say. Agents are asking for the product in particular, notes Slagle of Minnesota. LIMRA has reported that the whole life market share was 33 percent in the first
There will be a spike in the IA market, because people are looking for higher yields with a fixed floor. 22
InsuranceNewsNet Magazine » January 2013
six months of 2012, he notes, predicting that the strong sales will continue. “Carriers have a great story with this product,” agrees Samuelson. But he cautions that the prolonged low interest rate environment will affect whole life sales in the long term. “Many producers are basing the sales on dividends,” he explains. “They show how the dividend rates are dramatically higher than what the market will pay. But if interest rates pop, people who are looking for gain will no longer buy those policies. And if existing products were sold on an asset, dividend-oriented basis, there could be problems with disintermediation of existing customers too.” Variable universal life (VUL) sales will stay flat in the independent distribution channel, predicts Slagle of Minnesota. “I don’t think that people are ready to go back yet to selling or buying the product. But I am seeing some carriers adding options to their VUL policies, such as indexing, more fixed options, more bond portfolios, and exchange traded funds for diversification and stability.” Samuelson predicts that the strongest carriers in the VUL market will start bringing out products that pay levelized commissions – ”no heaped commission at all.” That will allow the products to deliver more value to the customer, he contends. In addition, the investment options will include dynamically hedged subaccounts. “These new designs will be game-changers,” he predicts.
ANNUITIES
Fixed Annuities
Flexibility – the emerging buzz word for the double-jointed products in 2013 – is also important in the fixed annuity world. “It used to be that the longer the guarantee interest rate period in a traditional fixed annuity, the better,” explains Gary Dworkin, president, DAI Associates. “But that is not constructive when credited rates are in the range of 2 percent to 3 percent.” His advice to advisors is to look for interest rates with some sense of future flexibility. And that would include an annuity with an upside. He points to bonused fixed annuities and indexed annuities (IAs) as examples. The bonused products pay a bonus
Products for a Safe Trip Through a Turbulent 2013 into contracts that have been in force for a specified number of years (such as 10 years), and the IAs pay a guaranteed interest rate at today’s rates plus the potential for more (via indexed-linked interest crediting). Such products will become increasingly important in 2013, he predicts. “They give customers a good rate for the current environment, plus the opportunity to earn more without having to change out of the policy into a higher earning contract in the event that interest rates spike later on.”
FEATURE
2013 Life and annuity product trends Which Lines Could Be the Rising Stars
more opportunity Indexed Universal Life Combo Universal Life Whole Life
Fixed Indexed Annuities Income Annuities Variable Annuities
Indexed annuities
IAs, in particular, will fare well in 2013, according to Greg Schwabe of Massachusetts. “There will be a spike in the IA market, because people are looking for higher yields with a fixed floor,” he predicts. The lower caps on the contracts sold during the low interest rate environment could be a concern during a rising rate environment, he allows. But even if the crediting rate goes up to the policy cap, “the interest will still be where most fixed annuity rates will be at that time,” he speculates. “IAs will carry the fixed annuity industry during the year,” agrees Brendon Kelly, vice president-annuity operation, Ash Brokerage. This will especially be the case when carriers begin debuting accumulation-focused indexed annuities, he predicts. The accumulation IAs will appeal to clients who don’t want to buy annuities for income purposes, he says. In recent years, Kelly explains, IAs have focused a lot on having living benefits features such as the guaranteed minimum income benefit. That’s not a problem when the client buys the contract for lifetime income, but it does pose problems if a client buys the IA for gain and then sees interest rates go up high (beyond the cap), he says. The problem comes because the policies require the client to stay with the carrier and product so they can take the income, Kelly says. If the buyer wants gain, not income, that could trigger suitability and compliance concerns down the road, he says. When carriers start filling the void with accumulation-focused IAs, advi-
less opportunity Group Universal Life Term Life Variable Universal Life
sors will be able to offer the products for a fixed period – perhaps five or seven years – and then, when market conditions change, take the indexed gains and roll the policy value into something else, says Kelly. The products might include restrictions on withdrawal privileges – say, for nursing home confinement and perhaps on 10 percent penalty-free withdrawals – and commissions would go lower as a result, Kelly concedes. But the products will appeal to advisors who are “starved for indexed products for accumulation rather than income purposes.”
Income Annuities
Speaking of income, some experts predict that traditional income annuities – the single premium income annuities or SPIAs – will become more important in 2013. As will fixed annuities that have minimum guaranteed income riders, says Michael Pinkans, senior vice president-marketing, Zenith Marketing Group. “Even though many carriers have cut back on features in the annuities, everything is relative,” Pinkans adds. “These products are still a good deal for the
Traditional Fixed Annuities and Multi-year Guarantee Annuities Variable Annuities right customer.” Another income annuity that will increase in 2013 is the deferred income annuity (DIA), says Jim Dobler, national sales manager for CANNEX Financial Exchanges, a firm that specializes in providing SPIA services. He is referring to the longevity annuities, which clients typically have many years before taking income, perhaps not even until deep into retirement. There are six DIAs on the market, Dobler says. “Within the next 12 to 18 months, we expect most SPIA carriers will offer the products. If they gain traction, we expect variable annuity and fixed indexed carriers will follow in three to five years.” With interest rates so low now, he points out, “there is little risk to the consumer between the time of purchase and the time of utilization, and very little risk to the carrier. Most of the companies will be investing with very safe guaranteed products, and they really don’t need to hedge.” The carriers will start distributing DIAs first through producers in the insurance industry, Dobler predicts. “If it takes off there, they will branch out to
January 2013 » InsuranceNewsNet Magazine
23
FEATURE
Products for a Safe Trip Through a Turbulent 2013
Because of low interest rate conditions, VA carriers can’t offer as generous a living benefit guarantees as they would like.
So curtailing the features, setting limits on how much living benefit business to accept, and even dropping the feature are all possibilities for 2013. bank and broker/dealer channels.” But, says CANNEX Chief Executive Officer Lowell Aronoff, advisors need to learn how to use the product in the client’s income portfolio. For instance, learn how to use the product in combination with systematic withdrawal, and get comfortable with the idea of advising clients to lock in money for a certain period and then take distribution.
Traditional Fixed Annuities and MYGAs
As for traditional fixed annuities (FAs) and multi-year guaranteed annuities (MYGAs), “these won’t make a comeback until interest rates increase significantly,” says Kelly of Indiana. The perceived value in today’s market is that the credited rates are just too low. Interest rates on these products will likely continue to be very low next year, adds Schwabe of Massachusetts. “Even so, if the alternate option is a CD or a bank savings account, the FA is still a good option if the customer doesn’t need the money for three to four years or for the length of the surrender charge period. That’s because these products don’t have a downside, and even if interest rates go up, the bank products will still lag behind.” Some FAs offer bailout provisions, points out Dworkin of New Hampshire. These features allow annuity owners to switch out of a contract with no surrender penalty if interest rates should rise by a certain percentage. The industry has not talked much about these provisions in recent years, but they do provide fu24
ture flexibility for the client, so advisors might want to consider them, he says. ”If the issuing company is strong and the feature is efficient and competitive, it could be a good thing for the client.”
Variable Annuities
Flexibility will be showing up in the variable annuity (VA) marketplace, too. Some carriers are coming out with new living benefit riders where the withdrawal percentage is variable, according to John McCarthy, product manager-advisor software in Morningstar’s insurance solutions business. That is, the carrier issues the contract with the rider that shows a withdrawal percentage range of, say, 4 percent to 8 percent. The exact percentage won’t be fixed until the policyholder decides to take withdrawal, McCarthy says. In the future, he adds, “I wouldn’t be surprised to see carriers tie different elements of the living benefit to the interest rates. These could include not only the withdrawal percentage, but also the annual step up in the benefit basis, or the actual rider fee, which is based on the VIX (the Volatility Index).” Such designs make it easier for carriers to manage their risk, he notes. In addition, existing and future customers will benefit “when the carrier can effectively manage risk to meet its guarantees.” A number of carriers are also designing VAs for use by registered investment advisors (RIAs), the security firms that work on a fee-only basis. This is a largely untapped channel but the carriers see it
InsuranceNewsNet Magazine » January 2013
as an opportunity going forward, McCarthy says. Morningstar’s database shows 61 such products are already active, up from 34 last year. Nineteen of the products do not offer living benefit guarantees at all. And the 42 that do offer living benefits have fewer subaccounts, say 50 or so, and they feature lowered pricing, a design feature that McCarthy says is intended to attract RIAs. A few fee-based VAs are adding more and more “alternative investment options” to their subaccount offerings. The contracts typically do not offer living benefit features. Instead, they focus on how alternative investments can help RIAs to diversify subaccounts with non-correlated assets as well as to increase tax efficiency. Some annuity watchers think more VAs will include these subaccounts in 2013, especially if they drop the living benefit riders. Because of low interest rate conditions, VA carriers can’t offer as generous a living benefit guarantees as they would like, McCarthy points out. So curtailing the features, setting limits on how much living benefit business to accept, and even dropping the feature are all possibilities for 2013. If interest rates go up, however, “it will be a new ballgame,” predicts Dobler. “The carriers will start ratcheting up their step-up provisions and withdrawal percentages and start ratcheting down their fees.”
A WORD TO ADVISORS All of the above is a lot to digest, for industry veterans or rookies. That means advisors will need to make time to get up to speed on products and product thinking for 2013, say experts. Regarding flexibility, for instance, new approaches to flexibility could become a barrier to sales if advisors can’t understand how the features work, says McCarthy of Illinois. Sometimes less is more. But where grappling with 2013’s insurance products is concerned, more probably needs to be met with more – more time, more study, more analysis. 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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http://go.amzwebcenter.com/omega 1. This feature is based on methodology developed by AMZ Financial and pending patent approval. 2. 50/male/standard/opt A DB with a 7-pay illustrated at 7% illustrated rate (6% VLR) with max income age 65-100 that scenario increases income by 29.7% and reduces COIs by 59% through age 90. For financial professional use only. This material may not be reproduced in any form where it is accessible to the general public. Insurance products described here are underwritten and issued by Minnesota Life Insurance Company. AMZ Financial Insurance Services, LLC serves as a distributor of these products and is independently owned and operated. Omega Builder IUL is designed first and foremost to provide life insurance protection. While the interest crediting options are attractive for cash accumulation, the product should always be promoted to first meet the death benefit needs of families and businesses with cash accumulation as a secondary benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. A policy’s surrender value can be less than cumulative premiums paid as a result of these fees. State variations will apply. Policy loans and withdrawals may create an adverse tax result in the event of a lapse or policy surrender, and will reduce both the cash value and death benefit. Consult a tax advisor for specific information. Minnesota Life Insurance Company • A Securian Company • 400 Robert Street North, St. Paul, MN 55101-2098 • 651-665-3500 • 651-665-4488 Fax ICC12-140 12-140 January 2013 » InsuranceNewsNet Magazine 25 ©2012 Securian Financial Group, Inc. All rights reserved. A04653-1212
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Life insurers rethink strategies for sustainable growth. bitly.com/QRsustainable
Life Insurance Industry Has Four Ways To Survive A shift in the global life insurance market, combined with an “on-demand” consumer mentality, are two major areas that life insurers must address if the industry will survive into the next decade. That is the conclusion of a report by PwC US, “Life Insurance 2020: Competing for a Future.” The report identifies four key themes and related risks that insurers need to address in order to grow. They are: Two-speed global growth: The overall market for life insurance is increasing in emerging markets and decreasing in the U.S. and Europe. Distribution disruption and the customer revolution: Responsibility for retirement planning is being moved from governments and employers to individual consumers. Since customers have become accustomed to the convenience of digital education, research and transactions through any channel they want, distribution of products is changing rapidly. Information advantage through “big data”: Leading insurers are turning to advanced analytics and external sources of data from purchases, social media and other digital means to understand customers better. Big and fast – evolving business models: Advancements in technology are allowing new players to enter the market with new business models that have a lower cost structure.
MetLife Ranks First Among 3Q Life Writers
MetLife continued as the No. 1 life insurance writer for third-quarter 2012, despite experiencing a nearly 10 percent decrease in life premiums. SNL Financial reports that overall, life premiums stayed flat in the third quarter. Premiums declined at MetLife Inc., Lincoln National Corp., New York Life Insurance Co. and Prudential Financial Inc. Those declines offset gains made by other top 10 U.S. life insurers in the third quarter. Lincoln saw a 15 percent decline in life premiums in the third quarter, which president and CEO Dennis Glass attributed to the company’s ongoing efforts to “aggressively re-price guaranteed universal life” business. New York Life reported an increase DID YOU
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in sales of recurring premium whole life insurance but total life premium for the company declined 6.5 percent, according to SNL.
LIMRA: Fewer Pre-Retirees Feel Prepared for Retirement
“Pre-retirees” are those aged 55-70 and still in the workforce. There are 33 million of them in the U.S. and only one in four of them is “very prepared” for retirement, according to a new LIMRA study. This is a smaller number than in 2010, when 30 percent of pre-retirees surveyed said they were financially ready for the gold watch. Men were more likely to consider themselves very prepared for retirement. Those who had household incomes of $100,000 or more were more likely to feel very prepared
a joint venture company between Cigna and a China Merchants Group affiliate (CMG) announced that the company has sold its one millionth policy in force in China. Cigna & CMG has been growing rapidly in the Chinese health and life insurance market since it was established nearly 10 years ago. Source: CIGNA
InsuranceNewsNet Magazine » January 2013
QUOTABLE Growth for insurers in the life and retirement market will come from expanding into new customer segments, such as middle markets, and alternative distribution channels, such as worksite and direct, by offering more comprehensive advice and developing innovative solutions. — Jamie Yoder, PwC’s US insurance advisory practice co-leader
than their lower-income counterparts. However, even among wealthier pre-retirees (those with at least $500,000 in household financial assets), just over half said they were very prepared. The role of the financial advisor is crucial in helping pre-retirees get ready for the day when they can bid the workplace good-bye, according to LIMRA’s survey.
Will AG 38 Kill UL Guarantees?
