Friday, March 29, 2024

The Antidote To Selfishness And Wastefulness

There is a tension in our teenage years between the urge to rebel and the desire to fit in. I wanted to be like my friends in high school and therefore chose to listen to the music they preferred. I also found that this same music met with disapproval from my parents. Take the band Jethro Tull, for instance. Their album Aqualung had troubling lyrics, harsh sounds, and a caustic feel. These factors made the music perfect for the drive to conform to one’s own generation while rejecting the tastes of the former generations.

I outgrew the rebellious phase. My taste in music changed. I gave away all my Rock albums from the 1970s, including Aqualung. I have long since ceased to listen to this particular musical group. And yet, one melody and lyric from Aqualung recurs in my mind. I find myself singing it from time-to-time. It is the song entitled Wond’ring Aloud. (You can find it on YouTube.) The final line in the song, the Outro, grabbed my heart way back then, and it continues to move me.

“And it’s only the giving that makes you what you are”

Living a life of generosity, giving of oneself–this is an admirable quality. To be known as a generous person may just be the height of desired reputations.

Question: Is it natural or even wise for an independent financial advisor to encourage clients to be generous?

The Economics of Generosity
Many of us are familiar with the tug-of-war regarding the beneficial or deleterious effects of thrift on economic growth. Some economists believe that thrift is a long-term stabilizer, and perhaps even a growth factor in macroeconomics. Others, like British economist John Maynard Keynes, subscribed to the theory known as “The Paradox of Thrift,” an economic theory that considers personal savings as a net drag on the economy during a recession.

Many advocates of The Paradox of Thrift point to the experience of the Great Recession (2008-2010) as proof of this theory. In those tumultuous, belt-tightening months, many 25- to 29-year-olds moved back in with their parents in order to save money on rent and other expenses. The 35 percent increase in young adults living at home is believed to have caused estimated damages of as much as $25 billion per year to the economy.1

Point: While savings (thrift) behavior may negatively impact economic recovery during a recession, there is not a single independent financial professional anywhere who discourages clients from this valuable habit.

Question: Is generosity good for the economy, for individual financial success?

The University of Notre Dame hosts something called the Science of Generosity Project.
This project defines generosity this way: “Giving good things to others freely and abundantly.”2

Generosity is considered by social scientists to be prosocial. This essentially means that an individual’s selfless behavior can have a beneficial effect on the social order. It may even have a positive impact on the person acting beneficently. “A host of studies have uncovered evidence that humans are biologically wired for generosity. Acting generously activates the same reward pathway that is activated by sex and food, a correlation that may help to explain why giving and helping feel good.”3

Acts of generosity may make our lives richer experientially. Being generous may also extend our lives. “A study that analyzed data from a nationally representative sample of 1,211 Americans over the age of 65 found that volunteering was associated with delayed death.”4

Paradoxes appear frequently in economics. “Paradox in economics is the situation where the variables fail to follow the generally laid principles and assumptions of the theory and behave in an opposite fashion.”5

There is an economic theory known as “The Paradox of Generosity.” Many people are stuck in a “scarcity mindset” such that they believe there are finite resources. Within that framework, giving some of their resources (time, money, property) away to others means there will be less for them.

In reality, the opposite is true. There are several reasons for believing that generosity leads to greater prosperity:

  1. People who are generous with their resources subscribe to a belief that those who freely give will freely receive. Therefore, generosity is actually the antidote to scarcity.
  2. Generous people give both financially and of themselves. These gifts may include time, money, things, or simply encouragement. The root of the word “generous” is in the Latin word genus, meaning “birth.” A gift can bring new life to the recipient, but also to the giver. When seen through the lens of generosity, time and money assume their proper place. They are simply the means, and not ends in themselves. Generous people are therefore able to spend time and money well on others and not just on themselves.
  3. The antithesis of generosity is selfishness. A life lived under the pressure to accumulate everything possible for oneself is exhausting and limiting. The focus on one’s own needs results in behavior that leads to fewer relationships, reduced trust, and limited purpose. The most successful people realize that their purpose is always about others.
  4. The less generous a person is, the more likely it is that wastefulness will creep into behavior and habits. Generosity expands one’s view of the needs and opportunities. The costs of an hour wasted, or a dollar misspent, is not limited to the opportunity cost of one’s own enjoyment, but the reduction of what could have proven beneficial to others.
  5. Generous people typically enjoy two freeing attitudes: Gratitude and forgiveness. It is unlikely that a person can extend generosity until that same person can experience gratitude. Someone has said, “Gratitude turns what you have into enough.” Contentment frees a person to extend resources to others. In a similar way, a generous person is quick to forgive because holding a grudge is too costly. Time wasted in bitterness is time taken away from enjoyment or serving.

Generosity is the antidote to the fear of scarcity, it puts money and time in perspective, is the antithesis of selfishness, a curb to wastefulness, and a path to gratitude and forgiveness.

Question: As an independent financial professional, why wouldn’t you encourage and assist clients in increasing their generosity?

Three Historical Examples
Is there actually any evidence that generosity leads to prosperity?

Consider William Colgate, founder of Colgate Palmolive. He had a long and successful business career. He gave not merely one-tenth of the earnings of Colgate’s soap products, but he gave two-tenths, then three-tenths, and finally five-tenths of all his income to the work of God in the world. “When he was sixteen years old, he left home to find employment in New York City. He had previously worked in a soap manufacturing shop. When he told the captain of the canal boat upon which he was traveling that he planned to make soap in New York City the man gave him this advice: ‘Someone will soon be the leading soap maker in New York. You can be that person. But you must never lose sight of the fact that the soap you make has been given to you by God. Honor Him by sharing what you earn.’”6 As of May 12, 2020, Colgate-Palmolive Co. had 34,300 employees and $15.7 billion in sales.7

Example #2: Henry Parsons Crowell, founder of Quaker Oats. Crowell exemplified leadership, innovation, commitment, and generosity in business and through philanthropy. Crowell donated over 70 percent of his wealth to the Crowell Trust. Not only did he live generously, he guided the eating habits of Americans and also introduced new approaches to marketing and merchandising. “The Quaker Oats Company has 10,000 total employees across all of its locations and generates $3.71 billion in sales (USD). There are 3,134 companies in the The Quaker Oats Company corporate family.”8

Example #3: A Canadian American entrepreneur and inventor named James Lewis Kraft founded Kraft Foods. As a young man he was stranded in Chicago in 1903 with only $65 to his name. He put his knowledge of merchandising to good use and obtained a horse (called Paddy) and a wagon. Every day he bought cheeses in the wholesale warehouse district of the city and resold them to small stores, saving the local merchants the task of making the trip. He wrote this in an autobiographical essay: “As head of the Kraft Cheese Corporation, I had given approximately 25 percent of my income to Christian causes for many years. The only investment I ever made which has paid consistently increasing dividends, is the money I have given to the Lord.”9 In 2020, Kraft Foods had $18.2 billion in revenue, $22.9 billion in assets, and $1 billion in profits.10

Summary:
I began with lyrics from a Jethro Tull song and now end with three iconic businesses founded by generous people. The moral of this article is simple: As an independent financial professional you are committed to helping your clients achieve successful outcomes from their use of money and assets. If you do not do so already, consider introducing your clients to the paradox of generosity.

Perhaps it won’t be the giving that makes them what they are. But it is certain to have an impact on who they are. (With your help.)

