Thursday, March 28, 2024

Long Term Care Irony

“If you don’t buy long term care insurance, you could lose your life’s savings.”

We’ve heard that threat from government, private companies and the media for decades, but private long term care insurance has languished nevertheless. It wasn’t until a state government forced people to buy public long term care coverage through the WA Cares Fund that private policy sales exploded. Demand for private long term care insurance, as the only means to escape Washington State’s otherwise mandatory payroll tax, overwhelmed supply leaving many citizens of the Evergreen State trapped in a public program they would rather avoid. How ironic and contra-intuitive.

Let’s first put this puzzle into historical context and then resolve the incongruity by examining the almost universally held, but faulty premises on which it’s based.

Anyone who knows anything about long term care financing in the United States recognizes this mantra: Own long term care insurance or you may be impoverished by catastrophic care costs. Almost three of four Americans will need some long term care; one in four will face huge bills. All across the country people spend down into impoverishment until they slip onto Medicaid. That safety net only becomes available when people have been wiped out financially with no more than $2,000 left in savings and no more than $723 per month of income. Both the academic and popular media drum those warnings loudly and constantly into our ears.

Wow! How awful. You’d expect people to seek out and buy private insurance against such a risk without having to be cajoled by commissioned sales agents. But they don’t. How odd.

Finding that long term care’s high cost and Medicaid’s draconian financial eligibility rules weren’t enough to win consumers over, the state and federal governments hammered home the message with carrots and sticks. The long term care partnership program promised partial estate recovery forgiveness in exchange for buying private long term care insurance. Didn’t work. The “Own Your Future” long term care awareness campaign urged people to wake up and take action. They didn’t. Tax deductions and credits at the state and federal levels made private coverage cheaper. But even that didn’t work.

As positive incentives failed, the government tried negative persuasion. Policy makers figured making Medicaid even harder to get should sensitize consumers to the need for private insurance. The look-back penalty for asset transfers to qualify for Medicaid was lengthened and strengthened by federal legislation in 1982, 1988, 1993, and 2006. Congress and President Clinton made it a crime to transfer assets in order to qualify for Medicaid in 1996 only to repeal that “Throw Granny in Jail” a year later and replace it with the unenforceable “Throw Granny’s Lawyer in Jail” law in 1997. Medicaid estate recovery became mandatory in 1993. The home equity exemption was capped in 2006. None of these measures persuaded consumers that they should take personal responsibility to plan, save, invest or insure for long term care.

In fact, nothing worked to get the public to buy private long term care insurance until the State of Washington imposed a compulsory public program financed with a .58 percent supplemental payroll tax and promising a $36,500 lifetime benefit for state citizens. Although the state represented this program as a major contribution to solving the long term care financing problem and promised it would ease the public’s worries about long term care, as soon as a choice to “opt out” by purchasing private long term care insurance became available, Washingtonians stampeded to the exits. Private LTCI carriers were overwhelmed by the demand. Within weeks, private coverage became almost entirely unavailable in the state.

No amount of importuning, positive incentives, or negative threats prevailed. But let the government step in to force people to pay for public long term care benefits and all of a sudden private insurance enjoyed a fire sale. Is this just a one-off in Washington State or could it become a pattern as other states and the federal government experiment with compulsory public long term care programs? Should people and companies hurry to get in front of those experimental public programs by insuring privately? Will they? Or will the long term care irony prevail with denial and evasion continuing to hold sway?

It all depends on whether or not future state and federal long term care programs offer people a choice, an opportunity to opt out by purchasing private coverage. If they do, consumers will behave as they have done in Washington. If not, not. Why is that true?

The answer lies in the commonplace but faulty premises about Medicaid and long term care financing listed in the preceding paragraphs. Medicaid long term care eligibility does not require impoverishment. People can have incomes up to the cost of a nursing home plus virtually unlimited exempt assets and still qualify. Estate recovery is easy to evade. There is no evidence of widespread long term care spend down which is why the academic literature cites none. For documentation of these facts about how long term care financing really works, see Medicaid and Long-Term Care.


So here’s the answer to the “Long Term Care Irony.” People don’t buy private long term care insurance when the government pays for most catastrophic long term care costs, as it has done through Medicaid since 1965. No amount of cajoling, positive or negative incentives will get them to buy. But create a real cost for long term care by forcing them into a payroll-funded government long term care program and they’ll rush to buy private coverage if that escape hatch is available.

The lesson for state and federal central planners is this: If you must force people into mandatory payroll-funded long term care programs of dubious solvency, at least give them a way out by purchasing private insurance so we have some consumers able to pay their own way if and when the bottom falls out of the country’s many fiscally challenged entitlement programs.

The Dangers Of Money

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Maybe you have heard this story before.

A husband and wife who went shopping together. The husband wandered off, so his wife texted him and asked where he was.

He hates to text, so he called her.

“Remember that jewelry store we went to 10 years ago?” the husband asked. “You saw that beautiful diamond necklace, and I said that I couldn’t afford it then, but one day when I had a little more money, I would buy it for you.”

“Yes, I remember,” his wife said, trying to catch her breath.

“Well, I’m at the donut store next door to it.”

Money can potentially accentuate romance! (Or it can cause hurt and division.)

Point: Essentially neutral, money can often be dangerous.

At the start of a New Year, we can take a fresh look at the influence money has in our lives, and if needed, make decisions to change how we personally view money. As independent financial professionals we can also re-evaluate how we advise others regarding money.

Bottom line: We should urge people to be in charge of their money, and not the other way round.

The Dangers of Money
The Harvard Study of Adult Development conducted what may be the longest study of adult life that’s ever been done. For more than 80 years, they tracked the lives of 724 men, year after year, asking about their work, their home lives, and their health. As of 2015 psychiatrist Robert Waldinger was the director of the study. In a November 2015 TED talk (with over 40 million views) he summarized the findings: “Good relationships keep us happier and healthier. Period.”1

As independent financial professionals, we want nothing more for our clients than happy, healthy lives. What impact does money have, first on relationships, and subsequently on health and happiness?

In a 2015 report entitled “Paying with Our Health,” published by the American Psychological Association, the contributors summarized their discoveries: “Stress about money and finances appears to have a significant impact on Americans’ lives. Nearly three quarters (72 percent) of the adults surveyed report feeling stressed about money at least some of the time and 22 percent rate their stress about money during the past month as an eight, nine or 10 (on a 10-point scale).”2

Money-related stress impacts important relationships. From the same study:

“For those Americans who feel the burden of stress about money the most—parents, younger generations, lower income households and women—it seems that emotional support is even harder to come by. Even within families, talking about money and finances can be challenging. Only 37 percent say they talk with their family members about money often and 31 percent of spouses and partners say that money is a major source of conflict or tension in their relationship.”3

Another study published in 2018 made this observation: “One in five (19 percent) Americans said they have financial disagreements with their significant other at least monthly.”4

Problem: Good relationships keep us happier and healthier, but the burden of stress about money negatively impacts our closest relationships.

Money and Relationships
Amanda Clayman is a financial therapist who counsels individuals and couples about their issues involving money. She says, “Money issues are never just about money.”5

What is behind the conflicts that couples and families experience regarding money?

  1. Money can create a false sense of independence. People who are extremely affluent may conclude that they can spend their way into or out of just about anything, including relationships. This has a deleterious effect on long term commitments.
  2. Money in abundance can lead to a sense of superiority. People with money often look down on those without. One spouse who earns a significantly higher income can treat the other spouse as inferior. Financial success can lead to pride and prejudice.
  3. Money that is easily accessible can lead to weakened resolve. Desirable things seem more affordable. The downside of a poor financial choice begins to lose power. Author and speaker Paul David Tripp wrote: “Money can be dangerous because it removes a restraint—affordability.”6
  4. More money does not necessarily make a person more generous. When a person’s income translates into a high hourly wage, even the generous gift of time becomes a scarce commodity. Relationships require time to be built and strengthened.
  5. Money shortage creates heightened scrutiny. Suddenly, each spouse is under the watchful eye of the other. How children spend money, and on what, becomes a bigger issue. Money scarcity can cause people to judge one another’s decisions and choices.
  6. Debt and financial encumbrance looms over everything. Even times of celebration (birthdays, holiday gift-giving, anniversaries, etc.) can be despoiled by the oppression of debt. The scarcity mindset can impact whether the important people in our lives feel appreciated.
  7. Comparing one’s assets and money to the holdings of others is rarely a good thing. Comparing leads to competing which leads to complaining. Friendships can dissolve under the weight of envy.
  8. Financial comfort often reduces a person’s empathy toward the less fortunate. The idea comes to mind that one’s financial success was a result of our own hard work, so others just need to do the same. Our lives are the cumulative effect of deposits other people made in us. We are rarely self-made. The reality is that we determined neither our own genes nor our circumstances. Riches and humility are often inversely proportional.