Life carriers are reacting to the Jan. 1 implementation of revised AG 38 by making changes to their products, and at least one carrier said it would “temporarily” exit the no-lapse guarantee market. Jan. 1 is the deadline for implementing revisions to Actuarial Guideline 38 (AG 38). Those revisions affect all universal life (UL) products with secondary guarantees issued since July 2005. These secondary guarantees, also called no-lapse guarantees (NLG), provide for continuation of coverage on UL products when cash value falls to zero. In earlier UL products, this would have caused the policy to lapse and the client to lose coverage. Existing policy holders who are currently contributing at lifetime guarantee premium levels will see no change in premium or guaranteed death benefit. But most NLG products issued after Jan. 1 will have significantly higher premiums. The ING Companies announced they would “temporarily” exit the no-lapse guarantee market effective Jan. 1. At least 16 carriers announced they will make changes to their products.
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LIFE
Why Stories Sell N o one remembers the details of products and services, but a good story sticks in your prospect’s mind and accelerates urgency. By Bill Whitley
I
n my work with thousands of insurance professionals, I’ve observed that most agents try to land new clients by talking about the features and benefits of their company’s products and services. I also have noticed that really successful agents – the superstars who consistently rank among top sales performers in their companies – take a different approach. These top professionals prefer to persuade potential clients of their value as risk managers by sharing stories about how their compa28
ny’s products and services have helped other clients, and how their professional guidance has helped clients avoid the life-changing impact of catastrophic events on families and businesses. I call these “client attraction stories” for one very good reason: No other sales technique is more effective in convincing prospects and clients to protect their families and assets with appropriate insurance coverage. A client attraction story is a true tale about a client who faced a serious challenge or risk and was helped by a trusted insurance advisor who delivered outstanding results. For example, the following is a dramatic client attraction story shared by my agent friend, Dawn: “My friend, Janet, was married to her college sweetheart, Teddy, and they had
InsuranceNewsNet Magazine » January 2013
three kids. She and Teddy were living the American Dream in Jacksonville with the goal of giving their kids a better childhood and future than either of them had experienced.
“
Because most of us are not natural storytellers, it's important to practice new client attraction stories in the privacy of your office.
Do MEDICAL
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Then, one day Teddy complained of chest pain and shortness of breath. Janet took him to the doctor’s office. While there, Teddy went into cardiac arrest. The doctor used a defibrillator to keep Teddy alive, but he suffered brain damage and eventually had to be put on life support. When Teddy had been in the hospital for three weeks, the doctor broached the subject of family finances with Janet and asked if they had long-term care insurance. When Janet told the doctor she and Teddy didn’t have long-term care insurance, the doctor responded: “Your husband is not going to recover. He has irreversible brain damage, and based on the current state of your finances, it doesn’t appear you can afford to keep him alive. I recommend we take him off life support with a do-not-resuscitate order.” Janet was shocked, but knew the doctor was right. Keeping Teddy alive would bankrupt her. Feeling she had no choice, Janet agreed to take Teddy off life support. He died a few days later. Without Teddy’s income, Janet took a second job to try to make ends meet and stay in the house. She had little time to spend with her children, and couldn’t afford to send her daughter to college. If Teddy had carried long-term care insurance, Janet would have been able to keep him alive until everyone had time to make peace with the tragedy and tell him goodbye. If Teddy had been covered by life insurance, Janet could have paid off the house and continued to work only one job. She could have spent more time with her kids, and likely been able to send them to college.” Can you imagine the impact a story like this would have on a prospect for life insurance to protect his family? Powerful! And I know you can imagine Dawn ending this story by saying to her prospect: “This story is a good example of what I mean when I say I’m a risk manager. Life is full of tragic events that can severely impact you and your family at any time. It’s too late for Janet and Teddy to protect against what happened to their family, but it’s not too late for you. Would you like to get started?”
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NOTE: All conditions, scenarios, and medical impairments may not be considered insurable by the insurance companies. Only the insurance company can accept or denyJanuary an application formal underwriting process. Informal 29 inquiries 2013after » aInsuranceNewsNet Magazine and trial applications do not guarantee coverage or rate classes. FOR AGENT USE ONLY • NOT FOR CONSUMER DISTRIBUTION
LIFE
why stories sell
Where Do The Best Stories Come From?
As an insurance professional, you likely have a plentiful supply of stories tucked away in your memory and client files. Ask yourself these questions and record your answers on a notepad:
1. Stories are entertaining ndation of the television broadcast fou r fascination with stories is the
Who do I know who benefited from having the right insurance?
in detail 2. An effective story is rich s stories lend rea lity to the sit-
Who do I know who suffered financial difficulty because they didn’t have the right insurance?
Ou less supply ing industry to produce an end schedule, and drives the publish d our athol have the power to attract and of books. Well-crafted stories ts. cep con r erstand complex, unfamilia tention, as well as help us und
ed in sale Carefully chosen details includ client? y-teller. Examples: Who was the stor the to uation, and credibility stand to problem he faced? What did he What was he like? What was the did you ? What got in the way? And how lose? What did he hope to achieve solve his problem?
s, life-like experience 3. Stories create a vicariou harged motion picture, a great cli-
nally-c Like a good book or an emotio perspecto clarify, educate and change er pow the ent attraction stor y has nce how erie exp to ct spe pro it causes your tive in major ways. In doing so, good it your stor y describes — and how it might feel to have the problem ertise exp insurance advisor who has the would feel to work with a trusted to make the problem go away.
4. Stories reduce cynicism
typical n they’re approached with a Many prospects are cynical whe d to ose exp n bee y’ve the e h. Why? Becaus ’t “products and ser vices” sales pitc don cts spe pro the t duc pro pitch about a in so many of them! As the agent’s beg cts blah, blah ” in their minds, prospe think they need turns to “blah, , thanks. “No a h wit on tati sen pre to end the working hard to find a reason Maybe some other time.” With a draws a ver y different reaction. An appropriate, well-told stor y ntion atte ed ivid und have the prospect’s t to good client attraction stor y, you wan you nt poi the the stor y ends and because he wants to hear how con is risk ay ryd eve n, mo tion against com make about the value of protec . veyed in a direct, memorable way
ber and retell 5. Stories are easy to remem ytellers, it’s important to practice
l stor Because most of us are not natura ing acy of your office before deliver priv the new client attraction stories in tary soli r you se sen d, once you begin to them in front of prospects. An associeficial next step is to ask office ben a off, practice is starting to pay m. the to y stor r you t lient and presen ates to role play as a prospect/c clients is deliver y to rea l prospects and r you so Practice is crucial level of beA well-told stor y creates a high smooth, natura l and seamless. than just you as a trusted advisor (rather lievability, and helps position skill to the y, Practice produces consistenc another insurance salesperson). same the ting rea e way every time and rec tell your stor y exactly the sam e. high level of credibility every tim
30
InsuranceNewsNet Magazine » January 2013
Be prepared for the fact that not all potential story scenarios you come up with will be of sufficient quality to develop and add to your presentation arsenal. Your initial goal should be to develop up to four dramatic client attraction stories you can use to illustrate the product sales situations in which you find yourself most often. Another good source of impactful material for client attraction stories is agent friends you have inside and outside your own office. You don’t necessarily have to be involved personally in a story to use it effectively in your presentation. Cast a line to your friends and associates for real life situations you can develop into interesting, persuasive client attraction stories. Now you know the secret top producers use most often to earn honors as insurance sales superstars. And, this same tool they use so productively is available to you if you’re willing to put in the story development and practice time necessary to become a proficient client attraction story-teller. So, what are you waiting for? Bill Whitley is a nationally known sales trainer, consultant and author of Eight Secrets of the Top-Performing Agents. Based in Charlotte, N.C., Bill is a frequent featured speaker at insurance sales conferences. Contact Bill at Bill.Whitley@ Innfeedback.com
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My Big Debate With Fees One agent describes the thought process involved while considering a break from her agency’s nearly half-century of commission-only tradition. By Juli McNeely
I
n struggling with a decision of whether to begin the process of exploring a fee-based practice, we had to start with the knowledge that serving our clients is our top priority – but we had to ask ourselves which business model does that best. Our agency was founded 45 years ago by my father, who recently retired. We have always operated in the independent channel and have been solely a commission-based firm. We have traditionally served “Main Street” clients who could be classified as middle income with varying amounts of assets. So, would changing our business model potentially threaten our ability to serve the very clients who helped us become who we are today? If you asked my father that ques-
32
tion, his answer would be emphatically, “Yes – don’t even consider it!” Change is not something any of us handle well, especially after 45 years of operating in a specific way. Commission-based selling has been how we have built our firm. It is what we know. It is what our clients know. In my 16 years in the financial services industry, one of the most significant things I’ve come to realize is that we all must continue to learn and adapt to the changing industry. Sometimes that means changing how we do things. At the very least, it means considering adjustments from time to time. The option to shift to a fee-based practice has been an internal debate of mine for a couple years. Recently, I began to explore the pros and cons more outwardly. Here are the highlights of my debate: Size Of Accounts: We service many smaller accounts and we realize that every potential investor must start somewhere. We have clients who invest $50100/month and we believe that these accounts are our “bread and butter.”
InsuranceNewsNet Magazine » January 2013
These accounts are not likely to be a good fit for a fee-based option – at least until they grow. However, they are not accounts we are willing to turn away, because we believe these clients need our advice the most. So I asked myself: Do we have any accounts that have grown in size over the years and might be a good fit for a fee-based environment? Complexity of Financial Situations: Many of our clients find themselves in more complex financial situations. Although we live in an “Information Era” and consumers can often research their options online, they continue to reach out to us for advice and guidance. They want someone to be their trusted advisor and financial consultant. They are not comfortable going it alone and sometimes are simply looking for someone to help assure them that they are on track. So I asked myself: Do we have clients who come to us often to get our assistance in navigating their complex financial situation (personal or business) and often simply want our advice?
my big debate with fees Relational vs. Transactional: Perhaps initially, we operated in more of a transaction fashion as the firm was being built. Today, we are sometimes working with the third generation in a family. A strong relationship has been built with our clients and many want to meet on a regular basis to review their financial picture. So I asked myself: Have we developed more and more long-term relationships with our clients that require consistent, ongoing contact to maintain the connection? Expertise/Knowledge: The more our knowledge and expertise grows, the more valuable we are to those we serve. Clients connect with us and may even pay money for our expertise. The best way to deliver this is to meet regularly and review the client’s situation and share our knowledge. We are an asset to our clients. It took real effort to accumulate the wealth of information we carry in our heads. Our own intellectual property is obtained by taking classes, earning designations and on the job learning. So I asked myself: Do we find that we are
constantly giving advice and sharing what we know for free? Client Preference: We have actually had some clients ask about whether we offer a fee-based option or if they could pay us for our advice or our time. As other advisors move toward a combination commission/fee practice, I suspect we will continue to get these types of requests. Having the ability to serve our clients how they want to be served is critical, in my opinion. So I asked myself: Have we had a client request to pay for our services via a fee-based arrangement? If you were able to answer “yes” to any or all of the above questions, perhaps you need to explore the pros and cons of a fee-based practice as well. We can answer “yes” to all of these questions. Therefore, we continue to explore our options as a firm, but we will not be making this shift quickly. We may slowly test the waters by charging a flat fee for a service provided, for example, compiling a financial plan. I’m fairly certain that we will never be solely a fee-based practice. We pride ourselves in assisting our clients with all
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
aspects of their financial plans and that includes both risk-based products (insurance) and investments. We will also continue to serve all clients, no matter the asset size. The last thing I would want to do would be to disenfranchise any clients or potential clients simply because they don’t fit into the client box created by a “one-size-fits-all” strategy. My sincere hope is that we will always be allowed to serve the client utilizing the business model that fits their needs. That might mean we will need to explore other models to determine if they are the right fit. After all, what we do is serve our clients, help them build a secure financial future and help them find greater peace of mind. I wish you great success! Juli McNeely, CFP, CLU, LUTCF, is vice president/treasurer of McNeely Financial Services, Spencer, Wis., and is secretary of the National Association of Insurance and Financial Advisors (NAIFA). Securities and Advisory Services offered through SII Investments, member FINRA, SIPC and a Registered Investment Advisor. You can reach Juli at juli.mcneely@innfeedback.com.
BENEFITS: Greatly increase insurance agents’ annuity production Avoids regulatory risk of unlicensed investment advice Creates the ability to be a total advisor and transfer brokerage assets The ability to have the total client relationship allows you to generate many new client referrals
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January 2013 » InsuranceNewsNet Magazine
33
[ANNUITYWIRES] 3Q Annuity Sales: Trends to Write Home About Third quarter was not great for total annuity sales. Industrywide, the total dropped 4.3 percent to $42.9 billion from second quarter, according to data
reported from Insured Retirement Institute (IRI). But market watchers still see some trends in 3Q that are worth writing home about. These include: Income annuities steamed ahead. The third quarter saw the strongest sales quarter ever for income annuities, % according to IRI, citing figures from Beacon Research. The 3Q sales rose 3.8 percent to $2.4 billion in 3Q, and up 6.7 percent compared to 3Q last year. What to make of it? Beacon Research President Jeremy Alexander thinks the payouts on income annuities looked attractive compared to conservative alternatives. “That’s especially true for deferred income annuities, which provided most of the sequential increase in total income annuity sales,” he adds.
3.8
% 44.3 3Q
Net variable annuity sales soared. That’s right, the
net sales for variable annuities jumped 44.3 percent to $5.8 billion from the second quarter, according to Morningstar data cited by IRI. That is even though gross variable annuity sales fell 4.9 percent from second quarter to $36.3 billion and fell 7.2 percent from the third quarter last year. So what’s it mean? Third quarter’s drop in gross sales may be “a function of reduced (1035) exchange activity rather than a slowing of new investment,” suggests Frank O’Connor, product manager-annuity research for the Chicago firm. Also, the lion’s share of positive cash came from policies with income guarantees, he says, so “demand is continuing for these types of products.” Indexed annuity sales remained steady. At $8.7 billion, indexed sales were essentially flat for the third quarter, but that’s good news. Consider: Beacon reports these sales 3Q were down 1.2 percent from the second quarter but up by 0.5 (2011 vs 2012) percent from the same quarter last year, while AnnuitySpecs. com reports the sales were actually up 0.04 percent from the second quarter and up 0.24 percent from the third quarter last year. Beacon’s Alexander gives some of the credit to the products’ premium bonuses and guaranteed lifetime withdrawal benefits (GLWBs), which he says looked pretty good in the current low rate environment. Ah, but then again, Sheryl Moore, president and CEO of Moore Market Intelligence, which owns AnnuitySpecs, noticed that GLWB elections actually dropped for the third consecutive quarter. So, maybe other forces were at work as well.