References:

  1. Economic Research Federal Reserve Bank of St. Louis. “Wait, Is Savings Good or Bad? The Paradox of Thrift” Accessed Oct. 23, 2020.
  2. https://generosityresearch.nd.edu/.
  3. https://ggsc.berkeley.edu/images/uploads/GGSC-JTF_White_Paper-Generosity-FINAL.pdf?_ga=2.11753270.38977004.1608835647-1616817560.1608835647.
  4. Ibid.
  5. https://economictimes.indiatimes.com/definition/paradox.
  6. https://en.wikipedia.org/wiki/William_Colgate.
  7. https://www.forbes.com/companies/colgate-palmolive/?sh=9e127a47e4fe.
  8. https://www.dnb.com/business-directory/company-profiles.the_quaker_oats_company.f227f48f8025a07a6c7950b41a680ad2.html.
  9. http://fgbt.org/Testimonies/james-lewis-kraft.html.
  10. https://www.forbes.com/companies/kraft-foods/?sh=603f6d3d63a6.

An Interview With Eugene Cohen—March 2021

2009 Honoree International DI Society’s W. Harold Petersen Lifetime Achievement Award.

2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time we will feature an interview with Eugene Cohen, who has dedicated more than 57 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. Disability insurance is one of those products that can change the trajectory of an individual and a family’s life and is crucial for every financial planner and insurance professional to learn about and offer to clients.

This is the third part of our ongoing series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care, and annuities.

Victor: In our previous conversations (published in Broker World November 2020 and January, 2021 issues) you discussed the four basic objections an adviser may confront when discussing disability insurance with a client. Those objections are no need, no money, no hurry, and no confidence.

Eugene: It’s most important to immediately uncover the need. When you uncover the need, the other objections will disappear.

Victor: How do you establish the need when talking with a highly compensated client who already has group long term disability (LTD) insurance? Where is the need for more disability insurance?

Eugene: The need is tremendous. Let’s take a close look at highly compensated individuals who often have group LTD. These clients are often your business owners, physicians, attorneys working for mid to large firms. In addition, you have your partner firms of accountants, financial advisers and other professionals. Also the executives and successful salespeople, whose commonality are that their incomes are greater than $250,000+.

Group LTD coverage is a nice foundation for a disability program for firms with multiple types of employees. The implementation of group insurance is relatively simple but, as we know, the insurance company that issues group insurance needs to have protections in those group policies. The limitations inherent in group LTD can cause tremendous problems for the highly compensated executive or professional that only has the group policy.

We don’t suggest a client drop their group coverage. We often suggest layering an individual disability policy on top of the group LTD.

To help the client see the need for adding individual disability insurance (IDI) to their group LTD, we suggest asking questions. “Would your group long term disability insurance policy pay you enough if you were disabled?” The client will likely not know. So, then I suggest offering to review the client’s group LTD policy with them so they will know exactly what they are getting and we can determine if it would be enough for them if they were disabled.

Victor: You will literally ask the client to get a copy of their group LTD plan and then you’ll review it with them?

Eugene: I will ask them to send me the policy—or at least a summary. The client can reach out to their HR department if they do not have a copy. It’s better for the client to know the details of their group LTD policy now, rather than themselves or a loved one studying the group insurance policy at the time of a disability.

So, let’s say I am talking with an executive earning $300,000 per year. That’s an average income of $25,000 per month. Now we are looking at the group LTD and, in this example, the group LTD policy says it will pay 60 percent of the salary up to a cap of $10,000 per month. So that means the most the executive can collect per month is $10,000.

Let’s say, in this example, the group policy is being paid solely by the employer. The premium is being paid with pre-tax dollars, which means the benefits may be taxable. So, that $10,000 monthly benefit would be a much lower net benefit once the executive’s tax rate is applied. Suddenly the perceived amount of $10,000 per month could end up being a net amount of only $7,000, and most likely less when state taxes need to be paid too! That lower benefit may not be enough for the client. (Note: Your client should seek out personal tax advice from their financial advisor.)

Victor: Are there group LTD policies that can reduce the policyholder’s monthly benefit if the policyholder is receiving social security or workers compensation? What about the definitions in group LTD?

Eugene: Yes, most group LTD policies do have provisions in which the monthly group benefit can be offset and it can be a problem if the client is unaware of the provision(s). Also, let’s look at policy definitions. Many times you’ll find that the definition of a “disability” may be more restrictive in a group LTD policy than it is in an individual disability insurance policy. If you’re a physician, let’s say an orthopedic surgeon, does the group LTD insure that individual as a physician or as an orthopedic surgeon? The difference may determine if someone qualifies for a claim or doesn’t!

Another question that needs to be answered: Can the group LTD policy be canceled? Usually there are provisions that allow the plan to be canceled by the employer. The employer can say, “I no longer want to have this plan.” In addition, the insurance company that issued the group LTD usually has the right to terminate the plan for any reason—such as high claims or a change in the business the carrier is insuring. Regardless of the reason for the plan termination, the end result is that the client may be left with no coverage.

Here are some other important questions: What if your client wants to change jobs down the road? While individual disability insurance policies are portable and can travel from job to job with the policyholder, group LTD policies typically are not portable. Let’s say your client is 35 years old and at 45 the client decides to work for another organization that doesn’t offer group LTD. In order for your client to obtain an individual policy, there’s medical underwriting—which could cause an issue in obtaining new coverage. It’s possible your client may not be able to qualify for any coverage, which would be very unfortunate.

Victor: How much additional monthly benefit can someone get per month on top of their group LTD?

Eugene: If a client is earning $300,000 per year and his group LTD pays 60 percent of his income up to $10,000 per month, the client may be eligible to obtain an additional $9,000 per month of monthly benefits depending on the insurance company’s issue and participation limits. Again, this is if his group coverage premiums are being paid by his employer with pre-tax dollars.

If the group LTD premiums are being paid by the client (employee paid), with after-tax dollars, the client could get about $6,000 in additional monthly benefits on top of the group LTD with traditional companies. This also depends on the company’s issue and participation limits.

Here is another reason to get an individual disability insurance policy on top of the group LTD. Many of the IDI policies have a provision that says if the policy holder loses their group LTD, they are able to increase their IDI benefits based on issue and participation limits—without the medical portion of the underwriting (but there would still be financial underwriting). The companies often let the policyholder do this up to a certain age—depending on the company. This is a very valuable provision in that policy. It can protect the client’s medical insurability.

The client may have an option of obtaining a non-cancelable guaranteed renewable IDI policy. This unique provision not only guarantees the renewability of the policy to a certain age, it also will lock in the premium until that age as well.

As you can see, the higher income earning individual with only group LTD is at a disadvantage over others. The higher income earner may have a much smaller portion of his income covered than lower earning employees with the same group LTD policy. That’s why these higher income earners should supplement their program with an individual disability insurance policy.

Victor: Thank you so much for another great conversation. I look forward to us doing this again soon.

COVID: The Difficulty Of Underwriting The “Long Haulers”

As I write this, my home state of California has reported over 2.3 million cases of COVID-19, and recorded over 26,000 deaths. The United States has already seen over 20 million recorded COVID cases, and the death toll stands at over 350,000. These are only “so far” numbers, and the slow vaccine roll out to date ensures we are nowhere near the final count on these statistics. And these numbers are only the cases we know about, not the equally massive number of cases where there was a recovery without a laboratory diagnosis or deaths where COVID may have been a major unreported factor—particularly in the elderly.

