The Department of Labor has filed a noticed (2/9/17) with the Office of of Management and Budget delaying implementation of the Fiduciary Rule. The notice does not state how long the compliance date of April 10th will be delayed, though 180 days is the popular theory. This in response to a recent directive by Trump to review the rule. So far, there have been three positive court rulings in favor of the DOL fiduciary rule. Potentially, the rule could be modified (again). The good news for consumers is that some companies have already started to design products that will fit a higher standard. Harold Evensky, known as the “Dean of Financial Planning” talked about how Trump’s directive to review The Fiduciary Rule won’t halt the financial industry’s evolution and will lead to more consumer friendly and favorably priced (lower expenses and fees) life insurance and annuities. When the insurance industry begins to develop well priced, simple annuities there will be a greater acceptance and implementation of these very useful insurance products. In fact U.S. insurers are “buying” corporate pensions plans by “selling” an annuity to the company at record rate.
Rate increase on older LTC policies continue to be a matter of concern. Insurance regulators through The National Association of Insurance Commissioners are working on solutions to guide state insurance regulators on the rate approval process. The key is to balance out premium increases for consumers and to ensure that insurance companies maintain some profitability. If insurance companies do not maintain some level of profitability, they will not remain in business which means that claims will definitely not be paid. It is that balance that is tricky and is exacerbated by the fact that many feel insurers caused this issue themselves by underpricing older policies. Let’s hope that more states will adopt rate regulations and ensure that insurance company’s premium increases are justified.
Lemonade is a renters and homeowners insurance company that is looking to “uberize” the insurance industry through a P2P model. Lemonade’s goal is to transform the insurance industry. The Lemonade app and website allow consumers to purchase insurance and make claims (currently only in New York).
Per Lemonade’s website: traditional insurance companies make money by keeping the money they don’t pay out in claims. This means whenever they pay your claim, they lose profit. This is why getting your claims paid fast and in full is sometimes so hard. Lemonade was built differently. We take a fixed fee out of your monthly payments, pay reinsurance (and some unavoidable expenses) and use the rest for paying out claims. In essence, we treat premiums as if they were still your money and return unclaimed remainders in our annual ‘Giveback’. Giveback is a unique feature of Lemonade, where each year leftover money is donated to causes our policyholders care about. We treat policyholders who care about the same causes as virtual groups of ‘peers’. Lemonade uses the premiums collected from each peer group to pay for the group’s claims, giving back any leftover money to their common cause, and uses reinsurance to cover for cases where the group’s claims exceed what’s left in the pool. This way, our customers enjoy amazing insurance, and society gets a little push for the better. It also means that, unlike traditional insurance companies, we’re not in conflict with our customers, so we’re happy to pay claims fast and with no hassle. Lemonade CEO discusses the company’s foundation on artificial intelligence and behavioral economics.
There are many opinions about why Lemonade will work and why Lemonade will not work. Here’s the bottom line, insurance has been around a long time. When a policy owner pays a premium and does not file a claim in a certain year, the insurance company does not just count that whole premium as profit, instead they use it to form a claim reserve. Claim reserves are important since claims will vary from year to year. Insurance companies in a number of states have their premiums reviewed by insurance commissioners and as noted above, sometimes, they have to lower their premiums and must apply for premium increases. Insurance companies use decades of their claims history to set premiums. Yes, insurance companies have not fully implemented technology and AI. Another concern on Lemonade is claims fraud and how their artificial intelligence can improve on current fraud techniques. Claims fraud is a huge problem and insurance companies face this issue constantly and often in partnership with insurance departments and law enforcement. Ignoring history and being aggressive in pricing with new products in the insurance industry has proven to be a failure quite often as evidenced by Long Term Care insurance, Universal Life and Disability Insurance (from the 1980’s-1990’s). All of those types of insurance policies were introduced by traditional, well-managed insurance companies, yet all three types of policies faced issues with universal life and LTC still facing major issues. Ignoring history does not work in any field and will definitely not work in the insurance field. Technology should be used to augment the current insurance world rather than replace it.
While there was much said about speedy action on repealing the Affordable Care Act, it appears that a number of Republicans are coming to their senses and realizing that it is better to go slow and have a solid replacement ready to go or even more shockingly, fix what’s not working and leave the good parts in place. The Affordable Care Act took years to put together and does have key components that have changed health insurance for the better for millions of Americans. And, there are definitely some parts that are not working. Senator Lamar Alexander, chairman of the Senate Committee on Health, Education, Labor and Pensions had stated that while the legislative efforts will move quickly, the actual implementations will be done when there are concrete, practical alternatives in place. What is most ominous at this point is that insurance companies are continuing to feel anxiety about the uncertainty and are hesitant to commit to 2018 when there are so many unknowns. Humana has announced that they will be dropping out the individual market for 2018. Aetna has strongly hinted that they will be pulling out of the individual market as well, though there has been no formal announcement. Aetna and Humana are minor players in the market, so this does not have a huge immediate impact, thought there will be a few counties with no available health insurance. As insurance companies need to file plans for 2018 starting in April, more insurance companies will be making their decisions with many having threatened to pull out. The Trump administration has announced a regulation that may help which would limit the length of the annual open enrollment periods and limit special enrollment periods. This action would help offset people signing up for health insurance just when they need it. This is necessary for insurance companies to accumulate reserves similar to how you can’t purchase home insurance while your house is on fire. The IRS has announced that they will no longer require tax filers to indicate whether they had health coverage or paid a penalty which most likely result in a negative impact. This story will continue and hopefully there will some continued good news about the possibilities of repair.
