Broker World

BenefitMall

BenefitMall and CompuPay have announced a merger of the companies through an equity financing led by Austin Ventures. The combination of BenefitMall and CompuPay creates a national provider of employee benefit and payroll solutions. The company will offer complete health insurance, benefits, payroll and related products and services to small to medium-sized businesses and their employees throughout the United States. The transaction closed on May 1, 2012, and financial terms were not disclosed.

BenefitMall, headquartered in Dallas, TX, is a general agency with 32 offices in 11 states, serving a network of more than 20,000 brokers nationwide. CompuPay, headquartered in Miramar, FL, is a privately-held payroll processor in the United States with 23 offices in 14 states, serving customers in all 50 states.

Bernard DiFiore, chief executive officer of BenefitMall, will be the CEO of the new company; and Charles Lathrop, chief executive officer of CompuPay, will be the president and chief revenue officer. Both will join the board of directors of the company. Scott Kirksey, who was chief financial officer of BenefitMall, will take that role for the new company and will join DiFiore and Lathrop to form the company’s executive committee. 

Cigna Corporation

Cigna Corporation and American Financial Group have announced that they have signed a definitive agreement whereby Cigna will acquire Great American Supplemental Benefits Group, a manufacturer, distributor and marketer of supplemental health insurance products in the United States. The transaction is expected to close during the second half of 2012 following customary regulatory approval. Great American’s team, led by President Brad Wolfram, will join the Cigna ­organization. 

Diversified Brokerage Services

Diversified Brokerage Services, Inc. (DBS) has announced that Kip Barton, Tim Foley, Charles Norton and Bob Poage have joined its staff as relationship executives.

Kip Barton joins DBS with more than 19 years of experience in the analysis and implementation of life insurance sales strategies. Prior to joining DBS he worked for a boutique estate planning firm where he learned from one of the top estate planners about the many different strategies and applications of life insurance products. Barton also worked for a life insurance brokerage agency during which time he partnered with top estate planning producers and advisors throughout the country. Barton lives in San Diego, CA, and will be building new and supporting existing DBS relationships in the southwest United States.

Charles Norton comes to DBS with more than 20 years of experience in financial services. He brings significant multi-channel distribution experience, including the development of strategic partnerships with banks, broker/dealers, CPAs, attorneys, property and casualty agencies and high-end independent producers. Most recently Norton has focused on bringing to market sophisticated business and estate planning strategies as the managing partner of his own firm. He will be building new and supporting existing DBS relationships in the New England area.

Bob Poage joins DBS with more than 30 years of life insurance industry experience. Prior to joining DBS he was sales director for a large life insurance brokerage general agency in Sacramento, CA, and most recently a regional sales director for BISYS. Long recognized for his expertise in the use of life insurance products, Poage has served on numerous field advisory councils for leading life insurance carriers, assisting them with sales and marketing plans, product development and underwriting approaches. He also served as president of LifeMark Distributors. Poage, who lives in Rocklin, CA, will be building new and supporting existing DBS relationships in the northwest United States.

Tim Foley comes to DBS with prior experience as a financial representative for Northwestern Mutual. He will be introducing brokers to the many resources available at DBS, including dedicated experts in LTCI, DI and annuities. 

American General Life

American General Life Companies has named James A. Mallon president and CEO; he assumes his new role after serving as president and CEO of American General Life and Accident Insurance Company, a member company of American General, since 2004. He will continue to oversee AGLA.

Mary Jane Fortin, previously president and CEO of American General, has been named chief financial officer of SunAmerica Financial Group, AIG’s life insurance and retirement services division.

Mallon, who has more than 39 years of experience in the life insurance and accident and health markets, joined AGLA as president and CEO in 2004. He previously served as president and chief operating officer of National Life Insurance Company and chairman of Life Insurance Company of the Southwest, a wholly-owned subsidiary of National Life. Additionally, his past experience includes serving as president and chief executive officer of Integon Life Insurance Corporation, as well as chief marketing officer positions at Commercial Union Life Insurance Company of America and Hartford Life and Annuity Insurance Company. Mallon earned his bachelor’s degree from Amherst College and attended Harvard University and the University of New Hampshire’s Whittemore School of Business Executive MBA program. He has earned FINRA Series 7 and 24 licenses.

American General Life Companies has also named John Deremo executive vice president and chief distribution officer.