Thankfully, the number of COVID affected individuals has resulted in a large amount of recovered cases. Or what we assume are recovered cases. Many have gone back to their lives and situations with residual symptoms, even if mild. A small but significant amount who have “recovered” from the acute phase of the illness still have a degree of disability which affects their day-to-day living. These are the “long haulers”—those in whom COVID has spared in the short term but in whom we have truly no idea of what the long term prognosis will be, either morbidity or mortality wise.

Disease-impacted underwriting depends on estimating life expectancy (for life insurance), degree and duration of disability, and long term costs of care for health, disability and long term care. Much of this is based on experience of watching the course of illnesses in multitudes of people and understanding both the process and course of the disease. COVID however is a horse of a different color—we have no experience in how this has played out at other times and only guesstimates of how it will work in the future. Cases followed in the United States have barely reached the one-year point. It has become obvious, even in that short time, that recovery is not always complete, and that remaining objective signs and symptoms have potential to cause continued decompensation in the long run.

Cases of regular exposure where a COVID test is positive and there are minimal symptoms and a return to work without problems are still standard to preferred cases as they were before the infection. Those who were admitted to the hospital but required no ICU care or intubation and had a recovered course likewise don’t appear to date to have recurrent symptoms or compromise. Where it gets more difficult are three categories where more intensive treatment was necessary. Those include admission to the hospital with symptoms and the need for more than routine treatment (remdesivir, oxygen support, etc.), those who were hospitalized for a significant amount of days and whose course required an ICU admission (even not intubated), and those with an ICU admission where other medical problems surfaced with a prolonged hospital stay and where rehabilitation was needed.

Underwriting these cases requires much more care toward these latter classes. Besides perhaps a postpone period to see how symptoms persist or progress, additive testing may be required. Repeat chest X-rays and even chest CTs may be required. Laboratories in follow-up visits must be reported. Face-to-face follow-up care may be required above and beyond tele-visits. Exercise echocardiograms may be particularly helpful in assessing any long lasting cardiac compromise or continued decompensation. And even psychometric testing to screen for PTSD, continued severe anxiety and depression and failure to cope post infection may also be important to assess.

Maybe most perplexing are the long haulers still affected after what seem to be mild or moderate symptoms from the initial infection. Many patients haven’t fully recovered their normal activity level, and remain incapacitated or house bound. Coronavirus may leave patients with a condition called POTS (postural orthostatic tachycardia syndrome), where heart rates can double or triple on standing, blood pressure can drop precipitously, and just about all conditions that are dependent on normal regulation of blood pressure and pulse go out of whack. Dizziness, headaches, shortness of breath, chest pain and “brain fog” (where periods of time without clear thinking occur) cause short term problems and may worsen other body functions. The long effects of this on the heart, the autonomic nervous system, and pulmonary and brain functions are truly unknown. What is the course of COVID induced POTS? We truly don’t know with this limited time experience.

Underwriting is going to be a lot tougher and with a lot more caution in COVID cases and certainly in long haulers where the infection continues to cause symptoms and impairments well into months after infection. Careful examination of medical records and longer periods waiting for in-person visits may be necessary. Testing, whether as routine as for blood, or with scanning and testing cardiac and lung function, may be required. Return to work for a defined period of time without decompensation may need to be demonstrated. And in long haulers, an indefinite period of postponement may be required until we are best able to evaluate the long term effects of this pandemic virus which has caused so much disruption and harm in our lives as a people.

Effective Last Month! Congress’ Gift To Life Insurance

If you get shivers down your spine in excitement like I do when you think of things like CVAT, GPT, Modified Endowment Contracts, and Section 7702, then I hope you are sitting down. If you are an insurance agent that sells (or wants to sell) accumulation focused policies like IUL and whole life (short pay or PUAs), then this article is for you.

The roughly 5,500 page, $2.3 trillion “Consolidated Appropriations Act of 2021” that was signed into law on December 27 had much more in it than $600 stimulus checks to say the least. From $600 stimulus checks for Americans to $15 million for “Democracy Programs” in Pakistan, the law has a lot of stuff in it that many of us will never know.

One area that you would be interested in is revisions to Section 7702 of the Internal Revenue Code. If you have been in the insurance business for some time, you are familiar with what this section does. Quite simply, Section 7702 was established in 1985 and defines the wonderful tax advantages of life insurance and, just as importantly, the rules that life insurance policies must follow to retain those tax benefits. These rules largely consist of limitations on how much money one could put into a life insurance policy relative to the death benefit. (By the way, anytime I have been told by the IRS that I cannot do something or can only do so much of something, it is probably a great thing to do!)

To forego the suspense, I will do this article a bit backwards and give you the punchline before going into the details. In short, effective January 1, 2021, policies can be funded at higher levels than before, depending on the client’s age. In some cases we are talking about seven-pay levels that are over two times higher, per dollar of death benefit, than before. So when you think of maximizing your IUL for cash accumulation and/or putting “paid up additions” on the whole life policy, this is great! However, don’t get too excited just yet because the carrier implementation process needs to happen.

Let us get into the details.

Back in the 1980s, right after the first universal life insurance policy was created (1979) by EF Hutton, one could cram a lot of cash into a life insurance policy. So much that it became obvious to Congress that the consumers were not using it as life insurance, but rather as an “investment.” Consider an exaggerated scenario of someone putting a $100,000 premium into a life insurance policy with a $100,000 death benefit. Clearly that hypothetical consumer is not concerned about the death benefit leverage, they are concerned with accumulating as much cash as possible while ultimately being able to take out that cash—plus interest—that is 100 percent tax free. Furthermore, that person would not be paying “cost of insurance charges” that should be the cover charge to enter the nightclub (remember those things?) of tax-free life insurance benefits.

What do I mean in my last sentence by “not paying COI charges”? Well, if there is no “Net Amount at Risk” in a life policy, then there are no COI charges. Check out my training diagram (Diagram 1) that demonstrates what COI Charges are based on. This diagram is from www.retirement-academy.com.

What are the “cost of insurance charges” based on? They are based on not the death benefit, but the “Net Amount at Risk,” contrary to what many smart insurance folks may know.

In Diagram 1, think of how efficient of a tax-free “investment” a life insurance policy would be if you could get the Net Amount at Risk down to $0! This would be achieved by cramming a single premium in that equals the death benefit. Clearly, that scenario—although a bit of an exaggeration—was too good to last.

Gipple_Diagram1_Feb2021

So, back in 1984, our friends in Congress said, “We cannot allow consumers to continue to have the wonderful life insurance tax benefits without paying the cover-charge of COI charges.” Thus, through DEFRA (Deficit Reduction Act of 1984) you had the establishment of two “tests” that defined life insurance. These tests were titled, the Cash Value Accumulation Test and Guideline Premium Test. This created Section 7702 of the Internal Revenue Code. DEFRA was the law and Section 7702 was what governed the law. Remember, Congress makes laws (DEFRA), and the IRS enforces the laws (The Internal Revenue Code Section 7702).

Even after DEFRA and the creation of these two “tests” that limited the amount of premium and cash value in the policy relative to the death benefit, consumers were still able to have “short pay” scenarios that felt too much like “investments” to Congress. So, in 1988 we saw a new section added to the internal revenue code via a new law signed by President Reagan. The new law was the “Technical and Miscellaneous Revenue Act of 1988 (TAMRA).” This new code section was Section 7702A. This created the “7-Pay Test.” If you fail the 7-Pay Test, the policy is a “Modified Endowment Contract,” which effectively takes life insurance taxation and turns it into annuity taxation.