Bottom line: Money can change the way we think about ourselves (and others).

What Is an Independent Financial Professional to Do?
Once we recognize the dangers of money (in particular, the deleterious effect money can have on relationships) what then are we to do?

Suggestions:

  • Every recommendation we make has implications for the client’s relationships. In addition to discussing risk/reward, opportunity cost, asset allocation, tax benefits, and the like, we need to also urge the client to consider the relational ramifications. Who might be impacted? How will successful implementation impact others who are depending on the client? How might the client’s financial success lead to greater generosity?
  • In giving financial advice we inherently bear the responsibility to consider the total impact on our client’s human flourishing—to which relationships are integral. There ought to be a “who” behind the “why.”
  • Telling stories is how we change thinking. More than facts, better than trend analysis, above logical presentations, our ability to share stories will inspire people to make behavioral changes. In our practices we have seen money both build and destroy close relationships. Without sharing names, we can use these experiences to add greater impact to the recommendations we may make.

Caveat: Independent financial professionals today operate in an environment of moral relativism. Caution should be used when adding relational guidance to financial advice. It is best not to categorize possible issues involved in financial matters by using terms like “greed,” “stinginess,” “selfishness,” or “prideful superiority.” Instead, it is better to state everything in positive terms.

Ask questions, like these:

  1. “What beneficial impact might this action have on the people nearest to you?”
  2. “Who beyond your own family might be positively impacted by this potential success?”
  3. “Are we considering all the ways this might strengthen your closest relationships?”
  4. “Do these steps lead you to greater opportunities for you to generously impact the people in your life?”
  5. “When the proposed financial outcomes occur, will you be freer to invest in other people’s lives?”

Summary
Money can change the way we think about ourselves—and others. Independent financial professionals serve their clients best when they remember that relationships are key to full and healthy lives.

Tom Ferry is founder and CEO of Ferry International, one of the real estate industry’s leading coaching and training companies. He exemplifies the art of blending relationship-mindedness with business and financial success.

Tom shared his story: “When the market crashed from 2007 to 2009, I focused on how to serve clients in this new reality. I adapted to market conditions. I doubled down on the business of helping clients (realtors) manage this transition in their own business. I helped them go from a traditional retail business (listing and sales) to a diversified approach where they worked with banks to sell bank-owned homes, distressed assets, and short sales. Because this encompassed a significant number of homes sold during the crisis, the business survived.”7

This is the key: “I went all in on giving back and adapting to tough times, creating more relationships and bringing more value. That made all the difference in my business.”8

We can excel in our work as independent financial professionals by helping our clients to give back, create more relationships, and bring more value to the people in their lives.

Who knows, but maybe how we and our clients use money in this life may have implications for the life to come.

One spiritual leader said this:

“I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings.”9

Footnotes:

  1. https://www.ted.com/talks/robert_waldinger_what_makes_a_good_life_lessons_from_the_longest_study_on_happiness/transcript?language=en#t-8118.
  2. https://www.apa.org/news/press/releases/stress/2014/stress-report.pdf.
  3. Ibid.
  4. Northwestern Mutual. “Planning and Progress Study 2018.” https://news.northwesternmutual.com/planning-and-progress-2018.
  5. https://www.npr.org/2021/08/16/1028081097/money-financial-intimacy-talk-relationship-advice.
  6. http://www.paultripp.com/wednesdays-word?beid=206307.
  7. http://entm.ag/vw6.
  8. Ibid.
  9. https://www.biblegateway.com/passage/?search=Luke+16%3A9&version=NIV.

Retirement Planning Begins With Income Protection

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Great strides have taken place in the financial services industry in recent decades to develop widely accessible and sophisticated fiduciary savings vehicles, allowing Americans to begin planning for secured financial futures in retirement. Plans like 401(k)s, Roth IRAs, annuities and cash value life insurance programs have grown in popularity and have proven to allow reliable income streams beyond volatile high-yield market investments and sedentary, sluggish bank savings and money market accounts, not to mention the folly of relying on miniscule social security benefits, a program whose future and longevity have been suspect and highly debated in recent years.

Although these fantastic tools are readily present and gaining momentum, the sad reality is that most Americans still don’t save enough in earned assets throughout their lifetimes and typically live paycheck to paycheck or close to it. Exacerbating this known dilemma is that little significant regard is given by most to financial planning beyond retirement. This is a predicament that can absolutely become an economic catastrophe when a working individual suddenly or even gradually becomes disabled during that ever-so-important first half of life–the wealth accumulation years.

Most of us work for a living to earn a regular paycheck, providing food, shelter, clothing, education, healthcare and transportation–the usual requisites of living in this country–for ourselves and our dependent families. Hopefully, after the bills are paid, a portion of income is leftover for simple luxuries, perhaps vacation travel or to be dutifully deposited into a savings vehicle. As the great disability insurance pioneer W. Harold Petersen often reminds us, “Life is just a cash flow.” We are dependent upon our paychecks to not only provide for us today but to allow some accumulation of wealth, providing for comfortable lives in our senior years.

But wealth accumulation and income savings only happen when there is an inflow of cash. Trouble begins when the anticipated income halts or is completely terminated, which is the typical result of disablement. Without proper disability insurance and income protection, there is no sufficient planning for retirement. You can’t plan for the future without safeguarding the present.

The greatest weapon in combating short-term, long-term, partial, total, temporary or permanent physical incapacitation due to sickness or injury is comprehensive disability income insurance prescribed in sufficient amounts. Personal disability insurance programs come in many shapes and sizes, but most industry experts agree that a layering of multiple “own occupation” defined income protection insurances to at least 65 percent of personal income is adequate, providing continuation of at least a semblance of one’s pre-disability lifestyle.

The layered effect of income protection typically takes shape under varying tiers of employer-sponsored group disability programs and individual disability plans, as well as specialty-market excess, high-limit disability platforms or some reasonable combination thereof. Importantly, insurance company disability benefit calculations typically allow for the inclusion of 410(k) employee contributions, keeping much of an earned salary intact including retirement allocations when an employee becomes disabled.

Personal disability insurance is the foundation of sound financial planning as it provides the first line of defense of income and financially safeguards the consumer’s arduous journey to saving for retirement.

Ancillary income protection products from specialty-market carriers can also assist in directly fortifying retirement planning. The Lloyd’s of London market offers bespoke programs like retirement funding completion insurance as well as stock option protection insurance, both of which protect career earnings to thwart retirement-benefit collapse in case of premature disablement.

Retirement funding or pension completion insurances are standalone defined-contribution protection plans that provide an insured person with a lump sum of cash for the anticipated balance of aggregate retirement plan contributions at the time of permanent disablement. These novel resources are unique in that both employee and employer contributions may be included in the benefit calculations.

The stock option protection plan is a standalone disability program that insures anticipated stock option awards for those working for publicly-traded corporations who would stand to lose future stock option compensation in the face of disablement. A stock option plan pays a permanent disability lump sum benefit equivalent to a multiple of anticipated annual stock option awards.

Personal retirement planning can also be heavily influenced by business assets. Business owners have additional advisor needs and potential financial liabilities when considering retirement and how their physical demise could negatively affect their employees as well as their business partners.

Business loans and corporate debt can certainly pose economic shortfalls for companies faced with the pending physical loss of an owner. Disability products like loan indemnification insurance and business overhead expense coverage are available to clients in addition to their personal disability benefits. Both assist in covering outstanding business liabilities including utility and insurance bills and payroll costs while allowing business owners to keep their personal disability benefits intact and appropriately earmarked for familial needs.