0.5
%
ARE ANNUITIES HIGHLY COMPLEX?
Jerry Golden has had it with the continual digs at annuities as being very complex or the most complex type of investment Jerry Golden products that exist. Golden, the president of Golden Retirement Advisors, a New York Regis34
tered Investment Advisor, sent out a retort on this after seeing one such comment in a New York Times article. “Saying
that ‘annuities are among the most complex investment products’ is like saying all voters made up their minds in the last week of the campaign,” he wrote, adding
that this is “true for some but not for all.” A long-time veteran of the annuity
InsuranceNewsNet Magazine » January 2013
Brought to you by:
industry, Golden did not deny that certain annuity designs can be “unfathomable” to average investors such as some modern variable annuities. But there are also some no-load, no-frills variable annuities on the market, too, he said, and these are “elegant in their simplicity.” All of which goes to show that 1) complexity complaints about annuities are not letting up; and 2) annuity professionals have not stopped presenting their side of the story.
A NEW ROLE FOR FIXED INDEXED ANNUTIES – IN THE 401(K)
The thing about 401(k)s is that they offer mutual funds. Those funds provide investors with a way to save for retirement, says National Life Group. However, mutual funds don’t address employee safe-money concerns or the growing demand for retirement income guarantees. So, National Life
401(k)
Group started to offer a fixed indexed annuity as a standard plan option within the 401(k). Not many such annuities are
available in 401(k) plans, so annuity and retirement experts are going to watch this one closely. Called SecurePlus VIP, the policy is written by Life Insurance Company of the Southwest, a National Life business. It allows plan participants not only to accumulate retirement savings but also to access guaranteed lifetime income benefits, says Wade Mayo, head of the retirement division. The annuity is designed to complement – not replace – the traditional 401(k) investment choices, the carrier adds.
Go to AnnuityNews.com for exclusive sales ideas and more!
Allianz Is Top IA Carrier in 3Q Allianz Life maintained their position as the No. 1 carrier in indexed annuities in the third quarter. Aviva maintained their position as the second-ranked company in the market, while Security Benefit Life, American Equity and Great American rounded-out the top five.
bitly.com/QRAllianzTop3Q
@Annuity_ News
Start with this 12.00% Bonus Index Annuity 12.00%
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Call Fairlane Financial for your sales kit today 1.800.327.1460 Withdrawals before age 59 1/2 may result in a 10% IRS penalty tax. Withdrawals do not participate in index growth. Surrender of the contract may be subject to surrender charge and market value adjustment. Product and rider not available in all states. Contract and contract form series numbers may vary by state. MarketTwelve Bonus Index fixed index annuity is issued on contract form Series ET-MPP-2000(02-05) with rider ET-AVBR(06-09). Group Certificates issues on Form Series ET-MPP-2000C(01-07) with rider ET-AVBRC(06-09). Income rider provisions and availability may vary by state; income rider issued on Form Series ET-IBR(06-08) and Group Certificates on ET-IBRC(06-08). Contract issued by EquiTrust Life Insurance Company, West Des Moines, IA. For Producer Use Only AC12-ET-M12-1145 35 M-2550
January 2013 » InsuranceNewsNet Magazine
Case Study: How a GMWB Rescues a Client’s Retirement he best explanation for annuT ity guarantees is the story of saved retirements. By David L. Goodrich
M
ost of my clients are younger and not yet taking income out of their portfolios. But there is one exception. This client, in her early 60s, knew she needed income within four to five years and could not take another loss with her account. So, she invested in a variable annuity with a living benefit rider called a guaranteed minimum withdrawal benefit (GMWB). This was purchased in the first quarter of 2007, at a time when the markets were booming. Then, as if it needs mentioning, 2008 and the demise of the equities and bond markets began. The economic turbulence that ensued was catastrophic. Even those whose assets were allocated very well were negatively affected. This was a case that illustrated when a variable annuity’s guaranteed rider can ensure a secure retirement. Because my client had contributed to an annuity before the economic downturn, my client was able to take advantage of a number of quarterly market step-ups early, locking in gains on her GMWB. It’s worth noting that the living benefit included on this annuity credits her the highest quarterly market value, or 6 percent interest for the year. Once the year is over, the company looks back at each quarter’s market performance and steps up the withdrawal base if the market increased by more than 6 percent. In the event there is no quarterly step up, a 6 percent increase is credited at the end of the year. These are stackable benefits as well. My client initially deposited $336,749 into the annuity. When she began taking money out of the plan in February 2011, 36
her account balance was at $243,311, but her annuity’s GMWB totaled $378,321. She was 66 at the time. With her GMWB at $378,321, she was allowed to withdraw 5 percent from this amount, giving her a monthly withdrawal of $1,681 for a total of $20,177 per year. (Please note that the rider charge is calculated from the actual GMWB amount as opposed to the original account value.) With this particular annuity, once you reach age 65 and then hit your next contract anniversary date, you are able to withdraw 5 percent on the guaranteed withdrawal amount for life, regardless of whether the account balance drops to zero. So, being a single woman, my client is able to live comfortably because she will receive $1,681 each month for life along with a monthly Social Security benefit of $2,400. We built a personal pension plan for her that she knows will be consistent and available to her for as long as she lives. One of the most difficult parts of my job as an advisor is explaining how the benefits of this product work. When I first approached my client with this an-
InsuranceNewsNet Magazine » January 2013
Typical GMWB Payout Percentages (based on age starting withdrawal)
age
age
age
65 75 85 5% 6% 7% nuity in 2007, she was pretty confident in my recommendation, but it took some time for her to wrap her head around the idea. It’s fairly typical for a person to wonder how it’s possible for the benefits to work the way they do. My response? As long as the annuity is backed by a reputable insurance carrier, the payouts are completely feasible. However, trusting that the carrier is going to be there has become a bigger issue as of late, given the struggling
y to:
tor Email your s
ck.com
eedba f n in i@ ll e r o sm
Case Study: How a GMWB Rescues a Client’s Retirement
economy. This makes it all the more necessary for advisors to seek out A-rated companies that have been in business for an extensive period. Some of these companies are foreign-based, not having been affected by the mortgage problems experienced in the United States. Once the carrier to back the annuity has been selected, it is important to be sure the product will pay out over a long period of time. If your client wishes to take out all of his money at a later
date, he is not going to get the guaranteed withdrawal base amount. Instead, he will receive his account balance, just as he would if he were to take all of his money out of a 401(k). Additionally, there are different payout percentages based on what age you begin withdrawing money from the annuity – from 4 percent to as much as 7 percent. At age 65, you typically will reach a 5 percent payout. If you reach age 75 without taking withdrawals, the
annuity
payout might jump to 6 percent. At age 85, it goes to 6 or 7 percent, depending on the insurance carrier. Therefore, if you wait long enough to begin taking money out of your annuity – say until age 75 – you could get 6 percent of your guaranteed withdrawal base for life. Consider recommending variable annuities with guaranteed minimum withdrawal benefits to your clients approaching retirement. With a clear understanding of the advantages of this product, your clients can have the peace of mind so many of mine will enjoy one day – knowing they’ll be financially independent for life. David L. Goodrich, LUTCF, is a 10-year MDRT member with two Court of the Table honors. He is managing partner of Goodrich Financial Services in Addison, Texas, and specializes in working with business owners, executives and families on their retirement, investment, protection and succession planning. You may contact David at David.Goodrich@innfeedback.com.
Resolution #7: Stop Procrastinating
That’s just one tip in our brochure of Top 10 Resolutions. Do you go to your mailbox at home and choose what to take out and what to leave in there each day? NO. Then stop using your email inbox as storage! Make a resolution to clear your desk and to have no more than 15 emails in your inbox that need to be addressed. Tackle each problem as it arises and move on.
To learn the other nine Top 10 Resolutions, visit www.10Resolutions.com and complete the form. Make it your goal in 2013 to Reach ouT To clienTS in a memorable way
FRee clienT coRReSPondence KiT Sometimes a handwritten note is the simplest, most effective – and underutilized – way to reach out to your clients. The complete kit contains 10 notecards & envelopes and a 16-page booklet with ideas on memorable ways for an agent to acknowledge birthdays, anniversaries and special occasions.
Visit www.10Resolutions.com to instantly receive the Top 10 Resolutions and to request the FREE Client Correspondence Kit. For agent use only. Not for use with the general public
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January 2013 » InsuranceNewsNet Magazine
37
annuity
Iowa’s New Regulations Could Boost Indexed Annuity Sales W ill your state follow Iowa’s example of strongly suggesting illustrations when recommending an indexed annuity? That could be a good thing. By Michael J. Prestwich
P
roducers nationwide should be aware of a new rule that goes into effect in Iowa this month, strongly recommending that producers provide an illustration to consumers before selling an indexed annuity. Because Iowa is an extremely influential state, producers can expect this regulation to be implemented quickly in other states. As of press time, the state was still working out the implications of the rule, which could require producers to provide illustrations if they recommend an indexed annuity. The new Iowa rules specify the minimum information that must be disclosed, the method for disclosing it, and the use and content of illustrations in connection with the sale of annuities. The goal of these new rules is to ensure that purchasers of annuity contracts understand certain basic features of annuity contracts, and to provide standards for the disclosure of certain minimum information about annuity contracts to protect consumers. The use of illustrations is not required when producers discuss only the guaranteed elements of an indexed annuity, or discuss indexed annuities in a general way, without making a specific annuity recommendation. One of the most useful parts of the new illustration format are the graphs that are now required. Each illustration must contain three separate graphs that use the current caps, spreads, participation rates and other interest rate formulas for each index strategy over a historical timeline. One graph depicts the best 10-year period during the last 20 years; another the worst 10-year period during the last 20 years,
38
Regulators are still ironing out the new rule, but the drift is toward requiring illustrations when annuities are recommended.
and the third graph depicts the last 10year period. As you can see from the accompanying examples on the next page, the highest 10year rate of return that could have been achieved with this particular indexed annuity product would have been 4.5 percent; the worst, 1.75 percent. This graph disproves that statement that “a monthly sum strategy with a 2 percent monthly cap has the potential of earning 24 percent per year.” Statements such as these build false expectations on the part of consumers and are the source for much of the negative press for indexed annuity products. These graphs will help producers understand and explain that a monthly sum index strategy may have the highest potential interest rate in a single year, but it also has the highest potential to earn a zero percent interest rate each year. Notice that, in each of these graphs, the monthly sum strategy returned a zero percent interest rate in seven out of the 10 years shown, whereas the other interest rate strategies were more consistently positive. It is important for producers to know that these illustrations are not projections of future values, but are hypothetical in nature and for educational purposes only. Each must contain these, or similar statements: “The values in this illustration are not guarantees or even estimates of the amounts you can expect from your an-
InsuranceNewsNet Magazine » January 2013
nuity” and “It is likely that the index will not repeat historical performance, the non-guaranteed elements will change, and actual results may be more or less favorable, but will not be less than the minimum guarantees.” One part of this regulation that will affect the way producers sell guaranteed lifetime income riders (GLIR) on indexed annuities is the portion of the law that reads, “Costs and fees of any type shall be individually noted and explained in the illustration.” There is a huge difference in the minds of consumers (and, therefore, in the minds of regulators and consumer advocacy groups) between a statement such as, “The cost of the GLIR is .95 percent of the Income Account Value each year,” and providing a written table of values that includes a column labeled, “Rider Charge,” that reads, $1,250 in year 1, $1,350 in year 2, $1,450 in year 3, and $2,500 in year 10 and each year thereafter. In some products, the cost of the GLIR reduces the guaranteed minimum surrender value. In others, it does not. Disclosing these costs not only helps the consumer make an informed decision, but it gives the producer the tools necessary to guide consumers accurately in their annuity purchases. Another requirement of this regulation is that, “Any charges for riders or other contract features assessed against the account value or the crediting rate shall
Iowa’s New Regulations Could Boost Indexed Annuity Sales
be recognized in the illustrated values.” If the hypothetical value for a $100,000 lump sum premium into a product without a GLIR is $35,000 higher than the product with the GLIR, wouldn’t it behoove producers to explain this difference to their prospects? If the prospect’s main goal is having a guaranteed lifetime income in a certain number of years, he would understand the importance of actually exercising the GLIR option when planned. If the prospect is ambivalent about this point, he probably should not add the GLIR. The producer should keep a copy of both of these illustrations, along with notes on the documents about how and why the sale was made. Wouldn’t producers want to know, after the guaranteed lifetime income begins, which product is likely to maintain a positive account value for the longest period of time? The best and easiest way to answer this, and hundreds of other questions, is to give producers the ability to create indexed annuity illustrations. Another benefit of illustrating indexed annuities is that it will kill old myths. One such myth is that bonus premium products are better than non-bonus premium products. On page 230 of Jack Marrion and John Olson’s fine book, Index Annuities a Suitable Approach, there is a section titled “Bonus Products Are Not Free.” It reads,
Sample Illustration
ABC Company
Super Duper Special Indexed Annuity $100,000 Premium Prepared for John J. Sample // October 10, 2012
Monthly Average Growth 2.75%
$150,000
Monthly Sum Average Growth 4.50%
$140,000 Amount Value
Hypothetical Index Growth
Best 10-year Period 1992-2011
Point to Point Average Growth 3.19%
$160,000
$130,000 $120,000 $110,000 $100,000 $90,000
1
2
3
4
Monthly Average Growth 1.73% $160,000
5
6
7
8
9
10
Hypothetical Index Growth
Worst 10-year Period 1992-2011
Point to Point Average Growth 2.24%
$150,000 Monthly Sum Average Growth 2.56%
Amount Value
$140,000 $130,000 $120,000 $110,000 $100,000 $90,000
1
2
3
4
Monthly Average Growth 1.88%
6
7
8
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10
Hypothetical Index Growth
Last 10-year Period 2002-2011
Point to Point Average Growth 2.64%
$160,000 $150,000
Monthly Sum Average Growth 2.68%
$140,000 Amount Value
5
annuity
$130,000
A bonus is a cost to the contract, just like commissions and policy expenses, and these costs are amortized. If you are comparing two annuity contracts that are identical, except that one has an upfront bonus and the other does not, the one with the bonus will earn less interest during future renewal periods until the cost of the bonus is recaptured. I ran an illustration to see if this statement is true. The product with the premium bonus not only has a longer surrender period, but it has a $5,000 lower hypothetical account value after 15 years. On the other hand, a bonus product generally will have a higher guaranteed lifetime income if a GLIR is illustrated. When used properly, an annuity illustration can be one of the most valuable sales tools in a producer’s sales arsenal. These illustrations will help further a producer’s product knowledge, give producers a standardized way to compare products, and provide a better method to tailor annuity products to meet each individual client’s needs. It will also ensure that producers provide consumers with accurate information about the annuity products they sell. The adage, “get it in writing,” is as true today for annuity shoppers as it ever was. Giving the sales force the ability to give prospects a written illustration that provides all the information that a consumer needs to make an intelligent decision about the purchase of an indexed annuity product makes perfect business sense. Michael J. Prestwich is president of ImagiSOFT, which has been creating life and annuity illustration software since 1982. He can be reached at Michael. Prestwich@innfeedback.com.