There is a call for Dodd-Frank to be rolled back, which could lead to the unintended positive consequence of Indexed Insurance Products which are currently regulated by the National Association of Insurance Commissioners, to be potentially regulated by the Securities and Exchange Commission under their suspended rule 151(A). Since Indexed Insurance products are based upon the performance of underlying investments, then it would benefit the consumers who buy them and the agents who sell them to have higher level of training and compliance. Indexed Insurance products are complex financial instruments that go far beyond the concept of insurance and really understanding these products is challenging. The concept of Indexed Insurance products is great in theory, however, in practice, there are issues. The insurance industry has a responsibility to be providers of insurance and to provide easy to understand insurance products. There are many studies about how many Americans are under-insured when it comes to life insurance, however, the root of WHY they do not have life insurance or enough life insurance is continuously ignored and that is because the life insurance industry does not always sell insurance, they sell insurance plus something (cash value, long term care and so on) and most people do not understand the products.
Fintech companies that operated “robo-advisor” platforms for the most part appear to be “pivoting” to including Certified Financial Planner’s (CFP’s) – humans as part of their business model. Michael Kitces takes an in-depth look at the changes with Betterment, the original robo-advisor is changing their platform. Zenefits, one of the pioneers in the InsureTech field just announced that is laying off 45% of it’s workforce.
Term life insurance especially, and all other life insurance products could see lower premiums due to a change in the way life insurance companies calculate how much money they need to keep in reserve to pay out claims. This change is known as a move to “principle-based reserving” which allows companies more flexibility more suited to the current wide array of available life insurance products. These changes will be rolled out over the next 3 years starting with term life insurance and universal life insurance policies with secondary guarantees, so don’t look for an immediate impact. This would not lower the premium on any in-force life insurance policy with a guaranteed premium. Read more:Why life insurance premiums are expected to decrease.
The spirit of disclosure and the removal of conflicts of interest is a positive for everyone. It removes the mystery and puts the consumer, agent and insurance company on the same side of the table. A successful negotiation is defined on one that is a win-win, so let’s make the insurance process a win-win. Is there anything wrong with clearly defining the issue that you’re trying to resolve and your product recommendations along with charging reasonable fees. Good counsel deserves compensation, however, that compensation should be disclosed, we all know the hourly fees that attorneys and accountants charge and have an inkling as to what physicians charge (though if you’ve ever tried to decipher an “explanation of benefits, you know this can be complex). While President Trump did issue an Executive Order calling for a review of the DOL Fiduciary Rule, the rule does not “terminate” the DOL Fiduciary Rule. A Dallas Federal Judge ruled this Wednesday (February 8, 2017) to uphold the department’s fiduciary rule. A number of insurance companies have already announced fee-based or level compensation based insurance products. Given the access to information, the trend will continue to disclosure and more consumer friendly life insurance and annuity policies as laid out in The Insurance Bill of Rights.
In keeping with the trend of incompletions, the Department of Labor filed a notice last Thursday with the Office of Management and Budget to delay implementation of its fiduciary rule via a Notice of Proposed Rulemaking. OMB reviews generally take from 10 to 14 days and then once OMB approves the proposal, Labor will send the notice to the Federal Register for publication – generally within one day. The notice filed at OMB Thursday does not say how long Labor plans to delay the rule’s April 10 compliance date, though 180 days has been widely discussed. Details of the plan won’t be revealed until OMB approves the notice, which could be published in the Federal Register by the end of February. So, it looks like this story will continue……
Health Insurance continues to be a top topic in the insurance world. The picture though remains as clear as mud. This uncertainty is causing anxiety for insurance companies and is causing them to consider whether they should wait it out it in limbo or leave the marketplaces entirely. Aetna’s CEO, Mark Bertolini has stated “We have no intention of being in the market for 2018” (see Aetna earnings call) , though he did state that they may continue current policies. Insurance companies need to be able to price their products for 2018 and file plans with Federal and State officials starting in April of this year. Trump’s executive order directed agencies to minimize the ACA’s burdens, though no one is certain what this will mean. An action that further concerns insurance companies is that $5 million in funding for Healthcare.gov ads was pulled. Insurance companies need maximized participation in order to balance out their risk pool which stabilizes the market and hopefully improves affordability. Currently Congressional Republicans have come up with four amendments to to the ACA as a “repair” strategy though the goal is still “repeal and replacement”. Bloomberg has a good Q&A on why repeal is harder than it sounds. And CNN takes a look at why some Republicans are considering repair (as suggested in the last Insurance Literacy newsletter) and the GOP’s incredible, shrinking Obamacare repeal. There is also uncertainty for companies that offer health insurance and what changes could be in store for them: Employers fret job-based coverage vulnerable to fallout from GOP health overhaul. Trump’s promise to provide terrific “insurance for everybody” is imminent with the confirmation of Tom Price to lead the Department of Health and Human Services or sometime in 2018 (conflicting statements from Trump). And a last point of interest, 35 percent of respondents in recent survey either though Obamacare and the Affordable Care were different policies (17%) or weren’t sure if they were the same or different (18%) – survey by Morning Consult as reported by The New York Times.