From a business owner’s perspective, much of the planning done to meet retirement goals falls under the category of succession planning. Agreements are made and contracts are drawn-up with business partners, trusted employees or interested third parties to settle corporate loose ends and eventual buy-outs of ownership interest in case of an owner’s total disablement.

Key person disability insurance is an incredibly flexible financial asset when it comes to succession planning and business continuation. The product provides monthly, lump sum or a combination of benefits, so a business hit with the typically devastating loss of a marquee owner can survive and navigate often unfamiliar terrain before an eventual buy-out of the disabled owner takes shape. Key person policies pump in much needed stabilizing capital which is often used to secure replacement staff, to cover recruitment costs or to help maintain revenues after the sometimes inevitable loss of key accounts.
But as a key person plan assists in business needs of the short-term, a buy/sell disability policy is the anchor of the succession plan. Designed to fund the buy/sell agreement between business partnerships and other corporate structures, an executed buy/sell disability policy provides cash payments over a scheduled period of time or in a hefty lump sum for the purchase of the corporate shares of the disabled owner, thus allowing a prudent and financially successful move into retirement.

The key purpose of retirement planning is to provide a client with a solid foundation of diversified savings, asset management and growth, as well as insurance services, to maintain a comfortable level of financial freedom once the client ultimately decides to no longer work for a living. Disability insurances for both personal and business needs are a big part of that foundation by protecting those assets and that savings from the devastation of physically losing the ability to work and earn that accustomed and necessary paycheck.

Is There Too Much PP In The Pool?

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Private Placement Life Insurance, referred to as PPLI, continues to get a substantial amount of attention. A Bloomberg article with an eyebrow raising title written by Alexis Leondis in September got a lot of agents and BGAs interested in PPLI. I certainly appreciate the product and its place on the shelf, it just happens to be an extremely complicated offering for anyone looking to market it for the first time. It is advisable to ease into this space, learn the accumulation sale if you are not already using it, and then align good partners for your PPLI offering. It is crucial to understand that PPLI is a solution that will only apply to a subset of the ultra-high-net-worth population. It is not something that can be mass marketed to your entire pool of agents or clients but rather something to be very selective about. A good approach is to market with a general accumulation VUL story and have several non-PPLI solutions you can turn to for customers who don’t fit the accredited investor/qualified purchaser level needed for PPLI. You also need to understand that you will likely need help due to the complex nature of the products. It takes a large degree of “teamwork” between the writing agent, general agent (if there is one), carrier, trust company, underlying investment manager, and the client’s attorneys, CPAs, and other agents of influence. That process can be somewhat like herding cats if you are not adequately prepared.

The first step is understanding what type of sale this is and how to communicate it. Private Placement VUL is an accumulation sale and not a protection or death benefit driven sale. The idea of private placement VUL is to place advanced money managers or hedge fund style investments either structured as an insurance dedicated fund (IDF) or separately managed account (SMA) within the tax-advantaged wrapper of life insurance to maximize accumulation and then distributions. If the customer can’t qualify for life insurance due to their health, doesn’t need a death benefit, or prefers an annuity structure, a PPVA structure may also be deployed. Over 80 percent of the VUL sales conducted outside of career agencies are protection-orientated sales, which tells me most people don’t market accumulation VUL proactively. PPLI requires a shift in that protection mindset. I would suggest that if you have never marketed accumulation or overfunded VUL before that you start with the standard retail products first and keep that PPLI opportunity in your back pocket. It is easier to lead with broad concepts than it is to start with a niche product like PPLI (shotgun vs. rifle).

Whether you are still working to become comfortable with the standard accumulation VUL story or are already well versed, there are “bridge products” to help you move towards PPLI. These would be executive VUL products, or single-life COLI type products that are more institutionally priced—high early cash value designs that can get you closer to a PPLI type of mindset. Accumulation sales are investment focused, so becoming familiar with what the agent uses for money managers or what type of investments the customer uses will go a long way in determining what VUL product aligns with their investment philosophy. With the recent changes to 7702, a greater percentage of premium dollars can be invested in the cash value, versus what is required for cost of insurance, which will enhance the attractiveness of the design. Change brought about with AG 49-A forced many carriers to integrate IUL sub-account options within the standard VUL chassis, which offers great downside protection options not previously available and isn’t a horrible option given how hot this stock market has become.

From the cost perspective, PPLI basically resembles retail VUL products without the large upfront commission expense components. There are typically premium based commission payments that drop off after the customer stops paying premiums. Usually, several million dollars in total premium over multiple years would be the minimum amount required for PPLI. The premium-based commissions are in the neighborhood of 50 basis points. There is also an asset-based commission that runs throughout the life of the policy, typically starting at 35 basis points for the first decade, then reducing every ten years or so, generally flattening at around 15 basis points for the remaining duration. The combination of the premium and asset-based commission payments would equal the agent compensation outside of anything that may be upfront. In many cases, a first-year placement fee can apply as well which varies widely (50 basis points to 300 basis points). Without any built-in BGA overrides, if there is a general agent involved, the agent and the BGA split these fees which are largely negotiated. Right now Prudential is one of the few carriers that has a built-in override for BGAs that is paid separate and aside from the policy itself and is asset-based, which makes things straightforward if you are acting in that capacity. PPLI is custom built and, with that in mind, these fees can vary substantially depending on the size of the case, the carrier, and parties involved in the sale. As you can tell, these types of sales have thinner margins than standard “street” products. PPLI is a sexy sale, and a wonderful product to be able to market, but unless you plan on lining up several of these each year to build a recurring stream of income, its biggest value for you may be as a door opener for discussions with larger offices and clients. In many cases, it may be more worthwhile to utilize the off-the-shelf VUL products to go after the “middle market” millionaires.

Private placement VUL requires a lot of teamwork. There are several PPLI carriers to choose from and you will need to start there. Build and develop a good relationship with two or three carriers because they will help you when it comes time to bring the appropriate parties together and put a nice presentation forth for a customer. The carriers we see often, in alphabetical order, are Crown Global, Investors Preferred Life (IPL), Lombard, Prudential, and Zurich. Working with the client’s attorneys, estate planners, or accountants will also be critical, and determining whether a trust company should be utilized, typically located in South Dakota, Delaware, or Alaska, to offer the most favorable premium tax. Identifying the investment manager or managers and helping them develop SMAs or IDFs for use within the insurance wrapper may also come into play, which the carriers can assist with along with other industry players such as SALI Fund Services or Spearhead Innovative Solutions. Agents will need a life insurance license, along with at least a FINRA Series 6 and Series 63, to offer this type of product. Not all broker-dealers allow PPLI, which is a regulation D product, and will have strict guidelines and restrictions associated with the marketing of such a product, so keep that in mind.

I think the recent focus on increased taxation has led to some enhanced promotion of private placement life insurance, which isn’t necessarily a bad thing if it is presented to the correct types of clients. I do think there is a risk of focusing too much on a solution which has application for a limited market. Some people I’ve talked to don’t believe the margins are worth the effort it takes with PPLI which is debatable. I think it would be better for the industry, and more people, to help those clients in the mass affluent segment, making $250,000 to $2,500,000 per year in income, let’s say, and offering them a solution instead of “elephant hunting.” The more standard accumulation story doesn’t appear to be widely told to any substantial degree and that is a shame. We can help a greater pool of customers that way and attempts to mass market PPLI, especially to clients outside of the ultra-high-net-worth market, may be clouding the waters.

The Technological Shift In Life Insurance Underwriting

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When I started working in the life insurance industry twenty-five some odd years ago the technological revolution that started in the late 90’s and took off like a rocket at the turn of the century hadn’t yet started. Email existed and some of the employees at life insurance companies had email accounts…but most didn’t. The internet existed and some of the life insurance companies had websites…but most didn’t. Google didn’t exist, Amazon didn’t exist, and Facebook and Twitter didn’t exist. And we still worked in an environment where we faxed paper applications to home offices and medical records were paper and not in an electronic format.