Most recently at Protective Life Corporation, Deremo held overall responsibility for the sales, marketing and distribution functions for both Protective Life Insurance Company and West Coast Life Insurance Company. During his 20 years at Protective Life, he built a strong track record of success by strategically growing their presence in the life and annuity marketplace.

Before joining Protective Life, Deremo co-founded Spectra Financial Inc., leading the national marketing and sales areas. He began his career with Pacific Mutual in 1979.

Transamerica

Transamerica Brokerage has promoted Michael Babikian to executive vice president. Reporting to President Marty Flewellen, Babikian will maintain his role as chief marketing officer and was also named chief product officer of Transamerica’s life and protection division.

Joining Transamerica nine years ago, Babikian was named chief marketing officer in January 2010 and senior vice president in 2009. Prior to joining Transamerica, he served as general counsel to Infinite Source Technologies, Inc. and worked as an attorney for the tax law firm of Baker, Olson, LeCroy and Danielian.

Aviva USA

Aviva USA has introduced an indexed life insurance product that offers financial protection for small businesses, blended families, and people whose estate tax planning needs may change. Survivorship Builder combines protection for more than one person on a single policy.

Aviva’s new Survivorship Builder includes an optional first-to-die rider that pays a portion of the death benefit to the surviving insured after the first insured passes away.

The company anticipates that the product and first-to-die rider will appeal to small business owners or business partnerships that need succession after the death of the owner; blended families where the needs of both spouses, former spouses and children come into play; and people who are looking for versatile insurance products in light of the uncertainty around current estate tax law.

Indexed universal life insurance credits interest to the policy’s account value. Those credits are linked to the upward movement of a major stock index such as the S&P 500, subject to a limit such as a cap or participation rate. There is also a minimum guaranteed interest crediting rate should the index perform poorly during a particular period.

Survivorship Builder offers customers multiple solutions during various stages of their lives. Survivorship life insurance can help survivors handle a sudden tax burden, replace income, gift assets to grandchildren and keep a family business in the family.

AIG Benefit Solutions

AIG Benefit Solutions, a business unit of American International Group that markets insurance products and services to employers and affinity groups, is now offering product packaging with up to five plans available.

The ProtectPak series is available in three package options: (1) ProtectPak 3 offers term life, accident and critical illness. (2) ProtectPak 4 offers term life, accident, critical illness and short term disability. (3) ProtectPak 5 offers term life, accident, critical illness, short term disability and vision insurance.

Each package offers three levels of protection: low, mid or high. With ProtectPak, employers pick the package they want to offer their employees and employees choose the level of protection that best suits their individual or family needs.

Four rates are available within each benefits level: employee only, employee and spouse, employee and child(ren), and employee and family. The ProtectPak series is available for groups of all sizes, ranging from two lives to thousands of lives.

Combining several products in a single package helps keep rates low—often at levels of one to three hours’ worth of wages. The rates remain the same across a group, regardless of an employee’s age.

For example, for groups of 100 to 999 lives, weekly rates for the ProtectPak 3 offering term life, accident and critical illness plans range from $5.97 for employees only to $15.55 for family coverage (under the low plan); under the high plan, employee only coverage is $11.16 and $24.91 for full-family coverage. Rates are also available to cover the employee and spouse only, and employee and child or children.

The term life plan offers a lump-sum monetary benefit in the event of the death of an employee, spouse or child (if elected) for the term of the policy, while the accident and critical illness plans offer lump-sum payments for covered injuries and illnesses.

The short term disability plan pays a weekly benefit for up to six months if a covered disabling illness or injury prevents an employee from working for an extended period of time. The vision plan pays for an annual eye exam and frames every two years. All ProtectPak offerings are issued by American General Life Insurance Company of Delaware.

The group benefits units of Chartis U.S. Accident and Health and American General Life Companies were recently merged to form AIG Benefit Solutions, which offers insurance products and services for employees, employers and affinity groups. Many of the products are available on both employer-funded and employee-paid platforms, and AIG Benefit Solutions also offers unique resources for underwriting, enrollment and plan administration.

George C. VanDusen III

We’ve lost a great friend. The brokerage industry mourns the recent passing of one of its master craftsmen and innovators—George C. Van Dusen, III. George’s battle with a debilitating illness ended peacefully at home with his wife Diane and children Chip and Tori.