$120,000 $110,000 $100,000 $90,000
1
2
3
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5
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January 2013 » InsuranceNewsNet Magazine
39
[HEALTHWIRES]
Health care cost is the greatest retirement worry for investors bitly.com/QRretirement
Americans age 65 & under covered by employers
Employer-Sponsored Health Insurance Coverage 2000 2011 Declines For 11th Year 70% 58.3% Fewer Americans are covered by employer-sponsored health insurance (ESI). A new Economic Policy Institute (EPI) report found that 2011 marked 11 years in which a decline was shown in the percentage of those covered by their employers. The report found that 58.3 percent of Americans age 65 and under had health insurance through their workplace. Because most Americans rely on health insurance offered through their jobs, the fall in coverage is expected during a down economy. However, the drop in ESI started long before the Great Recession. The percentage of people covered through their employers has been sliding steadily since 2000, when nearly 70 percent of Americans under age 65 had employer-sponsored coverage. The report also found that public health insurance coverage, such as Medicaid, and key components of the Patient Protection and Affordable Care Act kept many Americans, primarily children and young adults, insured. Public health insurance covered 25 million more people under age 65 in 2011 than it did in 2000. In fact, although children saw larger declines in ESI than adults over the 2000s, they experienced an increase in total coverage rates due to public insurance, as the share of children with public coverage grew 14.6 percentage points from 2000 to 2011. You’re more likely to have health insurance through your employer if you live in New Hampshire. The Granite State had the highest rate of ESI coverage among the under-65 population, at 72 percent in 2010-11. It was followed by Massachusetts (70.5 percent), Connecticut (69.8 percent), Minnesota (68.7 percent), Utah (68.6 percent) and Maryland (67.4 percent). In contrast, less than half of the non-elderly population in New Mexico (47.6 percent) and Louisiana (49.7 percent) have ESI.
Most Happy With Health Insurance Cost
Six out of 10 U.S. adults are satisfied with how much they pay for health insurance, but those on Medicare and Medicaid are more satisfied, a survey says. Gallup’s annual Health and Healthcare poll found satisfaction rates among Medicaid and Medicare recipients reached a new high the last two years, at 76 percent, while those who have private insurance were less satisfied at 57 percent. Sixty-four percent of U.S. adults with private insurance said their health premiums costs are shared with their employer, up from 54 percent in 2001. Of those polled, 71 percent said their health insurance costs rose in the past year, DID YOU
KNOW
?
including 29 percent who said their costs increased a lot, while 22 percent said their cost share has not changed and 5 percent reported a decrease.
AMA: Anticompetitive Market Conditions Common In Managed Care Plans
Most areas of the U.S. have a single health insurer with an anticompetitive share of the managed care market, according to a new study by the American Medical Association (AMA). The AMA’s annual health insurance market analysis looked at insurer competition in the markets for point-ofservice plans (POS), health maintenance organizations (HMO) and preferred provider organizations (PPO).
In preparation for the 40 percent excise tax on high-cost “Cadillac” plans in 2018, 31 percent of employers indicated they plan to reduce their benefits in 2014-16, with 41 percent responding they will do so for 2017-18. Source: Midwest Business Group on Health survey
40 InsuranceNewsNet Magazine » January 2013
The AMA’s findings reveal: A significant absence of health insurer competition in 70 percent of the metropolitan areas studied by the AMA. In 67 percent of the metropolitan areas studied by the AMA, at least one health insurer had an HMO market share of 50 percent or greater. In 68 percent of the metropolitan areas studied by the AMA, at least one health insurer had a PPO market share of 50 percent or greater.
Notable The top 10 least competitive commercial health insurance markets are in: [1] Alabama [2] Hawaii [3] Michigan [4] Delaware [5] Alaska
[6] North Dakota [7] South Carolina [8] Rhode Island [9] Wyoming [10] Nebraska
Source: American Medical Association
States Could Face $68 Billion In Additional Medicaid Costs Over Next Decade
As governors consider whether to expand Medicaid under the Affordable Care Act, a report said that states together face $68 billion in additional Medicaid costs from 2013 to 2022 – even if they all opt out of the expansion. If all states expand the federal-state health insurance program for the poor to people with incomes up to $26,344 for a family of three, based on this year’s poverty level, the combined cost for states would be $8 billion more than if none do, the analysis by the Kaiser Commission on Medicaid and the Uninsured said. The reason for the relatively small difference is that other provisions of the health-reform law will also lead to increased Medicaid enrollment, but at a higher cost to states because states will not benefit from the ACA provision that the federal government will pick up most of the expansion tab.
High-Limit Coverage?
Guaranteed Issue?
Special Risk?
Yes. We cover that. Most disability carriers
Disability • Life • Medical • Contingency
don’t offer limits that adequately insure wellcompensated workers. High-limit DI is needed. For over 30 years, we have been designing specialty insurance products. We will when others won’t.
Petersen International Underwriters www.piu.org • piu@piu.org 800.345.8816 January 2013 » InsuranceNewsNet Magazine
41
HEALTH
Producers See Future through the Fog of Health Reform dvisors see their role as A guides in the changing health insurance landscape. By Susan Rupe
W
ill 2013 be the year in which health insurance agents and brokers join lamplighters, elevator operators and Western Union delivery boys on the scrap heap of obsolete occupations? Not so fast, say some agents who are gearing up for the challenges of selling products and serving clients in the world of the Affordable Care Act – a world in
which the rules are changing almost daily. The confusion surrounding ACA will make the role of the advisor more important than ever as clients need expert advice from someone who can help them make sense of the new health care requirements. Educating clients and helping them navigate the rough waters of health care reform will help keep practices afloat and vital to consumers, health insurance agents and brokers said. “Don’t give up,” said Neil Crosby, director of sales for Warner Pacific Insurance Services, a general agency in San Marcos, Calif. “A lot of agents and brokers feel it’s
42 InsuranceNewsNet Magazine » January 2013
“The two most important things you can do for your clients are to educate them and keep them calm.” –Colleen Callahan, president of Callahan Insurance in Pleasant Hill, Calif.
PRODUCERS SEE FUTURE THROUGH THE FOG OF HEALTH REFORM a bleak outlook, but agents will be more necessary than ever because no one else will be there to guide people through the process of getting coverage.” Crosby does business in California and Colorado, two states that are creating their own exchanges to enable consumers to purchase health insurance instead of allowing the federal government to set up an exchange for them. He said that his state, California, will use agents as part of the exchange. Even though health insurance exchanges will enable someone to go online to purchase health insurance, “95 percent of clients still want to meet with a professional and discuss their options,” Crosby contends. Under the provisions of the Affordable Care Act (ACA), every state must have a health insurance exchange in place by 2014. As of Dec. 1, 17 states plus the District of Columbia indicated to the Department of Health and Human Services (HHS) that they would implement their own exchanges, six states are planning a partnership exchange with the federal government, 17 states will let HHS conduct their exchanges for them, and the remaining 10 states have not made a decision. The ACA implementation timetable itself could work in an advisor’s favor, said one consultant. Dave Racer, chief executive officer of the Coalition for Healthcare Redesign and the author of eight books on health care reform, said he believes the timetable for implementing Obamacare will not be completed in a timely fashion, and that could be good news for agents. “Governments are never ready to do anything on time,” he said. “I believe agents have an extended life because of the ineptness of government.” “I think the reality is that agents have a few more years left in the business.” With HHS releasing new guidelines on ACA on an almost-daily basis, “there are so many unknowns right now,” said Colleen Callahan, president of Callahan Insurance in Pleasant Hill, Calif. Callahan’s practice focuses on the small group and individual health insurance markets. “Being able to tell a client in January what to expect for the rest of the year is difficult,” she said. “I know that the expectation for a good agent will be to educate their clients.”
HEALTH
What is an exchange? State-based health insurance exchanges, or marketplaces, are a key component of the Affordable Care Act (ACA). They are the places where individuals and small businesses will be able to shop for coverage. Each state has three options: 1. Choose to operate its own exchange 2. Partner with the federal government to run an exchange 3. Default to a federally-facilitated exchange (this will happen if a state chooses neither of the first two options) The Department of Health and Human Services (HHS) recently extended the deadlines for states to make their decisions. States were given until December 14, 2012, to decide whether to run a state-based exchange, and until February 15, 2013, to opt for a partnership exchange All exchanges must be ready to begin enrolling consumers into coverage on October 1, 2013. All exchanges must be fully operational on January 1, 2014.
What will the exchanges do? State-Based Exchange: The state will perform all exchange-related activities, including contracting with health plans, providing consumer outreach and assistance, and building the necessary information technology (IT) infrastructure to assess eligibility and enroll individuals into coverage. States have the option of using federal services to determine eligibility for premium tax credit and cost-sharing reductions, as well as to operate the risk adjustment and reinsurance programs. State-Federal Partnership Exchange: States opting for a partnership exchange can choose to operate certain plan management functions, certain consumer assistance functions, or both. In addition, a partnership state can elect to conduct Medicaid and Children’s Health Insurance Program (CHIP) eligibility determinations or allow the federal government to perform this service. In all partnership states, HHS will perform the remaining exchange functions and ensure the exchange meets ACA standards. Federally-Facilitated Exchange: HHS will assume primary responsibility for operating an exchange in that state. The federal government will seek to coordinate with state agencies on multiple fronts, including plan certification and oversight functions, consumer assistance and outreach, and on streamlining eligibility determinations for the exchange and Medicaid. Over time, states in a federal exchange may transition into a partnership or state-based model. Not much is yet known about how the federal exchanges will operate, Guidance released in May 2012 revealed some initial policy decisions. The guidance indicates that federally-facilitated exchanges will adopt a clearinghouse model and contract with any health plan that meets all certification standards as a Qualified Health Plan (QHP). The federal exchange will determine eligibility for individuals’ premium tax credit and cost-sharing reductions. In addition, the federal exchange will establish Navigator programs with a role for agents and brokers to assist consumers in accessing health insurance.
What’s ahead for 2013? Look for more federal guidance to become available as the 2013 legislative session begins. The federal government faces increased pressure to operate federal exchanges in a growing number of states. To date, 23 states have decided they will not build a state-based exchange and will likely default to a federal exchange; in addition, HHS will remain responsible for operating most components of the partnership exchanges, which are expected in nine states.
January 2013 » InsuranceNewsNet Magazine
43
HEALTH
PRODUCERS SEE FUTURE THROUGH THE FOG OF HEALTH REFORM
“We’re going to be more busy doing extra stuff that is producing less revenue. But if you take care of the people and do what you have to do to educate them, you will gain their loyalty.” –Kelly Fristoe in Wichita Falls, Texas
One challenge facing agents in 2013 is to get information on health care changes to existing customers as early as possible, Callahan said. “We are presenting all of the new Summaries of Benefits and Coverage to our clients earlier than usual because there is so much more information to go over,” she said. “There definitely will be a lot of education going on this coming year. We are telling our clients what we know as soon as we learn it.” Callahan advised agents to use all the information resources available from their carriers and general agents. “There is so much out there and we are sending out information from our carriers all the time,” she said. “For example, we’ve been sending out information on coverage for preventive services for women because so much has changed in that area.” “We are educating our clients as we get educated,” she said. “The two most important things you can do for your clients are to educate them and keep them calm.” But the downside of being an agent in the Age of Obamacare is that in many cases advisors will be doing more work for less commission. “We’re going to be more busy doing extra stuff that is producing less revenue,” said Kelly Fristoe in Wichita Falls, Texas. “But if you take care of the people and do what you have to do to educate them, you will gain their loyalty.” One of the unknowns as the ACA implementation moves ahead is how much agents will be compensated for their work. “A lot of us are worried about that because it’s not yet clear,” Fristoe said. “But we do know our phones will ring and people will need our help. I don’t know what our business model will look like as we go forward and we may have to 44
change our model.” Fristoe said he believes the agent’s job will be “to help our clients make the smartest decisions regarding health care coverage.”
