Garth A. Garlock

The Reed in the Storm

There’s a great line from one of Aesop’s Fables about an oak tree and a little reed. In the midst of a severe storm, the large oak tree is uprooted and toppled by the terrible conditions, “while the little reed, bending to the force of the wind, soon stood upright again when the storm had passed over.” It’s somehow reminiscent of North American’s story in the recent history of the financial services industry.

The past few years, especially, have been interesting, to say the least. Our industry has faced many challenges, from the continued economic uncertainty and slow recovery from the Great Recession to the adoption of regulatory changes like Actuarial Guideline 38 (AG38). We’ve seen a sustained, low-interest rate environment and, unfortunately, a nationwide decline in life insurance sales—the lowest since WWII.¹ This turbulent economic environment has uprooted the strategies of many in our industry, resulting in several large “oak tree” type carriers having to change focus, stray from their core plans, or exit the business entirely. There were clearly many storms we’ve all had to weather, but through it all North American has remained upright—and has grown even stronger.

This endurance through the storm is a story we’ve been telling in this Carrier Forum issue for years. It’s one we’re proud to tell, and this year is no different. While the industry as a whole has seen only 4 percent growth in life premium,² North American has not only weathered the storm—we continue to make headway. In 2013, we grew life sales by 36 percent over 2012,³ becoming the sixth fastest growing company in the industry.⁴ How are we doing it? By sticking to the fundamentals. It’s our long term planning and focus that have positioned us well to handle the turbulent climate of recent years and helped make us ready to stand upright through storms we may face in the future.

Our strength and stability do not mean we’re the biggest company around—we don’t have to be. Our roots aren’t tangled in the unsteady foundation of some publicly traded companies. We aren’t pressured by financial challenges to make short term decisions that can cause others to change their heading. Rather, it’s our ability as a privately owned company to make decisions that allow us to bend without breaking, so that we can remain focused on delivering on our commitments to policyholders, our distribution partners and our employees.

Insurance regulators continue to refine new guidelines mandating principle-based reserving methodologies and other rules and regulations yet unknown in our business. North American stands prepared to bend where we need to, scrutinizing and allocating resources with both caution and vigilance. The shift in the regulatory environment in recent years has left the industry in a rather unsettled state. In addition to changes in reserving, newly proposed tax treatments of income from life insurance and annuities have all eyes and ears on the Joint Committee on Taxation. North American is closely monitoring these issues and is contributing to the discussion at the highest levels, rather than sitting on the sidelines. And we will continue to flex to these changes, while remaining stable for our customers and competitive for our distribution partners and agents.

Part of North American’s growth success is the ability to look ahead and anticipate what’s to come—not just for our individual sales, but also for the future of our industry. There are storms yet looming on the horizon. As our population of agents moves into retirement, we must find ways to recruit a new generation to the field. We must break from old patterns of relying on the same demographic of agents and look to increase the presence of women in the financial services industry. We need to look to new modes of communication, such as social media, and new incentives that will attract Gen X and Gen Y to this profession. North American is utilizing social media to help MGAs navigate this new territory and find the right agents to attract.

In a broader sense, we’ve been involved in recent conversations with other industry leaders to address the issue of agent recruitment. We know that it’s going to take a combined effort of other carriers and interested parties to come up with a solution. Agent recruitment is too big an issue for one company to take on alone.

Back in the day, becoming a life insurance agent was a popular career choice. Life insurance agents were “company men” who typically sold one basic product to meet one basic need: death benefit only insurance. Fast forward to today and we’ve got a new breed of agents—independent agents—working with a vast portfolio of complex products, serving more of an “advisor” role to meet the needs of clients on multiple levels, from death benefit coverage to business insurance or retirement planning. There’s a whole middle-market, woefully underinsured and underserved by the conventional approach.