George grew up on Lake Minnetonka and went to prep school in New York before graduating from Dartmouth College in 1957. After serving in the National Guard he set his first foot in the insurance business with the Charles Sexton property/casualty agency in Minneapolis. In 1969 he left to join Jim Trainor at another property/casualty shop, Diversified Insurance Services, heading up the development of life and health brokerage for the agency. There was born George’s dedication to brokerage, and by 1971 he had formed Diversified Brokerage Services, Inc., specializing in the brokerage distribution of life insurance, annuities, LTC insurance and disability income products through independent financial services professionals as well as career agents and registered representatives.

Through George’s dedication to brokerage (the best way to meet the needs of the consumer) combined with his visionary adoption and development of technological solutions and innovative marketing approaches, DBS has grown today to be one of the most respected brokerage general agencies in the country. His groundbreaking exploration of technology, such as the electronic pending business system he helped develop in 1974, provided the framework for many of the platforms and processes the industry uses today. Just one example of his pioneering marketing acumen is event underwriting—inviting home office representatives to Minneapolis to underwrite and examine applications and in many cases issue policies and pay commissions on the spot.

George was a member of the study group Life, Inc. since 1975 and was a charter member of LifeMark Partners, one of the industry’s most productive and prestigious marketing groups. In the words of LifeMark President Nancy Bosley, “He was instrumental in setting the tone of professionalism and integrity that has helped lead our organization to the level of industry prominence we now enjoy.”

He was a founding member of the brokerage industry’s most important group, the National Association of Independent Life Brokerage Agencies (NAILBA), served five years on the board, and was chairman of the organization in 1994. In 2008 he was the recipient of the Douglas Mooers Award for Excellence, NAILBA’s highest honor, which recognizes those individuals who have demonstrated a lifetime of service not only to the life insurance business and to the wholesale brokerage community, but also through their contributions and service to one’s fellow man and to society in general. He was also NAILBA’s liaison to ACORD, the insurance industry nonprofit organization dedicated to improving the way insurance companies do business through the use of technology. His involvement led him to be elected to that organization’s board of directors in 2001, where he oversaw the development of standards for the life and financial services industries. In 2004 he was re-elected and appointed chair of ACORD’s finance and audit committee.

He received the G. Bennett Serrill award for lifetime achievement in 2011, presented by the Minnesota NAIFA (National Association of Insurance and Financial Advisors) chapter. The award is to honor the finest type of individual in all dimensions of his living, and a person who consistently has brought honor and respect to the insurance industry and their community.

Van Dusen was active in many organizations outside the insurance industry both in his community and nationally. He was an early and active member of the Minneapolis Junior Chamber of Commerce, chairing two committees and developing new members. He joined the Masonic order and became a 32nd degree member of the Scottish Rite. He served for many years as a board member of a local settlement house now known as Pillsbury-Waite Neighborhood Services. He and Diane joined the congregation of Saint Albans Episcopal Church in Edina.

He was an avid hunter and fisherman, loved reading, golf and spending time with his family. Long-time friend Barbara Crowley remembers George: “He was the best of the best! He was a close family friend, a mentor, an innovator and a tireless industry promoter. He had the foresight to invest in the future. He made you laugh and he made you think. My family will miss him very much.”

George was a staunchly loyal friend to the Howards and to ­Broker World. I’ll miss his candor, his humor and all the great stories about the early days working with any number of luminaries to secure brokerage’s place in the insurance industry.

George Van Dusen was truly an icon—none have worked more diligently to further our industry. [SPH]

(Memorial donations welcomed to the National Kidney Foundation or the American Diabetes Association.)

Increasingly I hear the following refrain from clients and friends alike: After watching their 401(k) accounts go up and down—an experience equivalent to a white-knuckled roller coaster ride—most wish they had bought an annuity 10 years ago instead. Fixed long term annuities can provide years of certain return and predictable growth.

As a benefit of this post-recessionary period, most investors now have  much better appreciation for Mark Twain’s quote:

I am more concerned about the return of my money than a return on my money.

Before the meltdown of home mortgages and home values, a typical financial planner would have dispensed the following advice: Buy the most house you can afford, leverage the purchase as much as possible since the interest (up to $1 million in principal) on the home mortgage is tax deductible, and invest as much as possible in a 401(k) account and growth stocks, and avoid annuities, since they typically come with higher fees and offer lower returns. Unfortunately, if that advice were followed, clients would have sustained substantial losses. The illustration on this page shows a typical homeowner’s dilemma with his assets in a rather precarious state.