While others might agree on the agent’s purpose, not everyone is confident about the future of the agent. A 2012 survey of its member agents conducted by the National Association of Insurance and Financial Advisors (NAIFA) showed that those who sell or service health insurance plans have seen their commissions decline dramatically since the ACA’s medical loss ratio (MLR) calculation went into effect. The MLR requires health insurers to spend 80-85 percent of premiums on medical or quality improvement services. Of the agents polled, 70 percent said they have seen their commissions decrease since Jan. 1, 2011, and another 12 percent said their carriers have informed them that commissions will decrease. Thirty percent said they will stop selling individual health policies if commissions
InsuranceNewsNet Magazine » January 2013
remain depressed, and 22 percent said they will stop selling health insurance altogether. The survey results showed that the decline in commission has forced many agents to re-evaluate their business practices, in some cases having to lay off employees. “It really depends on what state you’re in – whether you’re in a Democratic or a Republican state,” said Racer of the Coalition for Healthcare Redesign. “In the Democratic states, agents are frightened, worried and rightly so.” Racer advised health insurance agents to diversify their offerings by selling products such as critical care coverage. His other advice to agents is to solidify their existing client relationships. “Agents need to continue to talk up what they do, to show the value they bring,” he said. “They need to continue to build strong relationships with their clients, helping them to understand health care and moving employers into more affordable plans.” Another possibility for agents, Racer said, is to look at the possibility of moving to a fee-based consulting model “and to start planning that now.” Racer predicted that there will be an exodus of smaller agencies from the marketplace as many agents decide to get out of the business and those smaller agencies are purchased by larger operations. “But I’ve had some agents who have been around for a long time say to me, ‘I was around when they created Medicare and we thought that would put the agent out of business and I’m still here. And then, they created HMOs and we thought that would put the agent out of business and I’m still here’,” he said. “Those agents who have been around a long time say this too shall pass, but we don’t know for sure where it will all lead.” Susan Rupe is the assistant editor at InsuranceNewsNet. She has experience as a newspaper reporter and editor, an insurance association communications director and magazine editor. Susan can be reached at srupe@ insurancenewsnet.com.
PRODUCERS SEE FUTURE THROUGH THE FOG OF HEALTH REFORM
ACA implementation timeline Obama's 2010 health reform law
HEALTH
Insurer Provider Consumer Pharma/Life Sciences Employer
Medicaid bundled payment demonstration project (Jan 2013)
Medicare Part A tax Increase for high income beneficiaries (Jan 2013) Increase Medicaid payment for primary care providers (Jan 2013) Employer Part D retiree drug subsidy deduction eliminated (Jan 2013)
2013
Physician Payment Sunshine reports (Mar 2013)
2.3% medical device excise tax (Jan 2013) Exchange open enrollment (Oct 2013)
First Independent Payment Advisory Board recommendations to reduce healthcare spending growth (Jan 2014)
Enhanced wellness incentives (July 2014)
2014
Medicare payments for hospital acquired conditions reduced by 1 % (Oct 2014)
2014 brings new coverage: – Medicaid expansion – Insurance exchanges go-live – Coverage mandate and penalties – Additional consumer protections (pre-exist condition coverage, no annual limits, waiting periods < 90 days for coverage) (Jan 2014)
End of Medicare Advantage Star payment demonstration (Dec 2014)
2015 High cost plan excise tax (Jan 2018) Medicare Part D donut hole closed (Jan 2020)
2020 *Date may vary based on actual Medicare spending growth rates Sources: HRI analysis, Kaiser Family Foundation, Department of Labor, Patient Protection and Affordable Cares Act. January 2013 » InsuranceNewsNet Magazine
45
[FINANCIALWIRES] Women Take Action on Advice
Americans Adopting New Mindset for Funding Retirement bitly.com/QRFundingRetirement
9
%
This might help us understand why men and women often fight of women over asking for directions. Women are more likely to follow take action on advice, at least when it comes to the financial kind. financial advice According to a TIAA-CREF survey, nearly 90 percent of women take some action after receiving advice, such as saving more or rebalancing retirement portfolios. Another healthy response is decreasing spending after getting advice; 61 percent of women dialed it down vs. 50 percent of men. But women and men are having trouble finding good financial advice in the first place. One in five Americans said they can’t find relevant guidance. About half of the people didn’t know where to look for an advisor and three quarters don’t know who to trust. Looks like advisors are missing a whole lot of eager prospects out there.
ICI Updates the Wobbly Stool
The Investment Company Institute wants the public to know that the end of the pension era does not mean a slippery slope to the gutter. According to ICI’s report, “The Success of the U.S. Retirement Market,” fears have been overblown about the shift from defined benefit pensions to defined contribution plans. The institute pointed out that assets earmarked for retirement were nearly three times larger in mid-2012 than in 1985 for households and that poverty among people aged 65 or older has fallen from nearly 30 percent in the mid-1960s to 9 percent in 2011. That would be the same period when traditional pensions went the way of Wally and The Beav. Another point made by the report said that instead of looking at the usual three-legged stool (Social Security, pensions and savings), consider a pyramid. That would have five layers: Social Security, homeownership, employer-sponsored retirement plans (defined benefit and defined contribution), individual retirement accounts (IRAs) and other personal savings. That seems more secure than the stool but it looks like a food pyramid and all we can think about is the chocolate on top. Hmm, maybe that’s the point. DID YOU
KNOW
?
46
SEC’s Schapiro Resigns
Mary Schapiro has had a rough ride as the chairwoman of the Securities and Mary Schapiro Exchange Commission, so it probably was to no one’s surprise that she got off that Tilt-A-Whirl. When she was appointed in January 2009, she inherited an ailing regulatory body that was suffering from the fallout following the Bernie Madoff arrest and, of course, the financial collapse. The former FINRA chairwoman pursued changes at the SEC but fell short of filling in all the details of the framework created by Dodd-Frank financial reform. Many observers said Schapiro made the SEC a stronger agency, but not according to a lawsuit filed a few days before Schapiro announced her resignation. In that suit, former Assistant Inspector General David Weber said the agency retaliated against his whistleblowing. He had complained that the agency was racked with conflicts of interest, incompetency and sexual misconduct. SEC Commissioner Elisse Walter is running the agency until a permanent replacement is named.
NAPFA’s CFP Requirement Causes Stir
The National Association of Personal Financial Advisors’ (NAPFA) announcement that
People rely less on family and friends for financial advice as they age. Of those 18 to 34 years old, 69 percent depend on advice from family and friends. That drops to 33 percent by the age of 65. Source: TIAA-CREF
InsuranceNewsNet Magazine » January 2013
it would require the CFP designation to be a NAPFA-registered planner set off some arguments about designations. NAPFA said it wanted to cut through the clutter of designations to boost consumer confidence, but it caused some critics to express a lack of confidence in the CFP designation, administered by Certified Financial Planner Board of Standards. The most significant critic has been The American College, which also issues designations, calling the NAPHA move a monopoly of designations. Others have criticized that the CFP administrators have not moved strongly enough to adopt a fiduciary standard of conduct in all investment advising, which would be allowed by Dodd-Frank legislation but has not been defined by the Securities and Exchange Commission. CFP administrators have said they require all advisors to act in the interest of their clients and for advisors to follow the fiduciary standard in financial planning.
Best Companies: Strong Culture, Sweet Perks
What makes an investment company a good place to work? It’s a strong culture, positive work environment, high employee engagement and good benefits. That’s according to Pension & Investments, an international newspaper that ranks best places to work. The top five big companies (more than 1,000 employees) were: The Principal Financial Group, Diversified, Bridgewater Associates, SEI and Invesco. From 100 to 1,000: Hamilton Lane Advisors, Clearbridge Advisors, AEW Capital Management, William Blair & Co. and Western Asset Management. Less than 100: Robert W. Baird & Co., Balentine, Modera Wealth Management, Perkins Investment Management and Dana Investment Advisors. Employees said they valued career advancement more than perks, but some of the extras are pretty sweet: Eight companies provide free or subsidized meals and one provides free snacks and beverages around the clock; 10 have fitness facilities or memberships; 10 offer company-paid parking; and four have on-site recreational amenities like basketball courts.
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January January 2013 2013 » »InsuranceNewsNet InsuranceNewsNet Magazine Magazine 47
financial
Has the Interest Rate Decline Finally Hit Bottom? o one knows for sure if the N downward spiral has finally run its course, but there are signs that an interest rate floor has formed. By Linda Koco
“T
he prolonged low interest rate environment” has become a mantra for many of the ills plaguing life and annuity companies in the post-recession era. Low rates are roundly blamed for hampering company investment returns, curtailing product design, cutting interest crediting, making mincemeat of guarantee riders and more. But has the downward spiral finally run its course? No market watchers are predicting rip-snorting jumps in rates next year. But signs are showing up that an interest rate floor may be forming or has already formed. That could be the precursor to the rising interest environment that many are looking for. For instance, in the past several months, rates on 10-year Treasury Bills seem to have gelled south of 2 percent – about 1.6 percent or so, though it fluctuates a bit. This trend appears to have started in June, based on the trend line shown on Treasury’s online rate calculator. This is worth noting, because insurers commonly use 10-year T-Bills when investing, evaluating pricing and engaging in other business activities. It’s a type of benchmark or bellwether. That’s in addition to the rates of corporate bonds (10year AAA and 10-year AA), and other indicators.
What Experts Are Saying
Whether this seeming leveling-out of the 10-year T-Bill rate is the bottom that marks the beginning of a new stage in economic recovery is not yet being widely discussed. The national preoccupation with the 48
fall elections and then the fiscal cliff may have something to do with that. So, too, might the natural hesitation to announce a bottom in the face of continuing economic uncertainty. But at least one analyst mentioned the possible bottom in a recent report. In the December issue of his firm’s Fixed Income Digest Research Report, Martin Mauro wrote that “yields have probably bottomed but we don’t expect a substantial rise.” Mauro is an analyst at Merrill Lynch Wealth Management, a business of Bank of America. He made the observation while discussing how bond market yields are “close to record lows just about everywhere.” Mauro also noted that his firm’s rate strategists are expecting the yield on the 10-year Treasury to be 2 percent at the end of 2013. If that expectation proves out, that would mean the 10-year rates would be up roughly 40 basis points from where they were at year-end 2012. This would be a razor-thin increase, but it’s significant for insurance people all the same – because it would be up, not down. Standard & Poor’s is also expecting the baseline rates on 10-year Treasuries to rise – to 2 percent in 2013 from a 1.8 percent average in 2012, says Robert Hafner, a director at the New York firm. In 2014, S&P is projecting the average rates will rise again, to 2.8 percent, the same as in 2011. So “T-bills could be bottoming out, though we generally don’t characterize it that way,” Hafner answers. “We are saying, rates are projected to go up gradually” from 2012. David Paul, principal at ALIRT Insurance Research, a ratings firm, points out that the lowest 10-year yield ever over the last 50 years was 1.43 percent. That was in July of last year. Meanwhile, the highest was 15.84 percent, in September of 1981. The average 10-year rate over the
InsuranceNewsNet Magazine » January 2013
years is 6.65 percent, and the median is 5.27 percent, he says. “Traditionally we have seen rates revert to the mean. So, unless we end up living in a totally different new normal world going forward – which of course is possible – the statistics say that we will revert upward in the future.” Paul does not want to say that the floor on interest rates has already occurred or that rates are heading up right now. That’s because rates could still go down, he explains – for instance, if the Federal Reserve continues its aggressive monetary programs and/or if geo-political disharmony spurs more people to seek the safety of federal bonds. Then again, he says, rates could go up. That could happen if the U.S. and global economy starts to recover and if the Federal Reserve eases its monetary policy in response. In March 2012, the rate on 10-year Treasuries went up to 2.25 percent, points out Paul. “But that turned out to be a headfake and was short lived,” he says. “Still, since we will likely revert to the mean, statistically speaking, we can expect that, at some point, we are going to hump out of the low rate environment.”
Twinges
Some insurance professionals notice small shifts involving interest rates but are hesitant to put a label on it. For example, in November, most fixed annuity carriers held their interest rates steady, says Danny Fisher, publisher of the Fisher Annuity Index, Dallas, noting that the average rate for all products in the database at the time somewhere in the 2.5 percent to 2.6 percent range. “That’s probably the first time that has happened in months,” he says. Fisher is surprised by that subtle change – to “holding steady” – but he does not want to describe it as a sign an interest rate bottom is at hand. “I don’t know that rates won’t go down further,” Fisher explains, “and I don’t know any-
Financial
Has the Interest Rate Decline Finally Hit Bottom?
What Could Happen
If rates go up: An upturn in rates would be positive for the life insurance industry, says S&P’s Hafner. The carriers seem to be astute at balancing the needs of the company with those of customers and distribution, and that will continue, he predicts. “Carriers will enhance product benefits consistent with the interest rate environment. You’ll see this reflected in their crediting rates, which will ebb and flow as their investment returns ebb and flow.” If rates stay where they are now: Carriers that are affected by interest rates in any part of their operation will continue doing what they have been doing to manage through the prolonged interest rate environment, predicts Paul of Connecticut. “That is, they will continue repricing, product cutbacks, market exits, distribution curtailments, and other measures to stay viable and keep profitable.” It will mean more tough times for carriers, too. For instance, Hafner points out that the investment yield on carriers’ portfolios has been dropping by about 20 basis points a year for the last two to three years, due to the low rate environment. “The longer that low interest rates persist, the more this will erode earnings,” he says. Insurers offer guarantees that banks cannot, however, so the complex competitive dynamic between insurance and banking will continue, especially in the area of retirement products, Hafner says. Some carriers are trying to make
Ten-Year T-Bill Rates December 1, 2011 to December 3, 2012
2.5 2.0
Rate (%)
body who does know that. “Rates have been down for months; Federal Reserve Chairman Ben Bernanke keeps saying that the Fed will hold Fed Funds rates low into 2015; and no major insurance carriers have started raising their fixed annuity rates, so I don’t see anything to suggest otherwise.” Some smaller carriers do come out with interest rate specials once in a while, Fisher allows. For instance, in December, one carrier was offering a fixed annuity with a 3 percent rate guarantee that was set to end in January. “But specials don’t necessarily mean a carrier is getting higher rates for its money,” he notes. “Sometimes they do that just to bring in a little more business, maybe to close out the year.”
1.0 Dec 2011
Jan 2012
Feb
Mar
April
May
June
July
Aug
Sept
Oct
Nov
Dec
Source: Nominal rates for 10-year Treasury Bills as shown in a calculator at the Treasury Department website.
Interest in Annuities Interest Rate Trends on Fixed Annuities ALL Annuities in Index
Note: Rate includes “Non-Forfeitable” first year interest bonus.