As the industry has changed, we need to change our recruitment tactics. How are we going to reach these new recruits? Perhaps it’s through people already in an independent sales position, like realtors or health agents looking to make ends meet. Perhaps it’s by showing young people that there is a way to do a truly meaningful thing for families, businesses and society as a whole, while still making a living and paying off student loan debt. Perhaps it’s partnering with community colleges or other educational institutions to create programs around entering the life insurance industry. It’s probably a combination of all of these things and more, but most importantly it’s going to take a collaborative effort from leaders across the industry—from the oak trees to the lone reeds.

As technology advances around us, we must find new ways to keep up with the digital demands of the world. From embracing social media to investing significantly in mobile technology and simplified electronic applications, North American is excited to be implementing these solutions throughout 2014. We have already seen great success with our mobile app for pending business, and are looking forward to even more major enhancements and new technology releases throughout the year.

At North American, we believe that the voice of the customer is ultimately what we should follow. We are helping our agents better meet their customers’ needs by operational and technological advancements, as well as enhancing our product offerings. In 2013, we added critical illness accelerated death benefit coverage to life insurance products, and in 2014 we have plans to continue flexing to meet market demands.

As we begin 2014, we can’t help but reflect on our past and feel excited, grateful and proud of our successes. We have weathered whatever storms have come our way—even those that have toppled some of the largest oak trees. This comes down to our ability to focus yet flex without losing sight of our priorities and the commitments we make to our policyowners, our agents and the future of our industry. [GG]

Footnotes:

 1. “Household Trends in U.S. Life Insurance Ownership,” 2010, LIMRA.

 2. ­“Retail Individual Life Insurance Sales in the U.S. Q3 2013 Report by Channel with All Splits,” LIMRA.

 3. Internal Distribution Report, December 4, 2013.

 4. LIMRA, 2013, op.cit.

The opinions expressed by this author are his own and not necessarily those of North American Company for Life and Health Insurance or its affiliates. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed as to accuracy. All material is for agent representative use only and cannot be used, in whole or part, with consumers.

Consider this: What did your television look like 10 years ago? What kind of phone did you have? Have you bought a new computer or updated your software in the past decade? As technology advances, products improve and consumers tend to keep pace with the ever-evolving array of options available to meet their needs. Today, flat screen televisions are standard in many homes, offices and schools.

Walk into just about any coffee shop and take a look around at the number of customers using smart phones, laptops or tablets. Though we may not take the time to stop and notice, our entire way of life has changed, so that a coffee shop is no longer just a coffee shop-it is a virtual office, a virtual living room, a virtual library-it’s the gears of America churning right before our very eyes, while we order a latte.

Now think about the bigger picture: How has the world around us changed?

According to one website’s online content, just a little more than a decade ago, “in 2001, [Americans] had runaway wealth, with house values expanding and 401(k)s growing-and we felt justified not saving as much. We were in an optimistic place and spending, plus we were happy.”¹

Then, suddenly, the United States was reeling from the attacks of September 11th. America was waging a “War on Terrorism” in the Middle East, and we watched as housing and debt bubbles burst into economic turmoil. In 2008, America saw the worst economic downturn in more than 80 years-culminating in a recession that touched the lives of many Americans: rich and poor, young and old.²

Suffice it to say, a lot has happened over the past decade.

In the “Goldman Sachs Mid-Year [2012] Global Economic Outlook,” the company’s Chief Economist Jan Hatzius said the future “presents quite a mixed picture. [We expect] still very slow growth in the United States, and probably ongoing recession in the European periphery.”³

Even now, after the “great recession” has ended, economists still tread cautiously forward with outlooks of slow but steady growth.⁴ We can’t help but keep our eyes focused on the present and our hearts hopeful for economic recovery in the future.

Talking about the future is second nature to those of us in the financial industry-particularly in the life insurance sector. The discourse of an entire business is shaped by the concept of what lies ahead, protecting the uncertain future. This is why when people go to compare life insurance from different providers, a whole range of factors and prices could be included within the policy because life is just that… uncertain.

Every day we talk to clients about their future financial goals for their families, for their businesses and for retirement planning. Yet how often are we checking the rearview mirror? How often are we going back to the past and examining the things that have changed around us, in order to properly plan for the future?