Slowly the technology that we all now take for granted took over the world, including the life insurance world. Insurance companies and advisors slowly started using and relying on email. Insurance companies slowly started to design websites that provide advisors and customers essential tools and information about their products and services. Over the past two decades, we’ve evolved from a time when every document required an original signature…to a time when drop-tickets are submitted, voice-signatures are received, and e-signatures are accepted at delivery.

But the technological leap that’s occurred over the last twenty years hasn’t just impacted the processing of applications. That was the first step and, in my opinion, the least important step. It was the way many carriers navigated a very steep learning curve that made them comfortable enough to start using the technology that existed (and has yet to exist) to reduce underwriting times and the need and cost of certain underwriting requirements. This new technology is being used to allow insurance companies to waive certain requirements, which makes your job easier and makes applying for life insurance less painful to your clients.

As technology and public records become more ubiquitous throughout society, industries from banks to online book sellers, and from supermarkets to life insurance companies, are using these new tools to cut costs and make better and faster decisions. This brings us to two of the oldest resources that insurance companies have used to help them obtain accurate and complete information on their proposed insureds…the MIB and MVR.

The Medical Information Bureau–MIB
The MIB has been used for years by life, health, disability, long term care and critical illness insurance companies and it’s the tool that seems to be one of the most misunderstood by advisors. MIB is an entity that collects and stores medical information that its member insurance companies collect during the underwriting process. If the proposed insured then applies with another member insurance company in the future, the prior medical information is shared with this new company.

The first common misconception that many advisors have about MIB is what information is reported to it. The information that’s reported to MIB isn’t specific information like actual lab results or test results…it’s relatively vague and in code form only. For example, a code that’s reported to MIB might indicate something like “Abnormal Blood Glucose Result” or “Elevated Blood Pressure” but wouldn’t give any more specific information than this. It’s the requesting company’s job to then investigate this information by either re-questioning the proposed insured or by reaching out directly to the insurance company that reported the code to MIB.

Another common misunderstanding many advisors have about MIB is that MIB indicates what action the reporting company took regarding the information that’s been reported. In fact, MIB doesn’t indicate if the reporting company offered a rated policy, declined to offer at all, or took no adverse action based on the information that was posted.

And lastly, MIB does not collect information from medical records or directly from doctors outside of the reporting done by insurance companies. If an individual has never applied for insurance in the past, then they will not have an MIB record.

The Motor Vehicle Report
The MVR report has also been used for decades and is simply a report of traffic violations along with dates of each violation and dates of conviction or acquittal. Note that MVRs can sometimes be confusing given the fact that they come directly from state agencies that may or may not have the most up-to-date technology. Therefore if an insurance company makes an adverse action based on an MVR report, we always suggest that you verify with the proposed insured the dates of every violation noted in the decision.

The MIB and MVR have been used for decades and their efficacy and impact on underwriting is tried and true. The tools that I’ll now review are relatively new and many are unknown to many advisors. Knowing how these tools work and what information they provide about your clients will help you communicate better with your clients and potentially save a case.

Clinical Laboratory Database
This is a relatively new tool that allows insurance companies to pull blood and urine test results that were run by a proposed insured’s personal physician. This gives the underwriter great insight into many facets of the proposed insured’s health history such as possible chronic conditions like diabetes, hyperlipidemia, or chronic kidney disease. It also gives the underwriter an idea of how often the proposed insured gets medical care, and how in-depth and extensive their medical care has been. Many doctors also run different types of tests than those run on the insurance exam. Tests like CBCs, thyroid panels, and other specialized tests that aren’t done by the insurance companies. These results can give underwriters even greater insight into the proposed insured’s health history.

Prescription Database
Another tool that’s very similar to the Clinical Laboratory Database Search is the Prescription Database Search. This is a database that pulls prescription information from thousands of pharmacies across the country. This report gives the underwriter the names of medications prescribed to the proposed insured, the initial date those medications were prescribed, the date the prescription was last filled, how many times the prescription has been filled, and the physician who prescribed each medication.

This report in conjunction with the Clinical Laboratory Database Search can again give underwriters an amazing ability to put a picture together of an insured’s health history and hopefully negate the need to obtain medical records. For example, if an individual’s Clinical Laboratory Database Search shows that they have a history of elevated blood glucose, and the Prescription Database Search shows that Metformin was prescribed two years ago and has been filled regularly since then with normal blood glucose levels on the Clinical Laboratory Database Search since then, the underwriter can many times determine the rating for this proposed insured’s diabetes without obtaining medical records.

Claims Data
Claims data is one of the newer tools that underwriters can use to determine a client’s medical history prior to ordering medical records, therefore allowing them to potentially waive the medical records entirely. Every time a patient sees their doctor, a billing code, sometimes called an “ICD-10 Code” or a “Healthcare Common Procedure Code,” is noted in the medical records. These codes allow the medical provider to bill the patient’s health insurance company. Life insurance companies now have access to these billing codes and can therefore get a relatively clear picture of the insured’s medical history without obtaining their medical records. One of the primary drawbacks to this new tool however is that the underwriter doesn’t get a clear picture of the attending physician’s plan of care or a clear picture of the patient’s compliance with that plan of care which can sometimes be just as important as the actual diagnosis.

Electronic Medical Records
This is probably the newest tool that insurance companies are using in an effort to shorten underwriting times. The use of EMRs really started out of necessity when the COVID pandemic hit in early 2020. As we all know, obtaining medical records is usually the single largest delay in the underwriting process. It can sometimes take several months to receive medical records and COVID made this even worse. In some instances, the pandemic made it impossible to obtain a client’s medical records and electronic medical records became a potential solution to this problem. Note that the technology is still being perfected, but it allows copies of a patient’s records to be pulled from a healthcare facility’s computer system without waiting for a human being to process the request.

One drawback, however, that has limited the use of this new technology is that not all healthcare facilities have the technology on their end to support it. The second issue is that electronic medical records don’t normally include everything that’s included in a patient’s actual medical chart. There’s also a widespread misunderstanding by advisors that electronic medical records are the same as what a patient can obtain from their online patient portal, but this usually isn’t the case. We usually receive much more information from electronic medical records than what’s in the online patient portal that is accessible by the patient themselves.

Conclusion:
Big data is already helping to expedite underwriting and allow insurance companies to require fewer medical requirements. And as the insurance companies gain more experience over the next several years using this data, they’ll come to depend more on it and less on invasive and time-consuming activities like exams and obtaining traditional medical records.

One drawback to advisors however is the lack of clarity about where specific information is coming from that’s being used in an underwriting decision, and how to correct erroneous information or appeal a decision based on this information. This is where your brokerage general agent comes in. They can help decipher the data that’s been collected, help your client obtain a copy of these reports, and then determine a plan of action to overcome any roadblocks that might be causing problems. For better or for worse, big data is here to stay. And the better we understand it, the more we can leverage that knowledge to get our clients the best underwriting offers possible.

Re-Introducing Simplicity

“Simplicity is the ultimate sophistication.” —Leonardo da Vinci

Sometimes I miss simple.

Analogue clocks are simple. Every now and then the power goes out to our house. We walk into the kitchen and find flashing blue lights in the displays on the oven and the microwave. These digital timekeepers need to be reset. Meanwhile, on the wall and on the fireplace mantle, our analogue clocks are quietly, reliably, keeping time. Simply.

We own two refrigerators. They have the convenience of ice makers as well as water dispensers. When you want ice, you choose either crushed or cubed. If you select crushed be prepared to hear the sound of semi-trucks driving over gravel. If you choose cubed, the glass in your hand will catch about 80% of them. The rest will find hiding places with remarkable speed. In order to save yourself the inconvenience of opening the freezer door, you must accept either being frightened out of your socks by harsh, grinding noise, or spending a few minutes on your knees tracking down scattered ice.

I miss ice cube trays. We had aluminum trays growing up. A little lever cracked them all at once into free-standing cubes. Choose as many as you want, and then either put more water into the tray, or return it back to the freezer. Simple.

Placing Value on Simplicity in Financial Services

Satisfaction and Complexity Are Inversely Related

The beauty of Independent Financial Services rests in alternatives. Choices. The word “independence” reflects the freedom to recommend proposed solutions from among a large number of products, services, providers, or vendors.