Normal Annuity Range Number of Companies
Number of Annuities
Lowest Rate
Low Norm
Average Rate
High Norm
Highest Rate
Standard Deviation
12/3/2012
74
564
11/5/2012
74
581
0.50%
0.72%
0.50%
0.78%
2.49%
4.25%
12.20%
1.77%
2.49%
4.20%
12.20%
1.71%
6/4/2012
76
584
1.00%
0.80%
2.71%
4.62%
12.20%
1.91%
12/5/2011
75
596
1.00%
0.80%
2.75%
4.70%
12.20%
1.95%
“CD” Type Annuities: Average Rates for Length of Guarantee Period Years
1
12/3/2012
2
3
4
5
6
7
8
9
10
1.13%
1.45%
1.44%
1.56%
1.54%
1.68%
1.97%
2.16%
2.09%
11/5/2012
1.10%
1.13%
1.49%
1.39%
1.59%
1.54%
1.71%
2.00%
2.14%
2.08%
6/4/2012
1.10%
1.13%
1.53%
1.52%
1.66%
1.70%
1.84%
2.14%
2.32%
2.32%
12/5/2011
1.10%
1.08%
1.65%
1.49%
1.69%
1.71%
1.92%
2.07%
2.22%
2.50%
Data as of 12/04/2012
Source: Fisher Annuity Index, Dallas
their products more fee-based and lessspread-based, he points out, explaining that “it’s hard to make money when the margins are only based on spread and interest rates are low.” Advisors can expect to see these products in the retirement market, where there will be more focus on asset-based fees, he said, and also in in the variable annuity market. “Companies can’t entirely escape offering spread-based products,” Hafner allows, “but they do have to manage the long-term guarantees they put on their products.” Some carriers might treat this period as an opportunity to take some risk, ALIRT’s Paul adds. “Perhaps they know something that they think other carriers don’t, or perhaps they are in a position to do what their peers aren’t doing. So they
will compete in rate, products or other areas. If they get it right, they could grow market share. It happens in the fixed annuity world all the time.” If rates fall further: Insurance companies do need to make a profit, says Paul. So, if rates fall even more than they have so far, some carriers may need to dial back what they are doing even further than they have already. It is clear that interest rate uncertainties still abound. But if it turns out that rates really have bottomed out, the coming 12 months could bring sighs of relief plus glad hands at the drafting boards. 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.
January 2013 » InsuranceNewsNet Magazine
49
Business
PART 1 of an exclusive 3 part series
How to Talk To Anybody About Anything The first of a three-article series focuses on engaging prospects in conversation. By Bryce Sanders
“W
ow! I would really like to meet that person but I don’t know what to say!” From time to time, we see people we would like to befriend, connect with or just meet. Some are easy. It gets difficult when there’s a wealth gap or when our motives seem obvious – such as when the supermodel walks into the singles bar. This three-article series will examine seven scenarios. The first will focus on starting the conversation. The second on how to keep the conversation going and finally, how do you wrap up and lay the groundwork for seeing them again?
50
PART 1
of a 3 Part Series
Seven Scenarios
has fallen from a great height. You’ve been out of touch. Many visual clues signal they are having a very difficult time. You want to help.
[ 1 ] The Big Fish – These corporate executives know they are wealthy and powerful. People who talk with them usually want something because The Big Fish are, of course, great prospects.
[ 4] The College Roommate – You attend your reunion. Across the room you see a former classmate. You were once great friends but haven’t spoken in decades. Didn’t they invent that social networking website?
It’s easy to start conversations with the guy at the next desk. How about these scenarios:
[ 2] The Stunner – You’re single and you’re having a drink when an extremely attractive person sits down at the next table. Heads turn. “They’re way out of my league” flashes through your head. But when will this opportunity ever happen again? You’ve got to try. [ 3] The Casualty – The economy has been rough. You recognize a person who
InsuranceNewsNet Magazine » January 2013
[ 5] The Service Provider – You get your hair cut and grass mowed. The same person has been doing it for years but you’ve never really gotten to know them. [ 6] The Sideline Parent – Your children play school sports. You attend every game and see other parents regularly.
How to Talk To Anybody About Anything Their faces are familiar but you’ve never spoken. [ 7] The Extremist – You hold moderate political beliefs. One of the people in your extended social circle holds extreme views. They are passionate and uncompromising. Thankfully, the election is over, but you want to move on and maintain or build on your relationship.
Background
Conversation is an art and a one-size strategy doesn’t fit everyone. While it’s human nature to prejudge, here’s what’s probably going on in the background. They are: Wary – Does this person want to profit at my expense? Weary – I’ve heard every pick-up line. Which will they use? Wise – They can think several steps ahead. They won’t be fooled. Engaging everyone with respect and dignity is important. You establish your standing by how you approach others, especially in the initial conversation.
Your Strategies
[ 1] The Introduction – Look around the room. Who do you know that knows that person? Would they walk you over and introduce you socially? [ 2] Friends in Common – The person you both know isn’t present. No problem. You walk over and state the obvious. “You don’t know me” followed by “I believe we have a friend in common.” [ 3] The Compliment – They made the news recently. They are wearing a great piece of jewelry or a great tie. Their lapel pin or broach is distinctive. Who is offended by a sincere compliment? [ 4] The Event-Related Observation – “These shrimp are wonderful! Have you tried one?” “The museum throws the best parties. Wouldn’t you agree?” or “The committee did a terrific job on décor.” The organization is the common bond that brought you together.
Business
[ 5] The Neutral Question – People can sense when you want to talk with them. They may feel the same way. “Do you have the time?” or “Is this seat taken?” is simple and inoffensive. [ 6] The Insightful Question – Assuming you know about the person’s career or role in the community, ask a question that gets him sharing his opinion. “Aren’t you glad the election is behind us?” or “I heard the President visited Hatboro last week. Did you see him?” [ 7] The Waiting Game – Useful if something else is absorbing your attention. You are watching a football game on the wide screen. They are cheering. You wait until they remark on a great play or question the referee’s eyesight. When they speak, you give your opinion and follow-up with another question. [ 8] The Volunteered Observation – You are sitting together and remark, “My wife and I are new around here. We just moved into the Generic Hills development. Do you live around here?” If they answer, you draw them out. [ 9] The Information Request – It puts you on equal footing, useful if you are the more successful looking. “I’m trying to find (place). Do you know where it is?” They get to help. It makes them feel good. Asking for advice fits in the same category. Your friendly demeanor helps them relax. [ 10] The Shared Memory – You’ve had a previous relationship but time has passed. You shared common experiences related to your current location. Mentioning the common bond may draw them out.
Matching Strategies to Scenarios
Your golf bag now has an assortment of clubs. Which ones are suitable for which scenarios? [ 1] The Big Fish – One successful person is meeting another. The introduction or friend in common is ideal. No connections? Try the compliment, ideally about news connected to the firm they run or their achievements in the community.
Q:
How do you reach difficult prospects? How do you introduce yourself to someone you want to meet? How do you get the conversation started? Join the discussion in the InsuranceNewsNet.com LinkedIn group. The best suggestions may be published in a future issue.
How Does This Sound? (Friend in Common) “Mr. Smith, I’m (name). I believe we have a friend in common. It’s Frank Waters. …” [ 2] The Stunner – This isn’t business, it’s romance. Compliments are good but, obviously, only if in good taste. The Neutral Question or The Event-Related Observation can get the conversation started. The Waiting Game can work also unless a bolder competitor sits on their other side. How Does This Sound? (Neutral Question + Event-Related Observation) “Excuse me, is this seat taken? Thanks. I really enjoy coming to the Chamber’s Taste of the City each year. Have you tried the grilled shrimp? I have an extra one here. …” [ 3] The Casualty – A friend has fallen on hard times. You are a peer. The Information Request positions you as equals. The Neutral Question is similar. The Volunteered Observation could work. How Does This Sound? (Neutral Question) “Charlie, I’m so glad to see you. I haven’t been downtown for months and forgot about the construction. Do you know how to get to the freeway from here? I really appreciate the help. …”
January 2013 » InsuranceNewsNet Magazine
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Business
How to Talk To Anybody About Anything quest for Information and The Shared Memory put you on equal footing. How Does This Sound? (Information Request) “Charlie, we’ve known each other for years. I was wondering if you could give me some advice. Our ride-on mower has finally given out. What’s the best place to get another, someplace that provides good service if you ever need it?” [ 6] The Sideline Parent – You both want to provide for your children. You may not know each other, but your children might! The Friend in Common can reference flattering observations your child has made about their child. You might utilize The Compliment to recognize their child’s sports performance. The Volunteered Observation can draw them out about where they live. How Does This Sound? (Compliment) “You are Timmy’s parents, aren’t you? Our son Charlie told us the greatest story about this incredible shot Timmy made at basketball practice. You’ve got a real star there. You must be very proud. …”
• Conversation is an art. One-size strategy doesn’t fit everyone. It’s human nature to prejudge. • Engaging everyone with respect and dignity is important. • You establish your standing by how you engage with others, especially in the initial conversation. [ 4] The College Roommate – They’ve hit it big. You didn’t stay in touch. In fairness, neither did they. You are on an equal social footing. The Shared Memory can refresh common bonds. The Event-Related Observation gets you talking. Both The Insightful Question and The Compliment give them the opportunity to talk about their successes. How Does This Sound? (Shared 52
Memory) “The chemistry building. Remember those sleepless nights we would spend cramming for exams? I still get a chill every time I see those classrooms. …” [ 5] The Service Provider – You’ve seen each other for years but don’t know each other. The Waiting Game hasn’t worked! The Volunteered Observation, The Re-
InsuranceNewsNet Magazine » January 2013
[ 7] The Extremist – You know their views and they aren’t your own. People are rarely focused on one issue. There should be common ground somewhere. The Shared Memory can draw them out about the local area. The Insightful Question can get them talking about an issue of your choosing. How Does This Sound? (Insightful Question) “Phil, I would like to ask your opinion. You’ve always been a strong supporter of limited federal government. I’m concerned about school taxes on the local level. They’re talking about building a new middle school. What’s wrong with the old one. …?” Next Article – You’ve got them talking! How do you keep the conversation going, gather information and position yourself as a person they want to know? Bryce Sanders is president of Perceptive Business Solutions in New Hope, PA. His book “Captivating the Wealthy Investor” is available on Amazon.com. Contact Bryce at Bryce.Sanders@ innfeedback.com.
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Notes from NAILBA 31 Industry Leaders Share share their Theirthoughts Thoughtsabout About2013 2013 John Ziambras
CLU, President and CEO, AimcoR Everybody talks about the standard things: distribution, interest rates, AG 38. My perspective is these are things that we cannot really do anything about. I see the opportunity in becoming something very different from what exists now. I’m focused on the consumer, and a consumer society that is underserved and underinsured. Carriers say, “Well, my customer’s the broker. My customer’s the BGA.” No, it’s not. It’s ultimately the consumer – and carriers will get their product to the consumer in the manner that the consumer wants to receive it. Our challenge is, what do we (the IMO) need to be in this transaction? And as I’ve said, what used to be for 30 years isn’t going to be relevant enough for us now. We’re approaching the future very differently in terms of the historical value proposition of a BGA and IMO. I think our goals as IMOs and BGAs should be to enable new producers, partnerships with the carriers, to create new distribution, and focus on alternative markets. I’m on a mission to lead AimcoR to a different level. We’re not the biggest and we’re relatively young but we’re growing constantly. This is not about just 2013, but what we are going to look like in the long-term? There’s enough data today that the value proposition is not going to be in the processing. It’s going to be on the education and improving the consumer experience around insurance. We want to be able to explain the value of these things to any demographic and to have the tools to be able to do it.
Bill Levinson
Managing Partner, Levinson & Associates, Inc. As distributors, we have to constantly come up with new turn-key sales platforms so agents can get in front of prospects. We have made big changes to our I-genius platform so agents can have a full marketing program at no charge and utilizing these tools will keep them a step in front of the competition. The big products for 2013 will be whole
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InsuranceNewsNet Magazine » January 2013
life, indexed UL, critical illness, and mortgage/non-med term type products. We see AG 38 affecting pricing for no-lapse UL products, so the industry will be shifting toward these new guidelines. Regardless of the industry changes, the key continues to be focusing on the agent experience and developing useful products and programs. Our 2013 scholarship program now has more than 10 products, 299 colleges and over 100 marketing letters/ mailers. We have also added a new co-op exclusive lead mortgage program that will help new agents tap into the life marketplace without cold calling. The focus for us is new technology and consistent training that is getting better and better every day. The days of great comp, great service and great products will not be enough moving forward. You will need all of this plus a great sales platform that can help agents see more clients each and every day. Value proposition should be the IMO’s focus day in and day out!
Arnold D. Henkel
Senior Vice President for Strategic Alliances for Ameritas As mutual company, Ameritas is always focused on stability and the longterm for the benefit of our policyholders. The ongoing challenges we face are always delivering that long-term value. Right now, long-term interest rates are squeezing margins, which could go on for a couple more years. Add to that our conservative investment and product offering philosophies and our stability and we think, to some degree, the big gain is going to be the marketplace continuing to come back to us. AG 38 is going to impact a company’s ability to market products. We already see others re-pricing and raising prices on a number of products – we shouldn’t have to do that. We’ve already modified our variable annuity, our life products, our long-term sustainable to complete in this current marketplace. We are starting to see challenges with European parent companies and some action around divestiture, or pulling from certain markets, which will be good in the long run as the industry matures. The value proposition around good agents
Industry Leaders Share Their Thoughts About 2013 continues to strengthen. Our recruiting on both the agency side and on the IMO side has been very successful. We think that will continue. Now we’re seeing disability income products imported from Australia and South Africa designed for the underserved middle market. It’s a very simplified individual disability contract and think it will be a good entrée for us, and a real positive for our organization to get into that underserved market.
John Martin
CLU, Vice President Life Sales at Creative Marketing International Corporation We find that there’s a real dearth of awareness in the marketplace of what our products do. And it’s now up to us as wholesalers to provide that training and education to our agents, who then can impart it to their customers. As wholesalers we’re removed from the ultimate consumer, who is the beneficiary. We don’t connect enough with that. When I started in the business in ’81, we had basic training on developing the need and understanding what the product does for people. There are wonderful materials that are consumer-facing that we should be using, and that our agents can use to educate their clients. As a differentiator, we must speak with passion and a real understanding for the ultimate consumer of our product. I think we just need to get back to the basics. Get back to cash value products that can do great things, accumulate great value for supplemental retirement income, and at the same time provide a great death benefit for the unforeseen times when someone dies prematurely. Get back to the basics of telling the story and not have it be all about price. The products become commoditized and price-driven, and it’s compensation-driven, and we really need to connect with those people that we feel we can do the most good for, and who really can appreciate what we do.