While there’s no question that planning for the future is crucial, occasionally we also need to stop and examine what has changed over the past few years-from personal life events to more external influences like the economy, technology and changes in business. This is the primary idea behind the life insurance policy review concept-it’s not a revolutionary theory. Nearly all life insurance companies have a life insurance review policy, especially if a customer has a change in circumstances. This allows consumers to not only see the change in their policy but also allows them to compare life insurance policies with other companies. You can click here to learn more.

Nevertheless, for some reason, many insurance agents are not putting this policy review concept into practice regularly enough. According to LIMRA research, 44 percent of insured households want someone to contact them to review their life insurance policies at least every five years-and almost one third want a review every two years.⁵

Imagine 10 years ago someone showing you a product from 2012 (e.g., like a 60″ flat screen television that can also make video calls, surf the Internet and play 3-D movies) and then asking you to understand how it works or how much it costs. Keep in mind that 10 years ago, the most popular selling phone was the Nokia 6610-one of the first cell phones with Internet access and a whopping 1.5″ color screen.⁶

Without knowing much about a product or its capabilities, an average consumer has difficulty estimating its value. So it’s a reasonable assumption that your guess on the television 10 years ago wouldn’t land you a winning spot next on The Price Is Right.

Life insurance, like any other product, changes over time. With the economy in a slow state of recovery and consumers still tightening their belts, it’s important that insurance agents educate clients on the many affordable options available today.

According to LIMRA, consumers over-estimate the cost of life insurance by as much as threefold.⁷ In fact, more than 80 percent of consumers over-estimate the cost of life insurance, across all demographic groups,⁸ which shows a significant communication gap happening between the insurance industry and consumers. Not only can this result in a consumer’s lack of knowledge and misunderstanding about life insurance costs, but also a subsequent drop in sales for the insurance agent. Life insurance costs vary depending on who you take out the policy with. For example, a company like Blue may give you a cheaper rate than another insurance company. This is why it’s important to get lots of quotes.

Without a proper life insurance policy, we lose the opportunity to educate clients and help them make informed decisions for their future-based on their current needs and products available to them today.

Recent research has shown that consumers today seek out more information on their own, with only half (51 percent) meeting face-to-face with a life insurance agent when shopping for insurance-down from 63 percent in 2003.⁹ Eight out of ten consumers prefer to use the Internet as their sole source of research.¹⁰

With the combination of a lack of confidence in the life insurance industry and the ability for consumers to rely on the Internet, independent insurance agents have to work harder than ever to find new ways to get in front of clients. A life insurance policy review strategy can be a great way to do that.

The highlight of this strategy for insurance agents is that they don’t have to go out and drum up new prospects, but can instead rely on their current book of clients. This should come as great news for independent insurance agents, who saw a 32 percent loss in new business with the “great recession”-a loss still estimated to take several years from which to recover.¹¹

With the holiday season in full swing, insurance agents should make it a regular practice to set the stage for 2013 by filling their calendars with appointments in January. The odds are good that these appointments will result in sales-more than seven in ten insurance shoppers who met with sales representatives or financial advisors during the shopping process purchased life insurance as a result.¹² Here are a few steps to get you started:

First, talk to clients to find out how their needs have changed since they last met with you. This could be due to life events like a marriage, divorce, birth of a child, new home purchase, change in employment or salary, or an inheritance. For clients who were originally rated as substandard, find out if they’ve made any lifestyle changes that have improved their health enough to qualify for a better rating. For business clients, it’s good to check in and see how the business is doing-has it grown or decreased in value? Have there been any changes in ownership or key employees?

Fact-finding is crucial to discover the best financial solutions for any client. In fact, research has shown that helping prospects better understand their life insurance needs improves the likelihood that they will buy (and buy larger amounts), with 73 percent of shoppers who received a needs analysis, purchasing life insurance from their agent.¹³

Second, take a look at the policies your clients currently have, and see if there are better options available. With life expectancy increasing, the price of insurance has gone down, thus you may be able to offer more affordable solutions to help meet your clients’ needs.