The 7-Pay Test was a new and separate test that was layered on to the policies in addition to the CVAT Test and GPT Test. Many folks lump all these tests together as being “Modified Endowment Contract Testing.” That is false. GPT/CVAT and 7-Pay/MEC are separate sets of tests. GPT and CVAT define whether the policy is “life insurance” and the 7-Pay Test determines if the policy is a MEC.

What were the repercussions of a policy becoming a MEC? In all my training, I simplify it down to:

“Although the Modified Endowment Contract is still technically a life insurance policy, think of the taxation as almost the same as an annuity except the death benefit which is still tax-free. Last-In First-Out, pre-59.5 penalties, etc.”

Now, to discuss what changed January 1, 2021, let’s discuss the “MEC Calculation” that congress and their actuaries created in 1988.

Diagram 2 is very simplified, but it is a good visualization of the MEC calculation. Basically, Congress said that for a certain life insurance death benefit to carry to maturity, what is the level of premiums paid over seven years that would accomplish that? The resulting level of premium that the calculation generates will be the “MEC Limit” for that policy. And, if you put more into the policy than this limit, just know that you have a MEC and are taxed as such.

Gipple_Diagram2_Feb2021

Now, there are some assumptions in Congress’ calculation, right? The big assumption is the interest rate assumption that the premiums get credited on. This “Insurance Interest Rate” they assumed in 1988 and still did until 2021, was four percent. By the way, ever wonder why many whole life policies have guaranteed rates of four percent? To match the MEC calculation.

Here is what happened, effective January 1, 2021. After 35 years of dropping interest rates, Congress has finally adjusted the “Insurance Interest Rate” down to two percent for 2021 and a floating rate based on benchmarks for years thereafter. This was long overdue.

What is the impact of this lower rate? The MEC limit is increased by anywhere from 10 percent for older insureds to around 200 percent for younger insureds! In other words, if a policy would have had a MEC limit before of $10,000 per year, it would not be rare for us to now see that increase to $20,000, depending on the age of the client. Of course, this would be on new policies. I do however have questions about how carriers will treat “material changes” on already existing policies, but I digress.

Check out Diagram 3 on why this new “Insurance Interest Rate” affects the MEC limit as we discussed.

Gipple_Diagram3_Feb2021

The way that time value of money works is, if you are getting a lower interest rate (two percent instead of four percent) on your premiums, then there is more money needed to guarantee a later value. Remember, that “later value” that congress uses is the death benefit at “maturity.”

In Diagram 3, we overlaid the new MEC limit (blue) with the old (green). These bars are not meant to be proportionate to the changes. Rather, just a simplified visual. Clearly, at a two percent rate, there would be more premium required than the four percent rate. Thus, you have higher MEC limits now versus prior to 2021. Point of clarification: I am not saying that life insurance policies changed where you must put more money in because of the lower rate the IRS uses. I am saying that you will generally have the option to put in more premium, once the carriers enact these changes.

What is the benefit to the client of more premium going in? As discussed, compressed “Net Amount at Risk,” which means less COI charges. This was illustrated with my first diagram.

Note that although we are talking about one test (the MEC Test), the CVAT Corridor calculation and the GPT calculation are adjusting as well. I will not inflict anymore mental gymnastics by going into details on those, but they are affected in a similar fashion as the MEC calculation.

A Few Notable Impacts:

  • Consumers will be able to put more money in per dollar of death benefit. Of course, there will be a transition period with carriers.
  • Products in the IUL space and the whole life space will be adjusted by the carriers. I would bet that the whole life products see more drastic changes than IUL. This is not a bad thing though.
  • Whole life policy reserving will become easier since the carriers will have more flexibility on the guaranteed interest rates they offer to the consumers. You may see required premiums increase and thus lower guaranteed interest rates on policies.
  • Whole life dividends will become even more important than they currently are. At least relative to the “Guaranteed Columns” in the illustrations. I believe the gap between the “guaranteed columns” and the “non-guaranteed columns” will widen.
  • I think there can be a negative to insurance carrier profitability as well. Carriers are getting very little profit today via “investment spreads” in this low interest rate environment. Much of their profit is coming from the COI charges in the policies. So, now that those COI charges and the “Net Amount at Risk” can compress further, it might be interesting to see what the carriers do.
  • The big one that I have gotten a lot of questions on: Commissions will likely be negatively impacted. Why? Think of it this way: If a client is putting into a policy, say $10,000 per year, the minimum death benefit may be, say, 50 percent of what it would have been before. What does that lower death benefit do to your target commission? It reduces it. Or, if you are a whole life producer, what does that generally do to the proportion of “Paid Up Additions” relative to the base policy? It increases it. And you generally do not get paid the same on PUAs as you do the base policy.
  • What I just discussed is on new business only. However, in the law from the 80s there is a new 7-Pay Test that happens if there is a “material change” in the policy. What does that mean for material changes going forward on already existing policies? I will let the carrier attorneys handle that one.

If you would like to see the five pages from the Consolidated Appropriations Act of 2021, you can email me at cgipple@cgfinancialgroupllc.com.

Excelling In The (Long Term) Relationship Business

On December 7, 1965, the writer E.B. White wrote a letter to a friend. From this same man White had previously heard about a boy telling his teacher that alligators eat herons, pigs, small dogs, and beer bottles.

“I am writing simply to report a development of the story…While drifting south this morning on Route 17, trending towards Brunswick, I regaled my wife with this yarn, hoping to relieve the tedium of mid-morning on a national highway. She listened attentively and made no comment. About five minutes later she said, ‘I wonder how an alligator eliminates a beer bottle.’

‘That’s simple,’ I replied. ‘He Schlitz.’

I did not get a very strong response to this witticism, and we knocked off another couple of miles in silence. Then I asked Katherine, ‘Do you know how an alligator feels after he has passed a beer bottle?’ She said no, she didn’t know.

‘He feels sadder, Budweiser.’

The response was still rather weak, and silence fell upon us again.

A few minutes later, my wife broke the awful stillness. ‘Pabst he does, and Pabst he doesn’t.’”1

This incident is as much an insight into their relationship as it is an indication of their personalities. At this point in their lives, E.B. and Katherine had been married for 36 years, he was 65 years old and she was 72 years of age. Many couples no longer enjoy lively conversation after so many years of marriage.

“The more you get to know a person, the easier it becomes to run out of things to say.”2

This is not only true of life partner relationships, but also of long standing Client-Advisor relationships.

Independent financial professionals (IFPs) are in the relationship business. Clients place as much value having a close relationship with someone they trust as they do in securing strong investment returns. IFPs who build their practice over several decades have many relationships. The question is, how can these relationships be kept strong and active?

Authentic and Fresh
The Client-Advisor relationship is similar to every other important relationship. It is kept strong and active by the application of several skills:

  • Regular, personal, and effective communication.
    • The relationship takes priority over simply seeking successive revenue opportunities.
  • Continuous assessment of the goals of the relationship.
    • With each life stage, the IFP has the ability to assess new and pressing financial realities and open new doors.
  • Expressed commitment from both parties.
    • No relationship can rest on past glory, so the IFP and the client need to make fresh commitments to one another.
  • Courage and the willingness to be true and authentic.
    • If at any point either party feels like the other is hiding an ulterior agenda, or harboring unsettling concerns, there is no point in the relationship continuing unless the air is cleared.
  • The assumption of positive intent.
    • Every single relationship will encounter road bumps, twists and near accidents, which means, each party must assume the other did not intend harm or have malicious motives.
  • Most important—trust.
    • The IFP needs to take the client at his/her word and vice versa.