Richard A. Hollar
CLU, Vice President and CMO, 3 Mark Financial I think that 2013’s going to be a wild west. Right now, we’re in one of the most challenging times in the history of the life insurance business. There’s the fact that we don’t have enough agents; we’ve got to add people to the marketplace. Then, the whole effect of AG 38 combined with continuing lower interest rates and the ongoing concern about a number of carriers being sold, consolidated and integrated. The big stock players of old are being challenged and suddenly mutual holding groups are now a pretty good place to be. You’ll see most companies have as many as three different iterations in their product portfolio for GUL, while we’ll continue to see carriers withdraw from the GUL market. It’s going to be very bumpy, very inconsistent, lots of challenges. BGAs have always claimed that we’re price driven, but we’re also very relationship driven. And, while it used to be about who you were comfortable working with, now whenever a carrier wants to talk to me about adding them, I must ask, “What are the differentiators that make you unique? What do you have that everyone else doesn’t?” If you’re just out there with a commodity product, like term, it’s pretty difficult to win the day unless you’ve got the lowest price. We’re always looking for differentiators for ourselves. We’re constantly having webinars, featuring and pushing marketing ideas to the field force, because if they have a differentiator from us, that’s what’ll allow them to beat the competition. Some smart people are going to figure all this out and make a boatload of money, because if you want a positive in all this, look at the demographics of the baby boomers. We should have unparalleled success for many, many years in the future. For extended coverage of this and other important industry events, visit www.insurancenewsnet.com and search for NAILBA at the top of the page to read additional reports and interviews from the show.
January 2013 » InsuranceNewsNet Magazine
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special report NAILBA/chuckFAZIOphotography
InsuranceNewsNet Publisher Paul Feldman, at podium, moderates a panel including, from left, Malcolm Sklar, Jonathan Shaw, Tim Ash, Stephen Robinson and William Sloan.
Fighting on Price a Losing Battle, NAILBA Panel Says W h e n In suran c e Ne w s Ne t Publisher Paul Feldman moderated the panel “Adding Value as a BGA” at NAILBA 31, he quickly found that was not an easy proposition. Being a brokerage general agency today is becoming more complicated by the day. Some of the struggles that BGAs face were recurring themes during the National Association of Independent Life Brokerage Agencies’ annual meeting. Many of those themes ran through the hour-long “Adding Value” panel discussion, but this feature will focus on a key one – the question of competing on price vs. service. The panelists’ answers reflected their individual perspectives in the industry. Three of the panelists were from BGAs of varying sizes and two were from insurance companies.
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Tim Ash
President and Chief Executive Officer Ash Brokerage We don’t like to compete on comp. If you do, then you’d have to change the name of your agency to Five More Points. And that’s a strategy that doesn’t work and it doesn’t win. I say this to an advisor who wants to talk about percentage. I know when I go to the bank and I file my taxes I don’t base it on a percentage. I base it on revenue. Doing business with our firm, we’ll make certain that what you’re depositing in the bank and paying taxes on is greater than what you’ll get in. We just choose not to play in the transactional world. And there are scenarios and situations whereby other firms might need that next case be-
InsuranceNewsNet Magazine » January 2013
cause it’s their lifestyle. It’s the way they run their business. Hey, it’s not easy out there. And there are hundreds of folks distributing products. If there’s no discipline with respect to what can be done and offered in a contract, then it’s just going to be a free-for-all. So you really have to find ways to say, “We’re going to grow your bottom line and we don’t grow it through a contract. We grow it through a partnership and we’re going to put our skin in the game and we’re going to make it happen for you.” True alignment and understanding – that is where it needs to go. It’s just good business sense. We want to be considered a fun and profitable partner to do business with. Fun and profitable – that feels pretty good.
CRITICAL ADVISOR wARNING Is this the end of “big earnings” in this arena? Absolutely NOT, but it will NEVER be the same. Low interest rates, market volatility, and increased capital requirements are most likely already affecting your bottom line now. Increasing pressures are expected go into full effect by mid-2013, sending commission shockwaves throughout the industry.
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EARN commissions that remind you of “the good old days” Discover how to profit from this booming market opportunity. Call us today. With tax hikes and low interest rates, 2013 will be a banner year for SPL sales. Don’t miss out. Now for a limited time, get a copy of an exclusive report that we commissioned. “The Irrational Life Insurance Buyer” by annuity expert Dr. Jack Marrion is a remarkable, first of its kind study that examines buyer rationale and psychological triggers that inspire purchasing decisions. This is truly a MUST HAVE for any advisor that wants to grow their life business by six figures in 2013.
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... a different experience January 2013 » InsuranceNewsNet Magazine 57
SPECIAL REPORT
FIGHTING ON PRICE A LOSING BATTLE, NAILBA PANEL SAYS
Stephen Robinson
Vice President, Senior Account Manager Banner Life Insurance Co. A lot of it is partnership and relationships and we want to be seen as much more than just a product. We want to be building the right products for your distribution. We want to be providing the right tools to sell and market those products – whether it’s the app assist or the dropticket strategy; whether it’s providing the right training modules to go through product design and features and benefits. We already know BGAs do lots of great things, but so much of this business is really about underwriting. So make sure you have the right relationships with the underwriters. A lot of it goes back to the partnership and one of the things is you’ve got to get the case done quickly. It’s great that all three of the BGAs on the stage said they have the power to say, “If it’s going to be about comp and that’s all that it’s about, then I don’t want that relationship.” From a carrier perspective, we look at the policy holder and we know whether that policy is profitable versus the next one. If you are writing a ton of business and your numbers look great, that’s not always all profitable business.
Jonathan Shaw
President and Chief Executive Officer Shaw American Financial Corp. We feel that we pay very fair commission and we deal with commission issues up front, as in “Here’s the deal. Take it or leave it.” And there’s just always going to be that one group of guys that that enjoy shopping the commission and we just can’t afford to work with them. What agents don’t realize is that when they get 10 percent more, they cut our margins by 50 percent and that is not a sustainable proposition for us. We focus on how we can utilize the technology to really add the value to the producers. We’ve been early adopters of the drop-ticket ideas, developed our own program to do that, to make it easy for the producers to do business and save a lot of time. The differentiator is the one who’s going to take that $100,000 producer to a $150,000 level. That could be something simple as sitting down with an agent and mining their book of business, showing 58
them where they’ve missed opportunities. And also showing them how to work with a better caliber of producer prospects they want to work with because they’re their type of producers. And that’s what distinguishes one BGA from another.
Malcolm Sklar
President, Life Plans Unlimited You can provide value to your producer by delivering what you quoted – or close to it – and that may entail an awful amount of work. I think we’re going to see more and more work fall on BGAs in this coming six months when the AG38 dust settles; assuming it does. I think as BGAs, we’re going to be stuck with a lot more work than we’ve ever done. If you’re working on a permanent case of any significance, you’re going to be looking at GUL, current assumption UL, IUL, guaranteed UL, whole life – it is going to be a lot of work within the BGA to earn that business. I think that’s one of the ways that we can provide value to our producers. But one of the great challenges that we’re presented with as BGAs is margin compression. There’s no question about it. The tough economic times that created pressure on the BGA as well as the agent, and it’s ungodly what’s going on out there. We all live it every day – if you have a significant term conversion business you might as well be on eBay with it because it is an auction, it really is. Now that’s morphing into other lines of business. You deliver and then some brokers say, “That’s great, but why aren’t you paying me X because another BGA is?” And that’s killing our business; it’s a problem for the companies and it’s a problem for us. The companies can only insist on advertising of commissions, they cannot stop the one-off deals that are proliferating everywhere in our business. I do not have an answer but it is a cancer to our business.
InsuranceNewsNet Magazine » January 2013
William Sloan
Regional Vice President Prudential Select Brokerage A common theme that I see of the BGAs that are growing is they see people faceto-face. It’s very rare that I see a BGA that’s growing that doesn’t get out of the office and go see people – whether it’s one-on-one appointments or in-person meetings. The BGAs that I’ve seen that continue to reinvent themselves, it is because they are always educating and training and producing. And it’s either educating and training new producers or helping change the game for the more experienced producers. I’ve got a relatively new BGA that’s been around probably five years, in probably a $4 to $5 million shop that has one of the best assembled approaches I’ve ever seen. They restructured the business on a daily and weekly basis. They have four brokerage managers that see 18 to 20 people a week and they get in the door by saying, “I want to come by and visit with you for 10 minutes, share some new sales ideas with you; one product-related, one underwriting, and one that’s a sales idea and that’s it.” It’s amazing how simple that is, yet few people really do it. When you look at the things that have changed in the business such as quote engines, the underwriting engines, the aggregators, to online – from my point of view now you can get most of those things from anyone. The real value is what you do with the relationship. And I would just strongly encourage you to challenge yourself and challenge your producer to be more of a partnership and trusted-advisor relationship versus a vendor relationship. And that’s from a carrier to BGA perspective; sometimes you’re a vendor to a BGA, and sometimes you’re a partner, trusted advisor. I think we all want to be in that arena where we’re considered the trusted advisor.
NAIFA BENEFITS HELP
GROW YOUR BUSINESS
NAIFA member benefits provide the resources you need to succeed - at every stage of your career! With more than 50 professional programs and products designed to enhance skills and provide value-added business services, NAIFA membership is your best career investment. Here’s a sampling of what NAIFA has to offer: Online CE NAIFA has partnered with RegEd to bring you an exclusive discount on all of your insurance continuing education needs. Monthly Webinar Series Featuring timely information and training on topics such as sales, prospecting, marketing, practice management, and legislative updates. NAIFA ClientCast® by RealWealth® A professionally produced podcast you can forward to your clients and prospects each month on a variety of topics including life, health, long term care, disability and critical illness insurance.
NAIFA’s Virtual Library A repository of online sales tools and resources including client presentations. NAIFA’s Advisor Today Magazine The premier source for practice management content and industry news. Online Seminar Series 24/7 access to training and information on topics like succession planning and thriving in the first three years in the business. NAIFA SmartBrief A daily news source for insurance and financial advisors in the form of a two-minute read.
That’s just the beginning! For more, visit
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January 2013 » InsuranceNewsNet Magazine
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The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
MDRT INSIGHTS
Five Key Elements for Top Production We’re not in business to service our clients; we are in business to amaze them. By J. Leland “Lee” Davis
I
n the beginning of your career, it is common to try to do everything yourself with low-paid, part-time help. Advisors coming into the industry scramble to attend every networking event possible, produce countless mailings and conduct one cold call after another to attain prospects. Perhaps this is where we as advisors are misguided. In order to generate significant production by working four to five hours daily for four days a week, you need to learn and be committed to the five key elements for top production. Let’s examine them:
Meaningful Goal Setting
When setting a goal, remember that anything ever accomplished by anyone else is achievable if you’re committed and you emulate their methods. When you set your goal, you must have a “why.” Why are you in this profession? Is it for money? Recognition? Something else? To help you set meaningful goals, apply the following three techniques: [ 1] Tell your 10-year story. Write as if you have achieved your goals and dreams, assuming there was no way you could fail. [ 2] Try the “add-a-zero multiplier.” Take your current practice revenue and add a zero. Create a chart to identify the staffing, systems support, marketing and budget you will need in order to reach that future revenue. Start with making one improvement toward that end goal, then make another one in six months and another one in a year. If you want results faster, implement the improvements sooner. [ 3] Write a love letter to your family. Visualize your family members and 60
write down the life lessons you want them to know. Include your admiration and love for each one of them.
Effective Time Management
Effective time management is doing the right things right. All of us in the industry start on the activity-based model. Typically, it is the one-card system and 10-3-1. Ten contacts equal three appointments which equal one sale. The magic, however, happens when we shift to a quality-based model, which is one quality contact equals one meeting that equals one client for life. If you focus on the abilities only you have, the tasks you do best, and manage support from high-quality, wellpaid staff, you can accomplish more in a short amount of time. It’s important to stop doing what others can do to be more efficient with your time. Here are the seven duties to include in your daily and professional life: [ 1 ] Meet with your clients, review their objectives and manage their assets in concert with your team. [ 2] Speak on the phone with clients about important matters that require your abilities. [3] Stay fit and healthy by taking time off. [ 4] Read and learn prodigiously. [ 5] Cultivate professional relationships that produce referrals and business. [ 6] Inspire your team members and be inspired by them. [ 7] Plan and envision the future.
Marketing for Client Advocates
Creating client advocates requires all your marketing to be based on respect and admiration. You should use strategies and tactics to replicate your best clients by
InsuranceNewsNet Magazine » January 2013
developing an emotional attachment with them. In the past, advisors used network endorsements, cold calls, phone solicitors, direct mail and shoe leather. They asked for referrals. Today, it’s more important to promote referrals and use well-thoughtout strategies and tactics that are executed monthly. These can fall in the categories of client events, client “routines,” letters and e-mails, weekly commentaries, conference calls, charity events, advisor marketing, etc.
Team Development
If you are wondering how to get from a one-man band to a team, it’s easy. Start with one person. Begin with a part-time assistant, and then add another employee as needed when the workload increases. It’s important to hire based on intelligence and work ethic. Make sure the newhire’s abilities align with the responsibilities that need to be addressed. Each team member should have specific duties.
Client Systems
In my practice, our client contact is automated and systemized. Of all our client meetings, 95 percent are either held in the office or conducted via Web conference. Our clients are segmented and categorized. “Directors” are those providing us with at least $12,000 of annual revenue. “Presidents” are those providing us with $3,000-12,000 annually. “Express” clients provide us with less than $3,000 annually. Every interaction with clients results in an entry in their electronic history. I recommend having state-of-the-art comprehensive wealth management software, Copytalk to dictate notes and Adobe Web conferencing so your clients have a fully engineered experience wherever they are. We’re not in business to service our clients; we are in business to amaze them. By applying these five key elements, whether you’ve been in the industry for five years or 50 years, you have a template you can use to achieve top production. J. Leland “Lee” Davis is a principal of Lee and J.L. Davis Financial, which specializes in comprehensive wealth management for entrepreneurs and wealthy families. He is a 23-year member of the Million Dollar Round Table (MDRT) with 11 Court of the Table qualifications. Lee can be contacted at Lee.Davis@innfeedback.com.