New products have become available, such as indexed universal life insurance (IUL). IUL offers death benefit protection with significant cash value growth potential and favorable policy loan rates for the consumer, making life insurance an appealing option to help supplement retirement income. Additionally, features that may not have been available 10 years ago may also be available now (e.g., living benefits, which can help address the growing concern of chronic illness and the cost of medical care).

Finally, ask for a referral. In today’s social media world, consumers are just as likely to receive insurance advice from a friend or family member as they are from a life insurance agent, with 35 percent relying on an insurance agent, closely followed by 30 percent who seek information from friends and family.¹⁴ Even consumers who currently own life insurance but need more coverage consult with people they know before making a decision with a life insurance agent.¹⁵ Consumers who have far less knowledge and access to information regarding life insurance options should seek professional advice before making a decision. With consumer trust in the life insurance industry still low, a referral from a friend or family member can speak volumes to new clients.¹⁶

In order to successfully implement a policy review practice, agents need competitive products from a financially strong carrier. With all of the drastic changes clients may have experienced over the last decade, now more than ever both insurance agents and clients want something they can count on. Look at an insurance carrier’s ratings, capital position and, perhaps most important, financial stability.

Insurance agents, like clients, may also be under-educated on various products that have gained popularity in recent years. They need training too-and not the run-of-the-mill 10-minute webinars. They should have the kind of in-depth, personalized training that can put them in command of a life insurance policy review, helping to give them the confidence needed to be successful. Look to work with insurance carriers who can provide top-notch marketing materials, for both the insurance agent and the consumer, that cover everything from product descriptions to the way policy loans work, to comprehensive kits that can help walk an agent through the policy review appointment.

A policy review practice is designed to help provide an enhanced business service for the client, which helps establish the insurance agent as a professional. In order to continually help provide clients with top-notch service and advice, it’s crucial that managing general agents partner with life insurance and annuity carriers that can help them provide this level of support and training to their insurance agents.

Between the constant change that happens day-to-day in our personal lives-our gains, our losses, our shifting goals and priorities-and the changes that surround us externally in the form of a shifting economy as well as advances in technology and medicine, there is a confluence of events. Consumers need professional advice when it comes to life insurance and financial planning, and brokers need to grow their practices and increase business.

Make it an annual year-end strategy to go back and review your clients’ policies to help seek out improvements and, ultimately, get a referral. Put a life insurance policy review practice in place now, for the future of your clients and your business.

The opinions and ideas expressed in this article are those of the individual author and not of North American Company for Life and Health Insurance. For agent use only; not to be used for consumer solicitation purposes.

Footnotes:

?1.?New, Catherine. (2011). “Then and Now: How the Economy Has Changed Since 9/11.” AOL Daily Finance. Retrieved from http://www.dailyfinance.com/2011/09/11/then-and-now-how-the-economy-has-changed-since-9-11/.

?2.?Hatzius, Jan. (2012, June). “Goldman Sachs 2012 Mid-Year Economic Outlook.” Retrieved from http://www.goldmansachs.com/our-thinking/topics/global-economic-outlook/jan-hatzius/.

?3.?Ibid.

?4.?Isidore, Chris. (2010, Sept). “Recession officially ended in June 2009.” CNNMoney. Retrieved from http://money.cnn.com/2010/09/20/news/economy/

recession_over/.

?5.?LIMRA. Household Trends in U.S. Life Insurance Ownership 2010.

?6.?Oswaks, Molly, “The Gadgets that Got Us Going Back in 2002,” Gizmodo. Retrieved from http://gizmodo.com/5935228/the-gadgets-that-got-us-going-back-in-2002.

?7.?LIMRA, “Facts from LIMRA: Life Insurance Awareness Month, September 2012.”

?8.?”2012 Insurance Barometer Study: Understanding Consumer Perceptions of Insurance” [abstract], Denley, Norah and Mitchel, Jim, LIMRA.

?9.?LIMRA, “To Shop or Not to Shop for Life Insurance: Turning Shoppers Into Buyers,” 2011.

?10.?Denley, Norah and Mitchel, Jim, op. cit.