Question: Is it possible to make decision-making more difficult than it needs to be by offering too many alternatives?

Psychologist Barry Schwartz, in his 2005 TED Talk,1 discussed the disadvantages of having too many alternatives.

According to Schwartz, too many choices can have negative effects on people:

  • Rather than being liberating, it produces paralysis. “With so many options to choose from, people find it very difficult to choose at all.”
  • “The second effect is that, even if we manage to overcome the paralysis and make a choice, we end up less satisfied with the result of the choice than we would be if we had fewer options to choose from. It’s easy to imagine that you could’ve made a different choice that would’ve been better. And what happens is, this imagined alternative induces you to regret the decision you made, and this regret subtracts from the satisfaction you get out of the decision you made, even if it was a good decision. The more options there are, the easier it is to regret anything at all that is disappointing about the option that you chose.”
  • Escalation of expectations. “Adding options to people’s lives can’t help but increase the expectations people have about how good those options will be. And what that’s going to produce is less satisfaction with results, even when they’re good results.”

Question: In your interactions with your customers, are you inadvertently reducing their satisfaction in your services by offering them too many options?

Working in Opposition to Human Behavior
At the heart of Independent Financial Services is the human heart. And brain. We seek to tap into human relationships and the hunger for human flourishing.

Yet, we often work in an opposite direction to how human beings operate.

According to Christopher Ingraham in an April 2021 article2 in The Washington Post, human beings “tend to solve problems by adding things together rather than taking things away, even when doing so goes against our best interests.”

In our logical minds, the numerical concepts of “more” and “higher” equate to evaluative concepts of “positive” and “better.” We know, pragmatically, that “more” does not automatically equal “better” because we all have suffered from overburdened schedules, too many regulations, and being too short for our weight.

As humans faced with multiple options to solve a problem, we tend to choose the most complex solution. In psychology, this is known as the “complexity bias.” This may be explained as a means of feeding our egos. We feel like we have authority on a topic when we use complex jargon. The more complex and busy our schedules and routines, the more likely we are to feel like we’re doing life right.

The Cambridge Dictionary defines complexity as “the state of having many parts and being difficult to understand or find an answer to.” The definition of simplicity is the inverse: “something [that] is easy to understand or do.”

When people think something is harder than it is, they often surrender their responsibility to understand it. This is the eye-glazing reaction we get as soon as we discuss something like indexed universal life. To resist taking responsibility for deciding, people will procrastinate or reject things when they do not understand.

Complexity bias also describes our tendency to look at something that is easy to understand and view it as having elements that are difficult to understand.

Imagine someone who is successful, makes a significant income, owns property, and seems intelligent. This same person may not have a Will. A Will represents multiple decisions, several individual steps that are out of the ordinary, and even requires awkward conversations. None of these in themselves are hard but, together, they make it difficult to know how to get started.

Anything that has the word “insurance” in its name strikes many people as overly complex. Health Insurance. Life Insurance. Long Term Care Insurance. Disability Insurance. I have witnessed engineers, PhDs, computer scientists and other highly intelligent men and women struggle with the idea of looking at options for their insurance needs.

Edsger Wybe Dijkstra was a Dutch computer scientist, programmer, software engineer, systems scientist, science essayist, and pioneer in computing science. He said some remarkably pithy things, including:

  • “Computer science is no more about computers than astronomy is about telescopes.”
  • “The question of whether a computer can think is no more interesting than the question of whether a submarine can swim.”

But my favorite of his quotes is this: “Simplicity is a great virtue, but it requires hard work to achieve it and education to appreciate it. And to make matters worse: complexity sells better.”

Questions:

  • In our interactions with our customers, are we creating greater than necessary complexity simply because it prevents people from taking responsibility to understand?
  • Do we innately act on the impulse that complexity sells better?
  • Are we resisting doing the hard work required to make things simpler?
  • Do we believe our customers do not have the education required to grasp the wisdom of simple?

Making Simplicity the Objective
Confucius said, “Life is really simple, but we insist on making it complicated.”
What if all of us in Independent Financial Services took an oath to resist the temptation to make everything complicated?

Maybe you have heard of something called “Occam’s razor.” This is a principle used by scientists when looking at possible causation. It is defined as, “Among competing hypotheses, the one with the fewest assumptions should be selected.” Or, more simply, Occam’s razor states that the simplest explanation is preferable to one that is more complex.

If we want to change people’s circumstances, move them from indecisive to decisive, from uninsured to insured, from unprepared to prepared, we need to deploy simpler explanations.

Anyone who has read Atomic Habits by James Clear knows that our brains are wired to take the path of least resistance, the path that requires the least amount of energy. It is the basis of why we form habits. If a person repeats the same action on a regular basis in response to the same cue and reward, it will become a habit as the corresponding neural pathway is formed. From then on, their brain will use less energy to complete the same action.

Habit-forming behavior follows the principle of Occam’s razor.

Personal Experiences:
As an Independent Financial Professional I have done the right things poorly, the wrong things well, and the so-so things in a mediocre fashion. On occasion, I did the right thing well. Examples:

  • I sold 20-year level term to someone paralyzed by indecision between universal life and whole life. The widow was pleased to receive the death proceeds.
  • I urged people to save, then invest. That served a young couple who had received a large inheritance only months before Black Monday (October 19, 1987) when America experienced a sudden, severe, and largely unexpected stock market crash. They were anxious to invest but had little in savings. I urged patience and caution. They were grateful.
  • When two business partners were delaying the funding of their buy-sell agreement because another agent promoted an expensive permanent policy, I urged them to buy term now, just in case. Just in time, it turned out.
  • When coaching a brokerage general agency how to sell more life insurance, they wanted me to devise multiple marketing plans to get their property and casualty agents to sell life insurance. Instead, I directed them away from their P&C agents and helped them find just 10 life insurance agents. They tripled their sales.

Action Steps:
Consider forming these habits to make your work simpler for you and easier for your customers:

  1. Rather than proposing a complex investment strategy that has two dozen mutual funds for example, which will only make it hard for a client to understand what is going on in the account, form instead the habit of recommending an investment strategy with fewer holdings. A simpler approach is capable of accomplishing the same objectives as the more complicated portfolio, but in a much more efficient, low-cost way. The simpler strategy may not seem as exciting or exotic, but it will likely reach the same goals at a lower cost.
  2. Quit explaining how something works, and focus on why the product or approach fits the needs. Replace the perceived need to make technicians of everyone and choose to empower everyone with the information that will drive action.
  3. Form the habit of proposing simpler solutions. Present shorter proposals. Create written plans on one page. Simple plans and solutions are easier to understand, implement, and maintain. The goal should always be to give the customer the ability to act. A simple plan can include the vital information, strategies, and decisions, and possibly place your customer on the path of, and in the direction of, actionable simplicity.
  4. Create a strategy of introducing greater complexity only in parallel to the demand for it in your customers’ lives. People actually have less of a need to know than they do a push to act.

Conclusion
Due to the human tendency toward complexity bias, we need to rethink how we propose solutions, and consider reducing the variety, number, and complexity of alternatives.
We are at our best when our customers are surprised by the experience of surpassed expectations.

We can be tempted to present solutions riddled with complexity and simultaneously prohibit our customers from both understanding and acting. Or we can follow the reasoning of Occam’s razor and present simpler solutions.

As an industry we are infatuated with complexity. Maybe back in the day things were simpler, but also, perhaps, worse in some ways.

Psychologist Barry Schwartz: “The reason that everything was better back when everything was worse is that when everything was worse, it was actually possible for people to have experiences that were a pleasant surprise.”3

Is it time to begin giving your customers a pleasant surprise?

Footnotes:

  1. https://www.ted.com/talks.barry_schwartz_the_paradox_of_choice.
  2. https://www.washingtonpost.com.business/2021/04/16/bias-problem-solving-nature.
  3. https://www.ted.com/talks/barry_schwartz_the_paradox_of_choice.