NAIFA INSIGHTS
Founded in 1890, NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every Congressional district in the United States.
The Makeup of the New Congress: What Advisors Need to Know ashington has maintained W the status quo following a divisive election. By Diane Boyle
A
s we look to the new year, we might finally be far enough from November to take a look at where the election left the nation. The country still remains divided between red and blue states. In the Senate, Democrats picked up two seats, bringing the current split to 53 Democrats, 45 Republicans, and two Independents, who will likely caucus with the Democrats. This keeps both parties from the critical 60 vote majority needed to avoid a filibuster and cut off debate on contentious legislation. Since filibusters are not allowed in the House, the Republicans keep their comfortable majority above the 218 (or 50 percent) threshold that is needed to maintain control and pass legislation. So, if Washington has maintained the status quo, what do we need to know about the makeup of Congress?
Key Winners
First, let’s take a look at the key winners: Sen. Jon Tester, D-Mont. Sen. Tester, serves on the Senate Banking Committee, which has jurisdiction over insurance. He is a staunch advocate for the insurance agent and advisor community. In the 112th Congress, he was the lead Senate Democrat sponsor of NAIFA-supported legislation to achieve agent licensing reform through the creation of a National Association of Registered Agents and Brokers (NARAB). He took a lead role to push back with the Department of Labor on its efforts to redefine who will be an ERISA fiduciary. Also, together with Sen. David Vitter, R-La., he shepherded the hard-fought National Flood Insurance Program extension and reform bill through the Senate. Rep. John Barrow, D-Ga. Rep. Barrow was the lead Democrat sponsor of
H.R. 1206, the medical loss ratio fix bill advocated by NAIFA. Along with Rep. Mike Rogers, R-Mich., Rep. Barrow succeeded in reporting the bill out of the Energy and Commerce Committee during the prior Congress. Rep. Charles Boustany, R-La. Rep Boustany, who serves on the House Ways and Means Committee, which has jurisdiction over tax issues, understands the value of insurance products and the role of the agents and advisors. He was the lead sponsor in the 112th Congress of H.R. 1173, the CLASS Act repeal legislation supported by NAIFA. He also co-sponsored the medical loss ratio fix bill. Former Rep. Dan Maffei, D-N.Y. Rep. Maffei returns to Congress following a narrow defeat in 2010. During the Dodd-Frank Act negotiations, Rep. Maffei sponsored the NAIFA-championed amendment to ensure that a broker-dealer or registered rep subject to a Securities and Exchange Commission (SEC)-defined fiduciary duty can never be in violation of the duty if he only sells the securities that he is contractually obligated to sell. That important “proprietary products” safe harbor was a major accomplishment for NAIFA’s advocacy efforts during the Dodd-Frank debates.
Leadership and Key Committees
Speaker John Boehner, R-Ohio, retains his post as Speaker. Eric Cantor, R-Va., remains the House’s Majority Leader and Kevin McCarthy, R-Calif., continues as Majority Whip. Cathy McMorris Rodgers, R-Wash., joins the leadership as Republican Conference Chair and Lynn Jenkins, R-Kan., as Vice Chair. Greg Walden, R-Ore., serves as the National GOP Congressional Committee Chair. And Virginia Foxx, R-N.C., is the Conference Secretary. On the Democratic side, Minority Leader Nancy Pelosi, D-Calif., remains the leader. Steny Hoyer, D-Md., retains his post as Minority Whip, and Assistant Democratic Leader James Clyburn,
D-S.C., maintains his position. Xavier Becerra, D-Calif., serves as Democratic Caucus Chair, and Joe Crowley, D-N.Y., is the Democratic Caucus Vice Chair. In the Senate, Majority Leader Harry Reid, D-Nev., keeps his leadership position. Sen. Richard Durbin. D-Ill., remains Majority Whip and Sen. Chuck Schumer, D-N.Y., continues to play a significant role as Vice Chairman of the Senate Democratic Caucus. Sen. Patty Murray, D-Wash., is the Democratic Conference Secretary and Michael Bennet, D-Colo., is the Senatorial Campaign Committee Chair. On the Republican side, Mitch McConnell, R-Ky., remains Senate Minority Leader. John Cornyn, R-Texas, replaced retired Sen. Jon Kyl, R-Ariz., as Minority Whip. Republican Conference Chair is John Thune, R-S.D., and Roy Blunt, R-Mo., serves as Vice Chair. John Barrasso, R-Wyo., is the Policy Committee Chair and Jerry Moran, R-Kan., serves as the Campaign Committee Chair. Some of the newly-elected House members are previous state office holders or have reclaimed their seats in Congress following a previous defeat. And while five of the new members - Reps. Tony Cardenas, D-Calif., Juan Vargas, D-Calif., Brad Schneider, D-Ill., John Delaney, D-Md., Scott Perry, R-Pa. - have experience in the insurance industry, many of the freshmen members have little or no experience in insurance and financial services matters. NAIFA members and staff are eager to engage decision-makers at every level of the legislative and regulatory system as we work to advocate for our industry. Diane Boyle, HIA, is the vice president of federal government relations for NAIFA. Contact her at diane.boyle@ innfeedback.com.
January 2013 » InsuranceNewsNet Magazine
61
Over 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.
LIMRA INSIGHTS
One Size Doesn’t Fit All I t is critical that insurers tailor their training and support to their producers’ needs. By Norah Denley
Producers List Barriers to Using Social Media 24% 21%
B
usinesses today – especially insurance businesses – are often built through referrals and word of mouth. This is nothing new. The people we know and our professional reputations have long helped to establish our success. But as consumers increasingly turn toward “anytime, anywhere” technologies to support their on-the-go lifestyles, traditional means of connecting with others and building relationships are changing. Consumers still seek advice and references from their friends, but they often make those requests by posting questions on Facebook. Phone calls have not gone away, but today, they are often supplanted by text, tweet or e-mail. Recent LIMRA research examined how producers are using social media in their practices and what support they need from insurance companies.
Who is Using Social Media?
According to LIMRA research, about half of producers are using some form of social media. More interesting, perhaps, is that about 40 percent are planning to use some new form of social media. This is true among producers who are currently using social media but who are adding new sites and tools. It is also true among non-users who are dipping their toes into the social media waters for the first time. In general, LIMRA found that producers with less experience in the industry are more likely to be using social media at present than their more experienced counterparts. This may be due, in part, to age differences. Generally, producers with less experience are younger and more likely to be social media users. But this doesn’t mean all producers using social media are right out of college. While less experienced producers may be using social media sites and tools, the most experienced producers (30+ years in the industry) are the producers most likely planning to use these same tools. Rough62
Not using social media Using social media
20% 18% 16% 14%
15% 10%
9%
8%
8% 6% 4%
2% Carrier prohibits
Compliance concerns
Need training
No interest
No time
Haven’t seen Haven’t benefits gotten to it
2%
4%
Need staff
6% 2%
1%
1%
1% 1%
Market Need useful Not seeking doesn’t use content new business
Chart Source: Connecting through Social Media: Producer Use of Technology, LIMRA (2012)
ly seven in 10 producers, regardless of experience, are either using or planning to use some form of social media
How are Producers Using Social Media?
Among social media users, those with differing amounts of industry experience are using social media in different ways. About half of newer producers are using social media for prospecting, and over one third are using it for brand management. This makes sense – less experienced producers have a greater need to build their business, and therefore use social media to look aggressively for new clients. More experienced producers use social media for these purposes as well, but they also use it to maintain relationships, extend their market reach, and explore social media in general.
What are the Barriers to Social Media Use?
Just because a producer is using some form of social media, it doesn’t mean all the barriers to social media use have been removed. Nearly one quarter of its users cite lack of time as their primary barrier to increased its use. Compliance concerns and the need for training are also top barriers. A producer’s experience also plays a role in the perceived barriers for social media use. New producers are concerned primarily with a lack of time and with compliance concerns, while more experienced producers using social media are citing a need for training as a primary reason for not using social media more.
InsuranceNewsNet Magazine » January 2013
How Can Insurers Help?
Insurers can support their sales force’s use of social media by providing training, procedures and tools that address the key needs of producers who use it. Here are two ways: [ 1] Demonstrate how social media can help their business at its current stage. While social media is a great communication tool for everyone, for newer businesses, the focus is on networking and prospecting, while more established producers might be interested in the ease of staying in touch with existing clients. [ 2] Training should be objectives-focused, rather than procedural. This doesn’t mean examples aren’t useful, but it’s important to tie all actions to how it is helping to solve a problem and/or improve business. It is critical that insurers tailor their training and support to the individual needs of their producers. Social media use continues to grow among all demographics. Helping your field force have a strong presence is not only smart, it is essential to remain competitive. Norah Denley, senior research analyst for LIMRA’s Technology in Marketing and Distribution Research, is responsible for research in the areas of e-marketing, social media and web analytics. She can be reached at Norah.Denley@ innfeedback.com.
MARKETPLACE
Advertiser Index
For more details on an advertiser, use the information below or visit InsuranceNewsNetMagazine.com/spotlight Advertiser Website
Phone Page
American Equity
www.american-equity.com
888-647-1371
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AMZ Financial Services
go.amzwebcenter.com/omega
866-279-5677
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Athene Annuity
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IBC
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Eugene Cohen Insurance Agency, Inc. www.cohenagency.com
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Fairlane Financial
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Financial Independence Group
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First Income Advisors
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Imeriti
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Life Sales, LLC
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M&O Marketing
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31
MDRT www.joinmdrt.org 847-692-6378 7 NAIFA
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877-866-2432 59
Ohlson Group
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877-844-0900
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Oxford Life Insurance Company
www.oxfordlife.com
888-853-0925
27
Petersen International Underwriters
www.piu.org
800-345-8816
41
Prudential www.prudential.com/underwriting 800-292-0054 11 Royal Fund Management
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Sagicor
www.sagicorlifeusa.com
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Vertical Vision
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866-984-1585
Insert
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January 2013 Âť InsuranceNewsNet Magazine
63
the last word
With Larry Barton
The Importance of One Voice The industry has to speak with one voice or the interests of the life insurance industry and the people it serves will not be heard. By Larry Barton
T
he time has come to have a frank discussion about how your interests are represented in Washington, D.C. The truth is that our industry has too many voices trying to represent insurance and financial services professionals. As a result, our ability to affect legislation vital to our future success becomes diluted. Ask yourself, “Who speaks for financial services?” Is it NAIFA? GAMA? AALU? ACLI? The American College? MDRT? LIMRA? LOMA? Need more acronyms? There are plenty to choose from. As you can imagine, the problem is that all of these organizations purport to represent our interests in various forms, and yet none of them is recognized industry-wide as our single, official representative. I submit to you that for our industry to survive in the coming decades, we need to do a better job of cooperating and leveraging our existing resources. To address this issue, I propose that all our industry organizations begin meeting on a quarterly basis to enhance the exchange of information and the coordination of efforts on behalf of financial services professionals. The American College would be proud to organize and host the first such meeting on our campus. This coordination would have several immediate benefits. First, we need to improve the image of the financial services industry and the caring professionals who help families across America achieve financial security. My hat goes off to the LIFE Foundation. Their annual “Life Insurance Awareness Month” initiative and other recognition events have shown that cooperation between various industry partners can make a difference in improving the public’s perception of financial products. One month each year, however, will not get us to our goal. We need a more concerted effort, year
64
round, in order to make a difference. Another immediate benefit would be how our industry is represented in Washington, D.C. If we are to make a difference in the minds of legislators, we need to make all of our voices heard. At present, membership in many of our professional organizations is declining. This makes us less significant in the minds of lawmakers. We are seen as less influential. Part of the reason is economics. As company and family budgets tighten, professionals have chosen to support fewer organizations, or have chosen not to participate at all. Another challenge is the social fabric of our culture. Online communication has replaced the need for face-to-face networking for many industry practitioners. Our culture is not going to change. We can no longer afford to have our voices divided between many organizations. Instead, we need one overarching alliance of multiple organizations that can represent our interests together. What will this do? Speaking with one voice sends a consistent message and tone to legislators about industry issues. When multiple representatives deliver our message, our consistency is sacrificed. Whether it is retirement savings issues, cash build-up of life insurance or estate taxes, we need to speak in a clear and effective manner. By working in concert, we multiply organizations representing fewer voices into a single voice that represents hundreds of thousands. There is strength in numbers. Creating a federation for financial organizations through synergy provides our industry with greater influence – both at the ballot box and through lobbying efforts. Finally, speaking as one increases our ability to represent our industry effectively to members of the public. I don’t know about you, but I’m sick and tired of the bad rap insurance professionals get. If a patient has a bad experience with a doctor, no one blames the entire medical profession. Yet, when a financial professional acts inappropriately, the whole industry gets a black eye. We must do more to make sure consumers understand and
InsuranceNewsNet Magazine » January 2013
“Management must speak with one voice. When it doesn’t, management itself becomes a peripheral opponent to the team’s mission.” – Pat Riley, professional basketball executive, former coach and NBA player
appreciate the value of financial organizations so that the industry itself is better insulated from a few bad actors when they act in a manner that is illegal, unethical or both. Some may argue, the last thing we need is yet another representative structure added to the mix. I appreciate your concerns. But I tell you this as the leader of the nation’s premier financial services educator: if we don’t do a better job of getting our voices heard, pretty soon, there won’t be any more voices to be heard. Legislators are looking for ways to pick up revenue and with the stroke of a pen, they could very easily create laws that irreparably damage your livelihood. It is time we put aside our differences to work together for the greater good. The time for action is now. Our industry culture will not change until the paid executives of each of the organizations I mentioned earlier get the courage to speak out and earn their salaries by demonstrating leadership, rather than relying on lobbyists. For the most part, my contemporaries have been silent, running conventions and doing zero to help their constituents during the most aggressive attack on agents and advisors in our lifetime. They should be ashamed of themselves – and if they, or you, are offended, please show me tangible proof of their lobbying efforts in Washington over the past year. From my perspective, you deserve better, period. Do you agree? I invite you to write me at InsuranceNewsNet and share your perspectives. Let’s get a thoughtful dialogue started. Larry Barton, Ph.D., CAP, is president, CEO 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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