?11.?LIMRA, U.S. Individual Life Sales Survey and Industry Estimates, 2012.

?12.?LIMRA, 2011, op. cit.

?13.?Ibid.

?14.?LIMRA, September 2012, op. cit.

?15.?Ibid.

16.?Ibid.

Like it or not, health care reform is rap idly changing the terrain of our industry. The Patient Protection and Affordable Care Act (PPACA), nicknamed Obamacare by the media, became effective in January 2011, affecting health consumers and health insurance agents across the country.

The new law mandates that health insurance companies spend 80 to 85 percent of premium dollars on actual medical care.¹ Any portion of premium not spent on medical care is considered part of a medical loss ratio (MLR), which now, according to the definitions in the PPACA, includes commission as well as administrative and general expenses.

Under pressure to meet the new MLR requirement, health insurance carriers have cut commissions by as much as 50 percent.² For many health insurance agents, this has translated to dramatic cuts in income-forcing some agencies to close up shop, and self-employed agents to deal with sudden unemployment.³

While industry advocates and associations like the National Association of Insurance Commissioners (NAIC) are backing lobbying efforts to amend the act, health insurance agents and brokers are struggling to stay afloat amidst the changing tides. According to the Bureau of Labor Statistics, there are more than 400,000 agents who, in 2010, had a median income of $47,000.⁴ A 50 percent slash in income is one loss few can afford-particularly middle-class earners.

What does all of this mean for health insurance producers and brokers? Don’t line up at the unemployment office just yet. It’s time to think outside the box.

The need for insurance agents is still just as crucial as ever. The situation is complex; and with new laws and regulations, it seems to be growing even more complex. The retirement age keeps getting pushed back while the health of Americans continues to decline. In 2005, more than 133 million-about one out of every two adults-suffered from at least one chronic illness.⁵ Additionally, while those with a higher income tend to live longer, healthier lives,⁶ workers who have lower incomes often have no choice but to continue working until the official retirement age when Medicare coverage kicks in at 65. So, we’ve got a cycle in which instead of retiring at a desired age, people are working longer in order to afford the health care they need.

If health care costs play a major role in keeping people working longer, then we need new ways to help them meet their life insurance needs and assist in funding health care in later years. Cash value life insurance can be an excellent solution-for both the client and insurance producer.

Cash value life insurance offers clients a valuable death benefit as well as a potential income stream in later years. Along with death benefit protection, cash value life insurance can help provide a potential solution for health care funding during retirement years. Additionally, for an agent, it provides a way to replace a portion of income lost in the health insurance market due to PPACA-two birds, one stone.

As a health insurance agent, your client base is already there-from business clients to individuals. Rather than being forced to go out and drum up new prospects, try presenting this innovative solution to existing clients who have a need for life insurance. It’s surprising how many people simply aren’t aware of how important life insurance protection is-for their businesses, for their families, and for their own futures. Many fail to consider life insurance as an option to help fund a supplemental income stream in retirement years. It’s not a matter of not wanting to know-it may just be a sheer lack of knowledge on the subject. Fortunately, there are many services similar to ParadigmSettlements.com that can help give helpful information on life insurance and its importance.

Clients need to be educated on all of their options for life insurance and the potential to supplement their retirement income. For a health insurance agent who already has an established rapport with clients, it can be as simple as presenting this option to respond to the very real concerns about health care funding.

Cash value life insurance works in multiple ways for your clients:

 1. First and foremost it provides a death benefit. We in the industry have seen firsthand the value that life insurance provides to a surviving spouse, business partner or other beneficiaries.

Additionally, it can provide a potential income stream to help cover the cost of health care between the years of desired retirement and the year full-coverage Medicare kicks in.

According to the Wall Street Journal, “The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain the same standard of living in retirement.”⁷ With the baby boom generation largely dependent on 401(k) plans for retirement, a lesson is quickly being learned today: We need to supplement our supplemental retirement income.