The First Quarter of a New Year is the perfect time to take stock of our most important asset–relationships. This is particularly true of IFPs and their clients. (It is also true of wholesalers and their BGA relationships, and BGAs and their advisor relationships.)

In the mature phase of the Client-Advisor relationship, clients do not come into the office as often, and may not be as responsive to emails or phone calls. Still, because of the work done together, the client is enjoying regular retirement income, or experiencing handsome returns on assets invested, or seeing the account values grow in the life insurance and annuity products they purchased.

Note: Past success is no reason to cease making progress.

Best Practices with Mature Relationships

  • Trust is maintained when care is expressed. While a client’s financial life can be in order, other aspects of their world can change and cause upheaval. The IFP who cares, really cares, inquires, respectfully, into the other aspects of a client’s life such as family dynamics, health, career advancement, and achievement of dreams.
  • Three magic words: “How about you?” If a client asks a question, the wise IFP responds and then asks the client to do the same. This deflection adds to the impression of interest and care.
  • Client Reviews are conducted just as professionally as always. No short cuts are taken. At the same time, nothing superfluous is forced on the client. There is nothing worse than an IFP telling a client, “Thanks for coming in today. I guess we had nothing to talk about, nothing to review.”
  • It is unwise to start driving to a new destination without first researching the best route to get there. Similarly, it is unwise to start a conversation without a goal in mind. A conversation without a game plan is like driving without first planning the route.
  • The wise IFP freshens the relationship with mature clients by asking thoughtful questions. Examples:
    • You have come a long way. Are you pleased with the direction you are heading now?
    • You have achieved great success in your career. Do you still enjoy what you do?
    • At this stage in life, how are you building new relationships?
    • What is left on your bucket list?
    • What fears do you have regarding your kids’ and grandkids’ futures?
    • Can you describe the ideas you have for how you can give back?
    • Is there a group of people or type of person you care deeply about?
    • Have your risks changed?
    • Are you seeking different kinds of rewards?
  • The IFP is wise to ask these kinds of questions because the answers can lead to more planning and perhaps product purchases.

Light and Life
Perhaps the most important opportunity in close relationships is leaving every encounter with both people feeling better. We easily recognize an enjoyable conversation by the fact the persons involved in it are laughing a lot.

A. Humor: I found four pertinent quotes about the importance of humor.3

  • “I think the next best thing to solving a problem is finding some humor in it.” –Frank A. Clark
  • “Laugh as much as possible, always laugh. It’s the sweetest thing one can do for oneself and one’s fellow human beings.” –Maya Angelou
  • “A good laugh makes any interview, or any conversation, so much better.” –Barbara Walters
  • “The more I live, the more I think that humor is the saving sense.” –Jacob August Riis

Question: Are you bringing humor into your long-standing relationships?

Example: My wife and I have homes in two locations separated by a five-hour drive. We experience the togetherness of the car’s passenger compartment four times or more every month. That translates into twenty hours together in close quarters!

Sometimes we drive along in silence. In these moments she is often on her phone while I drive. Recently, I waited until she was off her phone but indicated that I had a serious question to ask her. When she was ready, I asked:

“Do you know the Muffin Man?”

Without hesitation, she said, “I’ll answer your question if you answer mine.
… How much is the doggy in the window?”

B. Positivity: Enjoyable conversations stem from positive content that two or more people share. In this era of craziness and disruption, we all need to hear good news. In reality, good things are happening all around us. However, these instances generally do not make the front page or cable news. When we can share good news with others, we provide lift in the conversation.

Question: Are you able to bring good news into your conversations?
Suggestion: get a daily dose of good news via email from this web site: https://www.goodnewsnetwork.org/category/news/usa/

C. Encouragement: “The word encourage comes from the Old French word encoragier, meaning ‘make strong, hearten.’”4 Encouragement is not the same thing as praise. Encouragement acknowledges what people do, the effort expended and the improvement someone makes. It is a means of lending others courage to continue to do the hard, right thing. Everyone everywhere wonders if they are doing the right things well.

Question: Are you able to sense when another person needs encouragement?

Consider: Make use of each contact with mature clients to:

  • Instill confidence
  • Feed hope
  • Give support
  • Give empowerment

D. Something New: Successful IFPs working over many years with the same clients know they cannot change everything for these people. That knowledge, however, does not keep these IFPs from helping their clients change the things they can.

  • What was once a dream is now simply impractical. The mature client once asked the IFP for ideas to achieve certain goals. Life, somehow, got in the way.
  • The IFP must now apply rigor and creativity to assist the client to search for new, achievable goals, while ensuring suitability to the client’s current circumstances and life phase.
  • The word “innovation” comes from the Latin noun innovatio, derived from the verb innovare, which means to introduce “something new.” New can mean repurposed. Clients may have saved money for a goal that no longer is meaningful. How can those funds be applied to some new goal?

Summary:
Longstanding relationships mean that the IFP and the client have seen one another’s ups and downs and have watched each other move through several phases of life. To continue taking these relationships deeper, the wise IFP will introduce authentic freshness, light, and laughter into their conversations.

Humor, positivity, encouragement, and something new are relationship elements that mature clients appreciate universally.

“What do we live for, if it is not to make life less difficult for each other?”—George Eliot

References:

  1. Letters of E.B. White, Collected and Edited by Dorothy Lobrano Guth, Harper & Row, 1976, page 537.
  2. https://www.lifehack.org/articles/communication/15-things-happy-couples-talk-about-that-draw-them-closer-together.html.
  3. https://www.psychologytoday.com/us/blog/here-there-and-everywhere/201101/25-quotes-humor.
  4. https://www.vocabulary.com/dictionary/encourage.

Strategic Thinking

Periodically it just becomes necessary to go to the blackboard and wipe it clean. New advisor focused research is being released this month. Who is Selling What? To Whom, How and Why? is a follow up advisor survey to work reported here in May, 2004, at the apex of stand-alone traditional sales. The Producer’s Perspective on Long Term Care Insurance was accomplished at that time with the help of LIMRA International, the Society of Actuaries and Broker World. Times have changed—today basically 90 percent of any version of long term care planning sales are now classified as “combo life” sales, and it was simply time to again ask questions of those closest to the actual sales transaction. The current project was conducted with extensive help from independent and career distribution (NAILBA and NAIFA), BGA’s, NMO’s, combo life companies, The Center for LTC Reform and Broker World. The survey was sponsored and conducted by Oliver Wyman consulting actuaries and Ice Floe Consulting marketing and distribution consultants. An ongoing discussion of the findings will be a foundation of this column for several months.

We knew that we would be refining existing perceptions and evaluating best practices. It was the nuances of motivations and predispositions with consumers at the point of sale that we wished to hold up to the light for examination. Most importantly we wanted those insights to originate with those who at the point of sale actually bake the cake and make a sale happen.

It’s of course the most potentially global revelations that arrived in our minds on a purely speculative basis that need to be examined first. The survey itself is “data rich” from a statistical standpoint. It will be here in this “opinion rich” column where we can have fun with what it may all mean.

Let’s begin by saying we simply need more of this advisor focused sales analysis. Prior surveys have examined consumer wish lists prior to purchase and then measured rationalizations as to why a particular benefit was popular after purchase. These are opposite ends of a polar sales spectrum, one tainted by adverse selection and the other by cognitive dissonance. What we need to know is what happened in the middle.