Unfortunately, clients were vulnerable to such suggestions. After all, home values continued to climb seemingly unabated, the stock market would rise and fall, but in the end, seemed to drift inexorably upward. Prior to 2008, history was on the side of financial planners. But in fact investing is a complex game. Warren Buffet addresses the challenge of investing in his quote:

If past history was all there was to the game, the richest people would be librarians.

Clients and Investors’ Proclivity
People are hard-wired to see the world as it was—not as it is or is evolving toward. As subtle accretive changes create transformative milestones, their behavioral predilections get in the way of objective thinking. Change is occurring all around us, and the cycle of progress and obsolescence is accelerating, yet people are blind to these signposts signaling change.

In the 1980s the stock market was dominated by such companies as General Motors and Kodak, long-established companies that were leaders in their respective industries. One of those firms has gone through bankruptcy, while the other is expected to declare bankruptcy shortly. Alternatively, major companies like Google, Amazon and Facebook didn’t even exist at that time.

Given the fundamental and seemingly intractable worldwide economic problems, we may be facing a decade of lackluster performance for the stock market. Just as Bill Murray woke up to the same recurring events day after day in the movie Groundhog Day, it’s likely that outlook foretells a groundhog decade for the stock market that will repeat its near-breakeven returns from the past decade!

There has never been a 30-year period for the stock market when investors have lost money; yet there have been quite a few 30-year periods that may have financially weakened some senior citizens who were relying on their stock portfolios for retirement income.

Historical averages can vary widely depending on their starting and ending points. For example, averages that started before the 1929 crash are substantially different from those that started after it.

Edward Easterling, CFA, founder of Crestmont Research, felt that choosing a single date to determine market returns was arbitrary. In response, he created the Stock Market Matrix Chart, which shows annualized returns based on thousands of possible combinations of market entry and exit. (Due to space limitations, I am unable to show the chart in this article; but I strongly urge you to spend a few minutes and review it at www.crestmontresearch.com/stock-matrix-options.) The significance of this matrix is that it demonstrates significantly more market volatility than most of us realize—even over periods as long as 20 years.

If you have trouble imagining a 20 percent loss in the stock market, you shouldn’t be in stocks.
                                                                                                            John (Jack) Bogle, founder
                                                                                                            The Vanguard Group

The Challenges of Retirement
Most financial plans are based on the premise that a client will make elections at retirement. In this recession, we’re discovering this isn’t always the case. In the last three years, with an information-age economy increasingly based on advancing technology, we have witnessed layoffs that target certain age groups, such as older, more senior members of the work force. Those who are more than 50 years of age are finding themselves increasingly less competitive in a technology and information dominated economy. Some in their late 50s and early 60s have been forced into retirement without adequate retirement funds or pension.

According to a 2006 survey conducted by McKinsey & Company,¹ even before the recession, four out of 10 retired workers left their jobs sooner than they had planned, usually because of health problems or loss of employment. The survey also found that 45 percent of people who were currently employed planned to keep working past age 65. However, among the retirees polled, only 13 percent said they had done so.

These findings raise concerns about Americans being able to achieve comfortable retirement. This was the perspective prior to the great recession of 2008, which has impacted older members of the work force disproportionately.

If your clients can’t plan the timing of their retirement, then what control do they have in executing their retirement plan?

For older members of the work force, there may be the realization of a direct correlation between the strength of the economy, employment status and value of retirement funds. Just when they need access to their retirement savings the most, the market values are likely to be in decline.

For the first time the Federal Government Accountability Office (GAO) has acknowledged this to be a problem for retirees. Their report to the U.S. Senate in 2011—“Retirement Income, Ensuring Income throughout Retirement Requires Difficult Choices”—recommends that future retirees without pensions allocate a portion of their savings to annuities.²

Moreover, the GAO report advocates modification to tax law on minimum distributions from deeply deferred annuities to provide greater incentives for retirees to invest in a relatively new category of annuities that are designed to act as longevity insurance.

This current generation of the older workers may still be more fortunate than the next—those under 40 years of age—who will likely have only limited access to Social Security benefits. See the diagram compiled by the GAO of a current middle income household with someone 65 and older. Fifty-six percent of their income is derived from Social Security, while almost 20 percent is derived from pension and annuities.

The problem is exacerbated by the continued replacement of benefits such as pensions and Social Security, which minimize exposure to investment and longevity risk compared to IRAs and savings that must be managed to prevent those funds from being depleted before death. Many employers no longer provide traditional pensions with guaranteed monthly payments. Instead, they offer 401(k) saving plans, which leaves it up to the workers to salt away enough money and to make those funds last into advanced old age. Consequently, in protracted periods of low interest rates, many retirees are forced to spend an increasing proportion of their principal to sustain budgeted spending and maintain their standard of living.