 2. It can help to cover potential out-of-pocket costs from Medicare Part B and to supplement insurance or prescription drug plans. Many common needs in later years include hearing care, dental surgeries, vision care, transportation to and from doctor visits or help with home care-not covered by the basic Medicare premium-free plan.⁸

 3. Long term care costs, specifically long term care insurance, can also be covered by the potential income stream of a cash value life policy. Assisted living facilities (not included in Medicare coverage) can cost several thousand dollars a month-more if special care is required.⁹ Even if clients have a long term care policy, they may be concerned about outliving their benefits or that their benefit package may not be sufficient to fully meet their needs. These are other costs for which many want to plan.

Rather than sit back and watch opportunities run away, it’s time for health insurance agents to take control of the reins. Helping clients meet life insurance needs, while simultaneously creating a potential pool of money to help fund health care costs, can keep these agents in a comfortable, familiar conversation about health care.

Yes, it’s a different product and a different concept, but the reality comes down to the fact that the way we talk about health care is changing. The way we pay for health care is changing. The way clients buy their health care is changing. Cash value life insurance and annuities can be a solid option to the type of questions arising as a result of these changes.

The client base already exists, the need for cash value life insurance is there-so how does a health insurance agent make the transition into selling life insurance and annuities? It’s simple: training.

In order to be successful, health insurance agents will need support. They need good products from a financially strong carrier. With recent fluctuations in the economy, the lessons being learned by the baby boomers and, of course, the impact of health care reform-clients, more than ever, just want something they can count on.

To break into this new market, health insurance agents also need life insurance and annuity training on the various products-not the run-of-the-mill 10-minute webinars offered by many carriers. They need the kind of in-depth, personalized training that puts them in command of the topic, which gives them the confidence needed to be successful. They need marketing materials that cover everything from product descriptions to the way loans work, as well as comprehensive educational materials that cover sales concepts from supplementing retirement to protecting the future of a business. It’s crucial that managing general agents partner with a life insurance and annuity carrier who can help them provide this kind of support and training to their agents.

As insurance professionals, we help clients acknowledge particular realities about their lives and health, and to take substantive steps toward improving their situations. Rather than focusing on how the PPACA negatively impacts commissions, health insurance agents and brokers must embrace this new opportunity to help clients while keeping their careers on a forward track.

The opinions and ideas expressed in this article are those of the individual author and not of North American Company for Life and Health Insurance.

Footnotes:

1. U.S. Department of Health and Human Services. (Retrieved April 26, 2012 from http://www.healthcare.gov/news/factsheets/2010/11/medical-loss-ratio-html).

2. Arora, Nigram, “Obamacare Mandate Kicking Insurance Agents To The Curb.” Forbes, December 12, 2011.

(Retrieved April 18, 2012 from www.forbes.com/sites/greatspeculations/2011/12/12/obamacare-mandate-kicking-insurance-agents-to-the-curb/).

3. Greene, Jay, “Unhealthy Time for Insurance Brokers.” Crain’s Detroit Business, August 15, 2010. (Retrieved April 26, 2012 from www.crainsdetroit.com/article/20100815/SUB01/308159981/unhealthy-time-for-insurance-brokers#).

4. Bureau of Labor Statistics. (Retrieved April 18, 2012 from www.bls.gov/ooh/Sales/Insurance-sales-agents.htm).

5. Centers for Disease Control and Prevention. (Retrieved April 3, 2012, from www.cdc.gov/chronicdisease/overview/index.htm).

6. Orr, Andrea, “Americans Work Longer.” Economic Policy Institute, April 27, 2010. (Retrieved April 18, 2012 from www.epi.org/publication/americans_work_longer/).

7. Browning, E.S., “Retiring Boomers Find 401(k) Plans Fall Short.” The Wall Street Journal. (Retrieved April 18, 2012 from http://online.wsj.com/article/SB100014240052748703959604576152792748707356.html).

8. U.S. Department of Health and Human Services (2012), Medicare & You Handbook (CMS Product No. 10050). Baltimore, MD: Government Printing Office.

9. U.S. Department of Health and Human Services. (Retrieved April 26, 2012 from www.longtermcare.gov/LTC/Main_Site/Paying/Costs/Index.aspx).