In terms of those who eventually acquired any form of a long term care planning product, our overall placement success over the last 15 years has fallen by 50 percent. Traditional stand alone has fallen by 95 percent and more than half of the combo life sales do not involve any additional premium. Each year we continue to restrict our sales to the most affluent. From a distance it appears the sales of which we are the most proud could be perceived as unnecessary. We all know we must return to protecting those actually at risk. Without a full blown and well-orchestrated attack on the Mass Middle market we simply become a progressively superfluous exercise.

The first step in the right direction involves institutionalizing long term care planning in your practice. If you engaged in “the conversation” and merely offered something, frankly anything, we are all off to the races.

Jumping off the graphs of the survey was a clear and heartening recognition by producers that, while cost will always matter, the quality of the benefit offered to their clients was first and foremost in their minds. For example, zero current premium chronic illness ABRs were recognized to add something to the sale, however they overwhelmingly preferred benefits that could be defined as valuable at the point of sale and therefore required an additional premium charge as best for their clients.

What is old and should be ingrained into all sales is the necessity of periodic review. Changes in need, product performance or the advancement of available benefits must be a component of a successful insurance practice. The survey revealed a recognition by advisors that the presence of a long term care planning option, specifically both 7702B and 101g riders, has sufficient gravitas to justify a policy replacement conversation. This potentially represents an enormous opportunity for future sales activity.

Some answers we already knew or strongly suspected confirmed universal truths that must no longer be glossed over. Consumer and advisor awareness has always been the answer. The survey suggested that consumers do have a greater understanding of the risk and the choices to respond to that risk. And those advisors who include long term care planning in their practice are best prepared to facilitate financing decisions.

Yes, there is frustration with continuing rate increases, restrictive underwriting and insufficient product to be able to reach a larger audience. Our time has not been wasted. We should be fairly certain that by now we have uncovered our mistakes and have moved to remedy them. The survey tells us we do have a well trained and passionate advisor base and that we must now finally work together—advisor, distributor and company—to rebuild our dedication to training, education and outreach to more consumers and advisors.

Other than that I have no opinion on the subject.

The World Of Electronic Health Records (EHR) For Life Insurance Underwriting

Electronic Health Records (EHR) are the hottest trend in life insurance underwriting today. The growing accessibility and innovation by solution providers is transforming the life underwriting process. Understanding Electronic Health Records and the benefits are important. We will also explore how you get access to EHR and who is offering EHR services.

What is EHR and How to “Triage” the Data?
I first reached out to Drake Livada, life sales, and Nicholas Irwin, director of underwriting, at Verisk to educate on EHR and how it has impacted the industry today. As the COVID-19 pandemic adds risk to countless business and personal interactions, ways of life are shifting toward the virtual world. Suddenly caught up in this transformation, life insurers are urgently seeking electronic sources of information to enable a digital customer journey, and electronic health data is coming to the fore.

Electronic health data can be compiled from many sources and shared digitally through mechanisms such as health information exchanges (HIEs). Health data can be either structured data such as coded diagnosis (ICD), lab testing results with standardized values, and vital signs; or unstructured data, which often includes narrative style notes to document vital information such as visit summary, radiology results, or pathology results. Some types of electronic health data such as pharmacy, lab, and health claims are much more widely available and easier to use than electronic health records, but the latter can provide greater granularity to support a more refined view of mortality risk.

The health data information available within the EHR can create opportunities for the digitization of life insurance underwriting. Unfortunately, the structure—or lack of it—in the EHR presents challenges. For starters there are 15 different medical coding systems representing over one million different codes that need to be handled and processed. Even if one built a system to handle these over one million unique codes there is still the challenge of numerous medical coding errors, duplicate values, and transcription errors which requires a robust data validation system to handle. Moreover, many key rating elements, such as cancer stage and EKG interpretations, are only available in unstructured format requiring natural language processing in order to ingest.

Due to the incredible challenge of processing this data nearly all carriers are still treating EHRs like attending physician statements and reviewing the entire file manually. This can take one to two hours per case as the files are often over 1000 pages long with most of the information being completely useless from an underwriting perspective. To solve this challenge Verisk has made the upfront investment on behalf of the industry and assembled a massive team of seasoned life underwriters, medical professionals, biostatisticians, and IT professionals to develop a comprehensive system to ingest, interpret, and evaluate EHR data in real time. Nicholas Irwin, director of underwriting, explained, “Verisk’s EHR Triage engine is an API that ingests a batch of EHR files (CCDs) via API and generates a one to two page summary of the key underwriting elements in the file(s) as well as providing an overall underwriting score in the form of number of debits. Verisk’s tool is called “triage” as it rates the simple cases that underwriters would rate in their sleep, while referring the more complex cases to underwriters. Verisk’s tool presents substantial time savings even for the cases Verisk refers to underwriters by supplying a summary of the key data elements an underwriter needs to rate the case. The intent of the tool is not to replace underwriters, but rather to enable underwriters to spend more of their time on assessing mortality risk and less of their time on scanning 1000 pages to find the 10 nuggets of useful data.”

An Easy Connection for Life Carriers and Distributors to EHR Data
As I continued my research, I discovered all roads lead to Human API. I recently synced up with Nick Zambruno, solutions lead, and Anthony Chan in Product Marketing to learn more about their platform and services. Human API is a leading insurtech vendor in the electronic health records (EHR) category. The Human API platform helps life insurance carriers create better client and agent experiences by delivering health records from a variety of different health data sources, both online and offline. The company started by accessing medical records through patient portal integrations but has expanded their connectivity to health information exchanges (HIEs) and national EHR networks such as Epic ChartGateway and Veradigm, as well as strategic partnerships for the delivery of traditional APS. Over the last few years Human API has helped carriers such as Prudential, Allstate, John Hancock, AAA and Principal offer a streamlined digital underwriting process that relies less on traditional underwriting requirements such as exams, fluids and attending physician statements. Carrier customers have cited hit rates of over 40 percent with the EHR platform and are optimistic that the health data can be used to automate manual elements of the underwriting process. The new EHR data sources added to the Human API platform enable hit rates to exceed 50 percent, while the addition of offline medical record retrieval partnerships will drive hit rates to nearly 100 percent.

Due to the final interoperability and information blocking rules from the Department of Health and Human Services going into effect in April 2021, Human API is increasingly surfacing more clinical notes in EHR data, positioning the platform to deliver comprehensive medical data access. “Access to comprehensive EHR data is foundational to innovation and transformation of the underwriting process. We’re encouraged by the progress made to date by Human API and look forward to working together to drastically improve the consumer purchase process and experience,” said Susan Ghalili, VP of Underwriting Transformation and chief underwriter at John Hancock Insurance.

Over the past year, distribution firms have also found value in partnering with Human API directly in an effort to access health data more quickly to expedite the sales process. LIBRA and AIMCOR were two new organizations that announced partnerships in the last year with Human API. Through the Human API platform, a firm can access EHR records and digitally share the data directly with a carrier in a secure setting so automation can still be realized at the carrier level. “The insurance industry is ripe for innovation. We’re incredibly excited to be the ‘one platform for all health data’ that helps carriers create and deliver better customer and agent experiences,” said Andrei Pop, CEO of Human API.

More EHR Services by Solution Providers You Work with Everyday
I continue to see more solution providers who actively or plan to add EHR to their services for distributors and carriers this year. Those solution providers who play key roles in the life insurance new business process like Management Research Services (MRS), MediPro Direct, and Employee Pooling (EP) explained the value EHR brings to their clients.