What Options Should Clients Consider?
In light of these challenges, clients should consider building a “Fourth Estate” composed of non-correlating investments such as annuities and special purpose life insurance products with long term care riders, and thereby off-load longevity risk and capital market risk.

Annuities offer considerable benefits over other kinds of retirement products, especially for those who cannot deal with the risk of market volatility and the proportionate loss of their retirement savings. For example, with an immediate lifetime annuity contract, your clients are guaranteed periodic payments for as long as they live. Consequently, the risk of them living a long life is borne by the insurance company.

Social Security and pensions offer a similar form of retirement income protection—but in limited dollar amounts. Alternatively, the size of periodic annuity payment is based on the amount of money your clients have to purchase an annuity. For many retirees, the older they are, the larger their monthly payments will be for the same price.

Unlike a defined benefit plan, annuities can be tailored to provide inflation protection by ensuring that your clients’ monthly paychecks will keep pace with their cost of living. For example, the GAO calculates that income of $1,000 per month in 1980 would have purchasing power closer to $385 a month 30 years later in 2009.

Life insurance carriers are regulated by the states, and they must maintain reserves to meet future beneficiary obligations. Their capitalization structure gives preference to beneficiaries if there are inadequate assets.

In the case of fixed and indexed annuities, they offer guarantees that their future balances will be at or above the amount invested. Effectively, your clients have a guarantee that they will receive back at least as much money as they invested in the annuity and, at the same time, that annuity will offer tax-efficient, tax-deferred returns.

Despite the many advantages of annuities, they do have some downsides. There are many types of annuities, and choosing the right one can be challenging.

On a risk/return spectrum, since fixed annuities are considered a safe and conservative investment, they don’t offer the returns of riskier investments. In addition, annuities are typically less flexible than other retirement options—once your clients purchase an annuity contract their capital is tied up in that annuity and they no longer have access to that lump sum of money.

Some retirement financial planners recommend that clients reserve at least 40 percent of their retirement assets for unforeseen circumstances. Because most annuities are designed to provide steady income over time, they are not suited to cover large unplanned expenses.

Let me close with this one final quote from Oscar Wilde:

When I was young I thought that money was the most important thing in life; now that I am old, I know that it is.

1. McKinsey & Company report based on a national survey of 3,086 people, 40 to 75 years old, conducted March and April 2006.
2. United States Government Accountability Office (GAO) “Retirement Income, Ensuring Income throughout Retirement Requires Difficult Choices,” Report to the Chairman, Special Committee on Aging, U.S. Senate, June 2011.

Genworth Financial

Genworth Financial, Inc. has launched two new indexed annuities, issued by Genworth Life and Annuity Insurance Company.

As single premium, fixed deferred annuities, SecureLiving Index 7 and SecureLiving Index 10 Plus offer indexed-based and fixed interest crediting strategies. Consumers can allocate premium across five different crediting strategies based on individual needs and risk tolerances.

In addition, contract holders have access to their money through 10 percent free annual withdrawals beginning in year two, the optional Income Protection rider, a waiver for confinement to a medical care facility, and annuitization options. Both products require a minimum single premium of $25,000 or more, and applicants must be 80 or younger to apply (age 85 for SecureLiving Index 7).

The products’ features include competitive cap rates, multi-year guaranteed fixed options, guaranteed minimum accumulation or premium enhancement, an innovative bailout feature, jumbo rates and caps for premiums above $100,000 and $250,000, and an optional income protection rider with daily benefit base growth.

Other key features and benefits, including tax-deferred growth and innovative bailout, are: Premium enhancement—5 percent premium enhancement to the contract value beginning on the day the contract goes into effect SecureLiving Index 10 Plus only (subject to a vesting schedule). Guaranteed minimum accumulation —107 percent of premium less rider charges and adjustments for withdrawals SecureLiving Index 7 only. Five crediting strategies—index-based annual cap strategy, index-based monthly cap strategy, index-based performance triggered strategy, 7- or 10-year fixed rate strategy, and 1-year fixed rate strategy. Free withdrawals—up to 10 percent each year beginning in year two. Optional income protection rider—guaranteed lifetime income withdrawals. Seven or 10-year surrender charge period, with market value adjustment.