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Charles L. Ratner | Jan 17, 2023
Here are some of the topics and themes that practitioners should focus on in 2023.
Enriching the Discourse
Every week, I see my fair share of articles, columns, opinion pieces, postings, webinars and more about life insurance. Commentary by industry experts and dialogue among those in the business are just two of the things that make life insurance so interesting and dynamic today. Life insurance agents can turn to the commentary for insights about products, carriers and trends in the business. They can tune into the dialogue to participate in some robust discussions about products, sales applications and more. Sure, as in any business, some commentary isn’t particularly insightful, and some dialogue isn’t particularly constructive. However, on the whole, the aggregate of all that commentary and dialogue, which I’ll refer to collectively as the “discourse,” is a vast storehouse of knowledge and a valuable forum for sharing information, ideas and resources. The discourse can also influence the way agents present themselves and their services to the buying public, which brings me to my point.
In 2023, I’d like to see the discourse refocus a bit, with a mission to enable agents to reach out to and work with prospects and clients even more effectively than they do today. A reader could reasonably ask, “Okay, that’s pretty broad. What specifically should we refocus on?” At a high level, and admittedly from my limited vantage point, it seems to me that the discourse has been long on the value of life insurance generally and certain planning applications in particular. But it’s been a bit short on the value proposition of those who sell that insurance and design those applications. So, I would suggest that the discourse further accentuate the process and methodology by which agents determine needs, get prospects through underwriting, select and design products and deploy those products in a client’s financial and estate plans. My sense is that more clients will come to the table if and when they truly understand the incremental value that agents bring to that table. I also believe that strategically targeted emphasis on the agent’s value proposition in the advanced markets will help them be more effective with clients’ other advisors.
Regulation of Sales Practices
There’s a lot happening these days in the area of what I’ll broadly, imprecisely and collectively refer to as “guidance” for the marketing of life insurance products. I’ll gladly leave to the cognoscenti the formidable task of analyzing and interpreting the various elements of the guidance and then helping the rest of us understand to whom the guidance applies, when it applies, what such concepts as “best interest” and “suitability” really mean, what the guidance requires of whom, when it does apply and so forth.
As someone who’s been involved with life insurance products and planning for several decades, I’m keenly interested in whether the guidance will be streetwise, savvy and tensile enough to offer real time protection for the full range of today’s life insurance buyers. Here’s a sampling of some of the things that I’ll be looking for:
The most fundamental question: Mark Twain is said to have said, “I am more concerned with the return of my money than the return on my money.” In the context of this discussion, I assume that Mr. Twain would be referring to the fundamental concern that the carrier be there to pay the claim when the time comes. So, consider a policy that nicely fits the applicable guidance-delineated “specs” for a client with a low risk tolerance but is issued by a carrier with poor ratings. Is that policy “suitable”? Would it be in the client’s best interest? I’m interested in the experts’ take on whether and how the strength and claims-paying ability of the carrier figures into the guidance.
Who’s really on first? To what extent can an agent’s own risk tolerance, carrier or brokerage affiliations, business model and experience, influence and perhaps even preordain that agent’s recommendation for what’s suitable for the client or in the client’s best interest?
For example, consider an agent who’s uncomfortable selling “traditional” variable universal life (VUL). Maybe the agent thinks that most policyholders won’t fund and manage those policies properly, which will not only cause a bad outcome for the policyholders, but also create more work and more risk for the agent. Maybe the agent is especially reluctant to have the policyholder look to them for advice on how to manage the investment component of the policy. Yet, the prospect would tell you that they place a high value on the premium and investment flexibility of VUL and, yes, they would fund and manage the policy properly. What’s more, they believe that because of VUL’s flexibility and separate account feature, it would actually be “safer.” all things considered, than a less flexible general account product. But the agent still doesn’t want to go there. To what extent will the guidance enable the agent to “interpret” the client’s specs in such a way as to effectively recast those specs in the agent’s own terms? Do the guidelines have guardrails or some protocol of checks and balances that would prevent that from happening?
Where does the guidance stop? Will it go far enough? An agent recommends that a client deploy a policy as an investment for retirement. The client would fund the policy for a certain number of years and then take income by way of tax-free loans and/or withdrawals. The success of that plan is exquisitely sensitive to how efficiently the product accumulates cash and then distributes it. And that, in turn, is a function of such factors as policy type, structure, design and management.
This is just one of many examples in life insurance planning in which the product plays an important, and perhaps outsized role, in the success of the planning application. The question is whether and how the guidance will extend to the recommended policy’s fitness for deployment in the given planning application. And, as I’ll mention next, will the guidance extend to the planning application itself?
Policyholder service and product complexity. I’ve long heard agents complain about policyholder service, that is, getting in-force illustrations or answers to questions about policies or procedures. The planning application I just described is among those that are, or eventually become, quite service intensive and, if that service isn’t available, will run a high risk of failure and policyholder recrimination. Can a policy that meets the client’s specs for use in a service-intensive application still be suitable or in the client’s best interest if it’s issued by a carrier that the agent knows has a poor reputation for service?
The plot thickens. At the risk of understatement, some of today’s products are so complex that, were he alive today, Churchill might describe them as “a riddle wrapped inside a mystery inside an enigma.” The complexity of these products can present their own management and service challenges. The point is that the issues associated with a service-intensive planning application will no doubt become even more acute because of the complexity and associated service issues of the products used in the application. This is as real time as it gets! Yet what are the odds that a client will understand this and truly appreciate what they’re getting into? Does the guidance address this? Is there a way to gauge or match the client’s risk tolerance and level of sophistication with the risk profile and sophistication of a service-intensive application funded by a complex and service-intensive product?
It doesn’t take a seasoned life insurance professional to offer a number of variations on the theme of these scenarios. That theme, of course, being the need to confirm that the client is apprised of the critical information needed to make an informed decision on a product and planning application. Absent that, how could any agent, regulator or litigator, for that matter, say that the product or planning application was suitable or in the client’s best interest?
Life Settlements
I see 2023 as a year when life settlements could get a lot of attention from policyholders and advisors. But the narrative should move on from the transaction itself to address the needs of the investment advisors, tax advisors, estate planners and trustees involved in different aspects and uses of the transaction.
Long-term Care (LTC) Products
Our clients need to learn how the pandemic and the business fundamentals of the LTC service industry will affect the availability, design, pricing and overall attractiveness of LTC insurance products to those who have the flexibility to decide whether and how to fund potential LTC costs.
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