MRS is introducing Electronic Health Records to their suite of products with guidance from clients’ requirements. Their No Code platform will allow carriers to configure their relevant products workflows based on the data source. As carriers become more confident with their actuarial models with the onset of the data source, they will be able to regulate the data used in the process. They anticipate being able to deliver a searchable interface of CCDA (standardize the content and structure for medical documents)—information that will prioritize APS requirements to improve processing time and decrease non-placement issues.

As healthcare needs become increasingly mobile or virtual, today’s EHR systems need to do more than track medical records in fixed clinical settings. MediPro Direct’s MedLink software works across all service models, from clinical to mobile to virtual, and ties into MediPro Direct’s network of several thousand mobile medical examiners nationwide. This means their systems not only track patient data but also connect service providers with ways to expand their service model and better meet patient needs.

Employee Pooling’s (EP) value proposition is to remove obstacles that get in the way of sales and enhance the customer experience. When it comes to formal and informal underwriting, obtaining medical records can hinder the fluidity of the process. “The ability to obtain electronic health records (EHR) within hours versus the days and weeks it could take to retrieve traditional medical records is a game changer and surprisingly cost effective,” says Steven Lacher, VP of Business Development. “With formal underwriting still playing a vital role in our industry, it makes sense to try and whittle down the underwriting process time by getting health records to the underwriter and the carrier in an efficient and timely manner.”

EP recently partnered with Human API (HAPI) to improve turnaround times related to obtaining medical records for both formal and informal underwriting. EHR has been fully incorporated into EP’s Accelerated Informal platform, which reduces the standard informal underwriting process from weeks to days. Lacher states, “The goal is to help agencies quickly and affordably put their important cases up to bid with conviction. Accelerated Informals stands true to its name with EP’s in-house underwriters, on-demand access to prescription drug and clinical laboratory data, and now rapidly obtained EHR data.”

In 12-24 months from now, you probably can’t even imagine a world without electronic health records playing a key role in the life insurance underwriting process. The goal is always to arrive at an underwriting decision quickly and accurately. EHR data with innovative platforms are connecting solution providers with more carriers and distributors every month to accelerate the life underwriting process.

Vaccinate Your Client’s Income With Disability Insurance

While vaccines are on the top of everyone’s mind, it is a good analogy for disability insurance and your client’s income. If you look at the science and facts available, every planner and insurance life, health, group, and property/casualty producer should have this conversation with their working clients.

Statistics:
More than one in four of today’s 20 -year-olds can expect to be out of work due to a disability for at least a year before one reaches normal retirement age.1 While this is a fact you may have heard in the past, let’s take a deeper look at some other ages:

Chances of having a disability from work prior to age 65, that would last three months or longer:2

Age 35: 22 percent or approximately one in four and a half people.

Age 40: 21 percent or approximately one in five people.

Age 45: 20 percent or approximately one in five people.

Age 50: 18 percent or approximately one in five and a half people.

We just don’t know how long these clients will stay disabled. Does the length of disability really matter though? If we were able to plan based on hindsight, then yes, but we plan using known assumptions and projections and then adjust our planning as facts become more known. If a client were to become disabled, would we plan for the disability to last a year, three years, five years, or indefinitely?

Financial Devastation and harm:

  • A 2014 study of consumer bankruptcy filings identified the following as primary reasons: Medical bills (26 percent), lost job (20 percent), illness or injury on part of self or family member (15 percent).
  • Two-thirds of working Americans (63 percent) couldn’t make it six month before financial difficulties would set in—and 14 percent said they would have problems immediately, according to the 2020 Insurance Barometer Study by Life Happens and LIMRA.
  • Per the survey of those that have experienced a serious illness, 42 percent of those between ages 18 to 64 used up most of their savings. Twenty-nine percent of those surveyed were having problems paying for basic necessities like food, heat, or housing.4

Cost for a disability policy versus not having a disability policy is subjective, as there are real costs and intrinsic costs. When someone doesn’t have disability insurance and an extended disability occurs, the real costs are devastating and, in some cases, it can cause financial ruin. The intrinsic costs of not having a plan in case a disability occurs are multiple, from financial strain on the family, to possibly needing to move to lower cost housing, to the psychological effects on those who find their net worth quickly dwindling. In addition, when a disability occurs not only does one’s income become affected, but usually additional expenses occur as well. This inverse ratio of income and expenses that many experience can cause more pressure on an already fragile dichotomy. The premium for a disability insurance policy will vary based on how much coverage is purchased. We find that most case designs resonate best with consumers when the cost of the policy is about two percent, give or take, of one’s annual income.

Obviously, with COVID-19, we’ve seen some of our fellow citizens and neighbors become seriously ill and unfortunately there have been hundreds of thousands of deaths as well. The toll has been staggering, but most are confident that the vaccines should help to curtail and eventually end this horrible pandemic. With COVID-19, we’ve also seen reports of the staggering physical disabilities occurring as well, which has compounded the adverse effects on many individuals’ financial wellbeing.

Like any type of proactive action, having a client obtain disability insurance can be an essential part of providing protection for a client and his family. At the end of the day, the cost of not having a disability income policy can be devastating and for those who ended up needing the protection the cost was trivial.

References:

  1. Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1997, Table A.
  2. https://www.calcxml.com/calculators/ins05?skn=#results Source: 1985 Commissioners’ Individual Disability Table A, based on data from policies issued in occupation class 1 (select white-collar professional). These are unisex probabilities.
  3. https://disabilitycanhappen.org/disability-statistic/.
  4. https://cdn1.sph.harvard.edu/wp-content/uploads/sites/94/2018/10/CMWF-NYT-HSPH-Seriously-Ill-Poll-Report.pdf.

Life Insurance Technology In 2020 Was Driven By Simplicity And Data

We all had to adapt to change beginning nine months ago with the pandemic. A distributor’s Agency Management System (AMS) must improve its quality of service for agents/advisors, field underwriting (exams) needs to be safe, and turning Inforce data to action is critical for advisors to manage their client’s policies. Here is an inside look on how life insurance solution providers adapted and innovated to these new challenges in 2020.

Agency Management Systems Essential for Distributors during COVID
Life insurance distributors in the USA and Canada faced the same challenges during COVID in 2020. I reached out to Equisoft whose Agency Management System (AMS) is the most widely used in Canada for life insurance distributors, and it is also available in the USA. I also met with OneHQ whose modern, easy-to-use CRM/AMS gained momentum in 2020.

David Nicolai, vice president, Insurance Solutions at Equisoft explains how back office automation is essential for servicing their advisors, “How do distributors stay relevant in times of accelerated change? That’s a critical question we’ve heard distributors ask so often over the past nine months. The answer, for some, is that it has been difficult—to pivot quickly and execute on a new value proposition that will enhance their ability to attract and retain the best advisors—if they are still running their business with manual, largely paper-based processes. There’s too much drag in the system. Innovation, no matter how creative their thinking is, will be hard to implement. On the other hand, we have clients who went from 100 percent paper-based to almost entirely automated and digital when they implemented the Equisoft/centralize agency management system. That made all the difference. When COVID hit and distributor staff, advisors and clients could no longer meet in person, their transition to the new reality was almost seamless. App processing, advisor communication, inforce services—all continued at pace because they didn’t rely on paper and mail. Clients received the support they needed in difficult times. Advisors appreciated the service and value their distributors were able to provide in helping them continue to meet their clients’ needs.”