Life Carriers, Distributors And Vendors Collaborating On Key Technology Initiatives

The life insurance industry is coming together to work on some key initiatives in 2021. The governance of these projects are spearheaded by industry associations like the Life Distribution Technology Committee (LDTC) and ACORD. This is not new as many of our associations have developed projects in the past such as LIDMA’s Process Improvement Team enhancing ePolicy Delivery, Insured Retirement Institute (IRI) developing Straight Through Processing Standards for Annuities, and life data initiatives partnering with ACORD and LIMRA. There are many more associations educating, standardizing, and identifying best of breed solutions for the life insurance industry including new projects this year. This article will focus on the current initiatives of Life Automated Underwriting, Common API, The New Norm, and the Next Generation Digital Standards.

The Life Distribution Technology Committee, formerly known as the Life Brokerage Technology Committee (LBTC) set up working groups (subcommittees) focused on three projects this year: Common API, Automated Underwriting, and The New Norm. These projects were the result of a survey back in the fourth quarter of 2020 asking the industry to prioritize potential projects solving technology and process pain points. The survey allowed the respondents to rank in order of importance including recommending prospective initiatives not listed. There was then a “Call to Action” for subcommittee co-chairs and volunteers to participate/contribute to each project respectively.

A little history lesson on LDTC: From the mid-1980s through 2008 NAILBA had a Technology Committee. This included a technology magazine and developing their own data standards as well as other technology initiatives. After the Financial Crisis of 2008, funding for the committee was no longer available. In 2009, life carriers, BGAs, and vendors formed a new independent committee with a Charter called “The Life Brokerage Technology Committee” now known as the Life Distribution Technology Committee. The purpose is to have equal representation from carriers, distributors, and vendors to create and maintain an open forum to address technology and process issues that affect the efficiencies and costs of member’s businesses. LDTC is focused on the adoption of best practices by the member organizations for their common good and the benefit of their customers. There are no membership dues; LDTC is strictly a volunteer organization. There are currently over 160+ carrier, distributor, and vendor members. The LDTC LinkedIn group has 300+ industry members. The current LDTC co-chairs are Marjorie Ma of AIG, Pat Wedeking of Tellus Brokerage, and Brian Kirkland of SuranceBay. The steering committee, who are also co-founders, is Ken Leibow of InsurTech Express, Joann Mattson of Highland Capital Brokerage, and Jeff Lingenfelter of John Hancock Insurance Company. Over the years LDTC had worked on many important initiatives to help standardize and improve processes from eApp and ePolicy Delivery to developing a Test Harness to validate a life carrier’s pending case status data feed. LDTC had an annual face-to-face meeting at the NAILBA conference who sponsored a meeting room where the annual technology survey results, deliverables on projects from subcommittees, and the latest on emerging technologies were presented. The meeting was open to LDTC members and non-members. This year in the COVID world we are having the annual meeting Virtually in December.

Common API
What is an API? This stands for Application Programming Interface, which is a software intermediary that allows two applications to talk to each other. A fully API-driven data model is critical for the data dissemination process within the life insurance ecosystem to truly make data distribution and usage simple, secure, and reliable once and for all. Driven from within the independent distribution space, this modernized vision of data exchange could reduce costs and operating burdens for the biggest of industry players, while opening up revenue channels, enabling innovation, and removing market entry obstacles for best-of-breed insurtech and accelerators. The co-chairs of the working group are Meg Rose of Insurance Technologies and Amanda Yoho of Proformex. The working group is identifying key industry issues such as data consistency, distribution involvement, use cases, and vendor commonality. They are also building an industry wide adoption strategy.

Automated Underwriting
This sub-committee focuses on benchmarking and providing guidance on a go forward basis as it relates to automated and accelerated underwriting for fully underwritten products. The co-chairs of the working group are Dana Grove of Cerner and Jeff McCauley of MIB. This is different from “Simplified” or “Instant” issue products we’ve all known about from the past, but rather looking forward on what we are doing and should do as technology and data help us underwrite policies faster. One of the key objectives is to identify pain-points in the accelerated underwriting workflow and recommend solutions. The Automated Underwriting Subcommittee is also creating an “Underwriting Programs Search Tool” for the industry to use and an Admin Tool to maintain the content. The types of underwriting programs included are Accelerated Underwriting, Simplified Issue, Non-Med, and Executive Advantage. The tool has search functionality like “show me Accelerated Underwriting programs that will issue up to age 70” and/or “programs for face amounts up to $3 million.” The tool has information on Average Processing Time, Tele-interview Time, and ways to submit business like eApp and Drop Ticket for example. There are underwriting programs from the top 27 life insurance carriers like Lincoln Financial’s “LincXpress” and John Hancock’s “Express Track.” The LDTC Underwriting Programs App was developed in partnership with InsurTech Express and was scheduled to be made available to BGAs online free by the end of October. Here is the website to try it out: https://www.insurtechexpress.com/underwriting-programs/.

The New Norm
While the COVID-19 pandemic continues to disrupt operating models across the insurance industry, there is still a significant gap for the industry overall compared to other finance or consumer industries, even on the property and casualty side. This sub-committee will identify the next impactful areas for the life insurance industry as a whole to embrace cutting-edge technology or processes in order to better serve our customers. The co-chairs are Mike Carter of National Life Group and Lance Taylor of Vanbridge.

Next Generation Digital Standards (NGDS)
ACORD has been working on a new standard for life and annuities called the “Next Generation Digital Standards” (NGDS). Digital standards are designed to enable “small” fine-grained business transactions between insurance systems. They will define the data structures necessary to support granular messages which can be used in microservices or invoked by API methods.

Reasons for Using Digital Standards

  • Increased Resilience: With microservices your entire application is decentralized and decoupled into services that act as separate entities.
  • Improved Scalability: With each service as a separate component, you can scale up a single function or service without having to scale the entire application.
  • Software/Hardware Flexibility: Each service can use its own language and framework while still being able to communicate easily with the other services in your application.
  • Faster Time to Market: By developing in smaller increments that are independently testable and deployable you can get to market quicker.
  • Improved ROI and Reduced Costs/Development: The increased efficiency of microservices reduces infrastructure costs and minimizes downtime. Development time is reduced and code will be more reusable.

The goals and mission of ACORD Digital Standards is to establish a common approach to setting standards, structures, and implementation guidelines while leveraging ACORD Data Standards. Also maximize data interoperability resulting in seamless and controlled data exchanges between applications. ACORD leverages member inputs across geographies and communities to ensure ACORD specifications developed are cross-domain. What ACORD has done over the years and continues to do is to receive subject-matter expertise and members through sharing business scenarios, use cases, and specifications. This also includes providing feedback for improvement and production implementation.

ACORD kicked-off a NGDS Electronic Health Records subgroup that I am participating in. The goal of this group is to identify the relevant Electronic Health Records use cases and data points needed to support APIs and develop standard structures that are reusable and easily implemented. The scope covers more than just electronic health records, we are looking at the entire life underwriting process from prescription checks to electronic lab slips. We want to normalize the transactions in the underwriting process for the purpose of reducing costs and speed-to-market. Leading the subgroup is Nicholas France of ACORD. The team in the subgroup has top life underwriting experts from carriers like AIG, Transamerica and Prudential; distributors like Highland Capital Brokerage and M-Financial; EHR experts from Human API and Clareto; and representation from MIB, Diameter Health, and Verisk. There are many more industry experts participating in this NGDS subgroup.

If we want to continue to improve and solve industry challenges in technology and process for life insurance, then it requires the professionals in our space to actively collaborate and participate in these associations and working groups. For those that have made contributions in the past as well as the present, we thank you for volunteering your valuable time and expertise as well as company resources. We are working together as a community to make the industry better for all the trading partners and ultimately for consumers who buy life insurance.

Changing The Customer Experience With Benefits Technology

Over the last several years we have seen employers increasingly turning to technology for their benefits administration as an efficient and compliant solution to manage the ever-changing world of employee benefits. According to a pre-COVID study,1 a majority of employers had increased their spending on benefits-related technology in the past five years. More than 50 percent expected further increases in the next three years to address their top benefits challenges, including controlling costs, increasing efficiency, ensuring legal compliance, and improving workforce engagement.

However, the COVID-19 pandemic was an inflection point for employers. It led to workplace changes that included remote work, flexible schedules, employee well-being and technology. While advancements in technology were already in motion, the pandemic accelerated this trend prompting the insurance industry to move at a faster pace to help meet their customers’ digital needs in a virtual workplace.

This was particularly notable during Open Enrollment season last year which prompted more organizations to adopt benefits administration and enrollment technology. Research conducted this year2 revealed that more than a third of employers say the pandemic accelerated their organization’s use of benefits technology. In addition, the pandemic spurred more organizations to integrate their existing HR technology systems. Thirty-seven percent of organizations say their HR technology systems are now fully integrated and 52 percent report partial integration, up from 32 percent and 49 percent, respectively. With benefits technology becoming more accessible, we expect this trend to continue as companies move toward different workplace models that include remote and hybrid.

Enhancing the User-Experience with API and AI
Benefits technology is among the fastest growing categories of human capital management (HCM) venture capital. The availability of HCM-related technology is expanding rapidly with investors steering more than $4 billion into software and platforms in 2018 alone. API (Application Programming Interface) and AI machine-learning technology is driving the innovation. For example, the use of API technology by insurance carriers and third-party vendors is growing. These days it’s not surprising to see more platforms and carriers partnering to establish API integrations for a wide range of processes including benefits plan set-up, enrollment and eligibility transactions and updating, and evidence of insurability processing. Research found API connectivity has great appeal among large organizations, as well as fast growing start-ups, retail companies and employers already highly digitized in their benefits administration. Among employers that are confident in the potential of real-time connectivity, six in ten are more likely to recommend switching non-medical carriers to have access to API integrations, if all else were equal (vs. 34 percent on average).

Meanwhile, AI machine-learning technology is taking the user experience to a whole other level. Take for example Nayya, which leverages AI and data science to simplify the benefits enrollment experience by arming employees with a decision-making tool that gives them the confidence to select the right benefits. We all know that, for many employees, open enrollment can be daunting, and it’s not uncommon for employees to auto-enroll without evaluating their benefit options. With an AI enrollment platform like Nayya, employees answer questions regarding their existing medical plan, household, geography, and lifestyle, such as how active they are or are their kids in sports. Within minutes the platform—which is available in English and Spanish—provides employees with a recommended benefits plan for them to consider. Other benefits solutions, such as Flock, allow employers to experience improved data connections, including utilization of real-time API data exchange, plus seamless integration with Nayya for best-in-class decision support during enrollment. This is a win-win for any employer seeking cost-savings solutions and increased efficiencies, especially when research showed that managing nonmedical benefits plans can consume an employer’s staff more than one week per month.

Improving the Employee and Employer Experience
The advantages of upgrading to new benefits technology are too good to pass up. For employees, this creates a user-friendly benefits experience. Seventy-two percent of employees who reported satisfaction with their benefits experience say they enrolled via a digital method. In addition to boosting employee satisfaction, benefits digitalization is also tied to better benefits understanding and satisfaction among employees.

From an administrative standpoint the technology also helps an employer manage benefits administration more efficiently. This is important given the changing workplace and the need for HR staff to focus on workplace initiatives, such as office safety or employee wellbeing, in addition to managing employee benefits. To give you an example, research found that larger firms (1,000 or more employees) spend the equivalent of nearly a full work week, or an average of 32 hours, updating renewal information on their platform due to their size and complexity. The ongoing management of non-medical benefits plans (e.g., dental, disability, life, accident, critical illness, etc.) is also time-intensive, with employers spending an average of 30 hours per month.

This is time consuming, but with API integrations the platforms will ease the administrative burden and dramatically improve the benefits administration experience for employers and their teams. However, a lot of employers need help. A majority of employers want and expect a benefits broker to help guide their decisions about technology solutions. Organizations most likely to rely on a broker to help source and manage their most recent technology platform installation are typically small to midsize firms that are still mostly dependent upon paper processes and feel managing benefits is increasingly complex.

So, what should brokers be thinking about to best prepare their clients who are making the transition to an online benefits administration platform or enhancing their current one? As you explore options for a platform that is suitable for a client, it’s important that you keep in mind the following:

  1. Establish Client’s Objectives: First, clearly identify your client’s primary motivation for reassessing its benefits technology strategy and evaluating potential solutions. Is it moving away from paper (e.g., first time using a benefits technology platform) or is it a result of being dissatisfied with current benefits technology platform capabilities, service, or cost structure? It’s important to scan the market for new technology and ensure the current platform is still the best fit for your client.
  2. Ask the Right Questions: Once you are clear on the client’s objectives, make sure you ask the following questions: Are you looking for an open enrollment solution only or a year-round platform? Does your current payroll provider offer benefits enrollment solutions? If not, do the platforms you are considering integrate with your current payroll provider? Are your group eligibility rules simple or complex? (Benefits administration platforms offer varying levels of flexibility to support different group benefits eligibility requirements; therefore, it’s important to understand if the vendors you are considering can support a client’s eligibility requirements.) Are you looking for a low- or no-cost solution? Asking the right questions and involving your client in the process is critical to not only help with decision-making but to ensure you are coming back with the right solutions.
  3. Assess Level of Platform Management/Support: Evaluate to what extent your client’s team will need to be involved with the initial setup and ongoing management of the platform. Benefits technology platforms offer either a software-as-a-service (SaaS) model or full-service support. Employers say that managing benefits is becoming increasingly complicated, with 59 percent in 2019 claiming that they are challenged by complexity, up from 47 percent in 2012. As a result, it’s important to understand the level of service the provider offers.
  4. Understand Services Your Client May Need: Every organization is different and there is no one-size-fits-all. It’s important to evaluate what services your client needs to help provide efficiencies and improve the user-experience. If you are helping a client navigate this, ask the following: Do you need more than one Human Capital Management module, e.g., in addition to benefits enrollment, is your organization also looking to integrate payroll, talent acquisition, and/or performance management? Benefits administration vendors are generally either stand-alone platforms or part of a broader HCM platform. Are they looking for ACA reporting, spending accounts, and/or COBRA administration, call center support, etc.?
  5. Understand the Cost Structure: Technology is an investment that will ultimately help an employer not only create efficiencies but create a user-experience that will benefit employees. However, there is a lot that goes into understanding the cost structure for a new platform. Here are questions you should be asking: What is the PEPM fee? Are there monthly minimums? What services are included for this fee? Are there fees to build out or update EDI feeds? Are there fees charged at renewals? What wraparound services are available and at what cost?
  6. Ask for a Demo: Request a demo of the software to fully understand the platform’s strengths and weaknesses to ensure it will meet your client’s needs. And once you land on the right solution to recommend, it’s important your client also sees a demo so that the process is collaborative.

There is no doubt that the digital revolution is sweeping across the insurance industry, and with the pandemic, timelines have been expedited to best meet employers’ needs. While it can be overwhelming, the role of the broker is more important than ever. Familiarizing yourself with workplace benefit technology trends and becoming a subject matter expert will tremendously help your clients, who are most likely evaluating all of their technology needs from benefits administration to collaborative workplace tools. And lastly, partnering with the right carrier who can help you navigate the process from end-to-end and offers various benefits technology solutions can make a difference. As we are seeing in the industry, technology is changing every aspect of how we deliver insurance, and it’s up to us to help our customers have a first-in-class digital experience.

Unless otherwise noted, the research/data in this byline are from Guardian’s 9th Annual Workplace Benefits Study Digital Overdrive and Guardian’s 10th Annual Workplace Benefits Study Inflection Point. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Nayya and Flock are neither subsidiaries nor affiliates of The Guardian Life Insurance Company of America.

References:

  1. https://www.guardianlife.com/benefits-administration/report.
  2. https://www.guardianlife.com/reports/inflection-point.

Best Practices—Leaving A Lasting Legacy

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Our industry lost a great man last month. To know Bill Zimmerman was to love and respect him. Though it would take him hours to make it through just one aisle of the NAILBA exhibit hall, stopping every couple of yards to engage with an old friend or meet someone new, he could never get enough of learning and giving back. Much to his chagrin he hadn’t been as active in the industry for the past several years as he once was. Not having his extraordinary presence around was missed by all who knew him but also left many new to the industry without an understanding of what his contributions meant to our community. Bill Z’s long career in the life insurance and financial services trade spanned over five decades. During his first 20 years he excelled as a top personal producer, as an agency manager, as a PPGA and finally as the founder of one of the leading independent marketing organization in the country.