Meeting with Brett Barker, Senior Account Executive at OneHQ, he provided not only information about their AMS, but client experiences during 2020. Tailored specifically for insurance distribution, OneHQ is an extremely powerful yet easy-to-use system. It’s highly configurable, replacing disjointed systems by bringing the CRM, AMS, and Compensation together plus integrating all other systems into one place. Brett explained, “Our user-friendly interface and personalized modules help give each department a dialed-in system to maximize results. As an example, a OneHQ customer recently made the move from their legacy system to OneHQ because their back office and sales teams had very little communication between systems. Wanting more data visibility for sales and back office efficiencies, the team moved to OneHQ and for the first time in years they had access to all of the information they needed within seconds. In the end, sales activity increased 20 percent and OneHQ’s innovative platform is providing better service to agents by freeing up the back office teams from running reports and answering questions.”

With the changes brought about by COVID-19 and more focus on how technology can impact sales internally and for their agents, OneHQ has witnessed a tidal wave of new clients. Their modern technology that focuses on increasing sales without sacrificing service is giving their clients an edge during these rapidly changing times. Brett continued, stating that OneHQ is increasingly seeing more of their clients beginning to offer their agents a full technology strategy starting with the CRM that integrates with their back-office system. In addition, this also makes the IMO much “stickier” with their agents. To sum it all up, Kyle J. Ginavan, CEO, OneHQ, said, “There have always been many good technology options available to insurance agents, but never a full technology strategy. While the securities industry has well-thought-out technology strategies for financial advisors, insurance distribution has typically lagged in this area. However, with COVID, we’re certainly starting to see that change.”

Exam Safety: Simplifying through Innovation
Underwriting is key to the life insurance new business process. For term insurance, a drop ticket with an exam still dominates the higher percentage of cases in 2020. Paramed exam companies are the front lines for underwriting. I reached out to Ryan Janeway, founder and CEO of MediPro Direct. Ryan explained that at this stage of the pandemic, protecting field medical teams and applicants requires access, innovation, and adaptation. Said Janeway, “Very few companies are positioned as effectively as MediPro Direct to actually improve customer experience during this crisis. MediPro Direct founded Vanguard Genetics LLC in 2015 to gain access to clinical and genetic testing services that can aid underwriters in policy-making decisions now and into the future. Under the current circumstances, our clinical lab association has provided immediate access to necessary PPE, as well as rapid COVID antigen testing to ensure the safety of our customers and team.”

As innovators, the teams at MediPro Direct and Vanguard Genetics helped bring rapid antigen testing to market and are now validating saliva test collection methods to simplify the collection process for these tests. Additionally, their teams have reduced manufacturing costs by up to 70 percent in order to dramatically improve public access to testing—which, combined with the distribution of vaccines, are key to getting customer business and lives back on track. Under proper credentialing, these tests can be used in the office and in the field to help ensure safety during insurance exams, clinical trials, and other medical interactions. MediPro Direct has adapted to the current environment by creating unique tools and processes such as its Tier1 Network™, to increase examiner coverage for carriers, its Quality First™ system to dramatically improve access to real-time quality data for carriers, and its RemoteID™ system for scaling and improving tele-interview processes without the need for fixed call centers.

Inforce Policy Data Turns to Action
As the digitization of the life insurance industry persists, the concept of shared visibility of data is becoming more relevant. Shared visibility of information across distribution partners helps to keep carriers, BGAs, and advisors all aligned on what’s working as it should and what areas have room for improvement. When it comes to inforce policy management specifically, that shared visibility is especially important. But timely exchange of information is not enough to satisfy a proactive, compliant, and efficient inforce management strategy.

Visibility of inforce data alone is table-stakes. As you continue to seek ways to not only differentiate but also provide more value to your distribution partners, you need a way to make that data and information you share with each other actionable. That’s where a platform like Proformex comes in as the right partner for you and your community. Proformex connects visibility to efficiency, simplicity, and opportunity. By aggregating data and giving everyone access to it—their platform takes that data and provides you with powerful analytics and insights that you and your distribution partners can use to make data-driven decisions that produce real-world outcomes. And there’s no manual burden involved; by automatically surfacing both risks and opportunities to you and your distribution partners, you’ll now have the ability to proactively manage potential problems and seize revenue-generating opportunities. It’s a win for everyone, from carrier to client.

Simplifying the life insurance new business experience impacts agents, distributors, carriers and consumers. Mining and analyzing life inforce data and turning it into action creates new sales opportunities for advisors to engage with their clients. COVID obviously accelerated innovation in life insurance technology in 2020. For those solution providers that have adapted and taken on the challenges head on with new innovations, they will have staying power in our industry moving forward in 2021.

A Fairy Tale For True Believers

Once upon a time, there was a Kingdom had not suffered any cataclysmic globalized wars or complete failure of its financial institutions for many years. This does not mean there were not close calls. This benevolent circumstance had allowed science, wealth accumulation and the overall quality of life to flourish. These privileged generations had evolved to become the most prosperous, innovative, creative proponents of maximizing freedom of will while demonstrating a boundless enthusiasm for democratic progress and accepting personal responsibility for the world and the people around them.
But like all fanciful stories the ultimate possibility for a complete happy ending remained just out of reach. There was a Flaw that persisted and festered in the dark corners of far too many hearts. The saddest component of the predicament was that they knew the truth that held them back but chose to ignore, obfuscate, diminish and outright deny the existence of a simple immutable truth: The march of time and the commensurate inevitable aging process cannot be forgotten, misplaced or altered. They knew that the beginning of life’s stages and the end both require some level of assistance, support, amelioration and please Lord some meaningful quality of loving care. Somewhere, somehow a dark and malevolent magic had befallen the population, the Flaw became a prowling uncontrolled risk haunting the meaning and value of anything that could be defined as a “happy ending.”
What makes this story so sad is that this precarious situation and looming threat had also been constantly under attack by a small band of caring patriots trying valiantly to establish the financial reserves necessary to prevent the virtually inevitable catastrophe waiting for the majority of the citizens of the realm. There remained a hard core cadre of care planning operatives working diligently to establish a responsive level of financial reserves to guarantee quality of care. The Flaw was insidious, clever and it seemed invincible, The harder they tried to soften the impending blow, the stronger and more resistant the inevitability of a pending financial and emotional disaster gathered strength—apparently just out of view. And then when it was clear that the potential for a very unhappy ending was on full display, a new enemy swept across all the borders. A Virus invaded their lives. It struck most viciously at those most vulnerable. The Angel of Death hovered over far too many homes and the Flaw stood exposed. It became impossible to not understand except, of course, for the most severely obtuse.
This new and virulent threat had penetrated the Flaw’s magical armor. Reality could not be ignored. The Flaw simply had no clothes.
A new future began to spread across the land:
A personal connection to a need for enhanced and personal care became a rapidly unavoidable truth.
It became clear that you did not need to vanquish the Flaw just manage its effect.
No one would forget that quality of care under personal control could ever again not be a planning option.
As the illness swirled around them “Staying at Home” became a necessity; the virus had installed a collective cultural memory that could never again be ignored.
The cognitive resonance necessary to take action and plan ahead moved to front and center.
As with all fairy tales hope, love and faith became again a reflection of the new truth that freedom of choice and personal control of the need for care could never again be overshadowed by the blinding ignorance of the Flaw.
Other than that we have no opinions on the subject. 

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