In fact, Bill was there at the very beginning of today’s staple industry associations and helped countless peers, carriers and vendors navigate the very early days of independent brokerage. Over the course of his career, Bill Z helped guide numerous field advisory boards and donated thousands and thousands of hours to the industry by helping to create consumer friendly products and efficient distribution techniques. Many of those carriers, including Allianz Life, National Life, Aegon, F&G, Conseco, United Presidential and many others owe a large degree of their past and current successes to the work Bill did. He generously served as a member of several local and national trade organizations including NAILBA, AALU and NAIFA, and was a long-time member and supporter of the MDRT and Top of the Table organizations. The numerous articles he penned and contributed to some of the finest financial trade journals always focused on relevant topics of the day, many of which are still referenced presently.

It was in 1986, with a dream of starting an independent marketing organization that stands on integrity, service and honor that he opened the doors of LifePro Financial Services, a company that focuses on what is genuinely in the best interest of the end-consumer and the extensive support of the advisors who deliver it. But Bill’s vision and personal crusade to help others didn’t end with his countless hours each week spent with his team, carriers, vendors, consumers and financial advisors. Those that knew Bill best saw how much of his life he devoted to helping individuals overcome serious and life-threatening personal challenges. In fact, he spent nearly as much time helping those in recovery as he did those in the insurance business. In addition to LifePro he founded the charitable organization 12StepRadio.com, a recovery based, on-line radio site providing solace and resources to thousands. Most people in the industry would not be surprised to learn that since 1987 Bill spent each and every Saturday of his life engaging in back-to-back meetings mentoring and sponsoring those in need. He hosted a regular weekly study group at his home for over 30 years and spoke at international and local conventions regularly. Bill Z was more than just an agent, he was more than just the founder of an IMO, more than a businessman, he was a mentor, an advocate for anyone in need, and a loyal friend. He was a true humanitarian who dedicated himself to helping everyone he could and leading a life of service to others.

In business, one of Bill’s major passions, for obvious reasons, revolved around the plight of small business owners and entrepreneurs. Many of the strategies, programs and education delivered by LifePro over the years focused on providing insured solutions to the myriad all-too-real problems faced by this incredible league of hard charging, independent, dedicated, job creating individuals. Another passion near and dear to Bill’s heart was the creation, success and ultimate succession of his own business.

Bill became a GA and an IMO because he knew he could help more people collectively than he ever could by being a one-man advisor. Though he could help many families and business owners by working with them one-on-one he understood that if he created an organization dedicated to the end consumer and the independent advisor he could exponentially increase the amount of service he could give to the world. He also knew that in order to achieve his lofty goals he needed to surround himself with a like minded and like-spirited team. He literally poured his blood, sweat and tears into that cause and was ultimately rewarded with wild success. But that wasn’t enough for Bill. He wanted to make sure that the service he provided didn’t stop when he could no longer be the one delivering it. To that end he became what Jim Collins would characterize as a “Level 5 Leader.” A leader that builds enduring greatness through a paradoxical blend of personal humility and professional will. In other words, a leader that is willing to sacrifice ego for long lasting and generational continuing results.

Bill Z was truly a cook that ate his own cooking. He studied, created and promoted “recipes” for successful business owners and he employed them in his own firm. You see, Bill struggled with a real-life challenge faced by many entrepreneurs: How do I help the most people for the greatest amount of time and make sure my vision lives on. He took personal offense to the old adage “shirt sleeves to shirt sleeves in three generations.” He knew that what he and his team were able to build was special and could live on for many, many generations with the proper planning and care. He also wanted to make sure that the team who helped him gain his success shared in the continued success, as well as the continued responsibility, when he no longer could. Finally, he turned himself into a true Level 5 Leader. When things went right, he credited others. When things went wrong, he took responsibility. The only way his vision would live on was if he found and nurtured those that had leadership skills and a shared vision.

The final ingredient to this Five Star formula? A Five Star succession plan. Bill, with the help of his team, including his long-time consultant, came up with what he referred to as a Non-Qualified Employee Ownership Plan. Thereby the individuals that worked the closest and longest with Bill and who would lead the next generation became the majority owners of LifePro upon his passing. Additionally, over the years, once an employee reached their five-year anniversary and remained on, they were given shares in the company and had a vested interest in seeing the company move forward. It’s important to note that inside of this unique succession plan ownership was not “given away” but rather sold via a note held by Bill and his estate. Perhaps the most important piece to this entire plan and indeed the linchpin that allows it all to work was something we are all very familiar with…life insurance. And how appropriate that the ultimate execution of the plan occurred during Life Insurance Awareness Month. The policies that the company purchased on Bill Z’s life were used to complete the succession plan by paying off the note and allowing the company to transition to the next generation and away from the estate smoothly and seamlessly.

Bill Z, a true pioneer in our industry, not only touched the lives of so many consumers, advisors, carriers and vendors (some without even their knowing) but, in searching for a way to create a meaningful legacy, touched the lives of those who worked with him the closest. During what was one of the saddest and most emotional times in LifePro’s 35-year history, Bill’s successors and employees didn’t have to worry about having to look for a new job. They didn’t have to worry about supporting their families. They didn’t have to worry about their careers or a disruption in their common vision. Because of Bill Zimmerman, life insurance, and leading by example, that vision will carry on for generations to come by those that helped him see it through.

In our industry, and in our day-to-day responsibilities, there are many “best practices” that we can point to. Many of them would improve our output, make us more efficient and drive additional revenue. However, if your family, your life’s work, your employees and your legacy are truly important, I can think of no better practice than by following Bill Zimmerman’s example of walking the walk by utilizing the strategies we teach every day.

Playing Catch Up: Social Security Recipients Hope To Make Headway Against Inflation

The last decade has not been particularly kind to the wallets of those who depend on Social Security to keep their financial lives on track.

Annual cost-of-living allowances (COLA) failed to keep up with inflation, meaning the monthly Social Security benefit of 2021 doesn’t pack the same buying power as the one from, say, 2011.

But perhaps help is on the way.

Social Security recipients could see an upward adjustment of over six percent in 2022, a raise that comes none too soon. That significant bump in the electronic payments that find their way to recipients’ bank accounts could provide some “catch up” for those who saw their annual increases keep coming in below what inflation was doing to the value of the dollar.

Getting Social Security back on pace to keep ahead of inflation is critical for seniors trying to keep their financial heads above water. Compounding many people’s struggles is the fact that low interest rates have also prevented them from getting any kind of decent returns for savings they may have put away in money management accounts, CDs or bonds, which also have not kept up with the pace of inflation.

For years Social Security recipients watched with chagrin as their thin annual increases lost that continuing battle with inflation. Since 2010, their monthly payments have been adjusted nine out of 11 years at an average rate of 1.6 percent. In those same years the cost of living rose an average of about two percent annually. So, with each year, the gap grew a little more.

The 2022 increase will go a long way towards helping seniors make up for over a decade of living underwater. How is it decided when and if there’s an increase in Social Security benefits? The announcement will come in October with any adjustment effective in January. It’s based on what’s happening with the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W. That index measures the monthly price change in a market basket of goods and services, including food, energy and medical care.

Roughly 65 million Americans receive a Social Security benefit each month, according to the Social Security Administration. About 75 percent of those are retirees and their dependents, but benefits also go to disabled workers and the survivors of deceased workers.

Based on the numbers, those monthly electronic payments are critical for millions of aging Americans. Social Security benefits represent about 33 percent of the income for those 65 and over, and for some individuals Social Security accounts for 90 percent or more of their income. That’s why those low monthly increases have been especially disheartening for many retirees who are struggling just to pay their bills.

For seniors to start getting ahead of the never-ending march of inflation, a COLA increase based on economic reality will be a sea-change from what they have experienced over the last decade—and not a moment too soon.

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