Thank you to Jack Venturi for this informative post on how Ethics (and The Insurance Bill of Rights) can be implemented in the life insurance quoting process. Please note that the following are the views of the author and not necessarily those of The Insurance Literacy Institute. This post is provided to give consumers information to become educated and is not an endorsement. No compensation was received for this guest post.
When an insurance agent first communicates with a consumer planning on applying for life insurance, usually the first question that they ask is “what will it cost.” Many life insurance shoppers don’t look at any other aspect other than the premium. This is usually because they have very minimal experience and knowledge of life insurance products and how they work. At this point in time the consumer will be placing their trust in the agent’s hands. The consumer will be hoping that their new insurance agent will treat them honestly and look out for their best interest. Purchasing life insurance is a very important event for thousands of consumers each year. Due to the fact, that the average consumer has very little product knowledge, the agents experience and training will be extremely important to this potential new client. The actual final outcome of their quest for life insurance will also be very dependent on their agent’s adopted code of ethics. This potential life insurance applicant will be experiencing a feeling of uncertainty communicating with their new agent who at this point in time is nothing more than a perfect stranger. Now is the time for the insurance agent to demonstrate that he or she is a true professional and will be helping this perspective client to the best of their ability. It is crucial for
Insurance agents should adhere to a strict code of ethics and proper conduct such as outlined in The Insurance Bill of Rights.
More and more insurance companies are bypassing advisors and selling direct to the consumers to save money from paying commissions. Just a handful of unethical agents that create an unfavorable experience that can promote more and more people to buy direct from the carriers and no longer work with agents and brokers. The value of having an experienced agent or broker can be priceless but only if the agent uses proper conduct helping their new client. Unfortunately, many people have had a bad experience with sales people in general and in many cases this was due to an unfavorable experience purchasing a new or used car for one of the most common examples.
Regardless of what kind of sales experience it was, you can bet that they will now be extra cautious of anyone attempting to sell them most any kind of product or service. Today’s insurance agents have their work cut out for them just trying to establish trust with their new potential clients. Trust and confidence has to be earned before anyone will move forward after the initial quoting process.
Some consumers never feel a sense of confidence and trust and sometimes never purchase the life insurance they desperately need.
I have spoken with many consumers that have been shopping for life insurance on and off for years and never felt comfortable enough to move on to the application process. Every time they go back into the shopping process they find the rates have gone up and now it will become more difficult for them to find the life insurance they need for an affordable premium especially if their health history has changed. I have found that people in this situation have never had an agent sit down and explain how life insurance works and the differences in the various types of plan designs. They have inadvertently been kept in the dark and are confused by all the different companies available and various plan designs. Usually a 10-minute seminar by their agent could have taken out all the mysteries of life insurance. Proper ethics also comes into play in this type of scenario. A good insurance agent should help the individual understand what they are buying and not just take their word for it.
Here is a basic outline of what I personally do to help people purchase the best life insurance for their specific needs. What is the purpose of the life insurance? This is the first question I am going to ask. Knowing if the insurance is going to be used to cover a mortgage, college tuition, car payments, the purchase of business related real estate or just general reasons for insuring their income in case of their unexpected passing. This will help me understand what type of policy or policies would be suggested to properly insure this individual. Helping your applicant purchase the correct policy for their specific needs is probably the most important factor in being a good insurance advisor because this is where it all begins.
What would be a comfortable premium? This is usually in my second category of questions to be asked. Your applicant’s financial situation is very important and should be given a lot of consideration so you can suggest an affordable premium that will not become a financial burden. Life insurance premiums can be easily compared to car loan payments except for the fact that the monthly premiums will keep coming in for possibly the lifetime of the proposed insured.
An individual’s budget will also dictate what the face amount will likely be. An applicant’s budget should always be taken into consideration right from the very beginning of the quoting process. Find out first what your potential client can actually afford before getting carried away with a comprehensive quoting session.
Choosing the most appropriate life insurance company is one of the most important factors so your client has the opportunity to receive the lowest possible rates. Needless to say, this decision should never be based on financial compensation by the insurance company. It is your duty as a good agent to find the lowest rates along with other important factors such as financial strength and good claims paying ability backed up by a positive reputation in the life insurance industry. The average consumer knows very little about life insurance and it is your job to help them make the right decisions.
Keep in mind that the life insurance you sell to your client today will mean the difference of his dependents living easy or living hard upon his unexpected demise. Following a firm code of ethics such as The Insurance Bill of Rights, is a very simple process and it will be something you should practice every day. Being an honest and ethical agent will increase your referrals and will give our profession the respect it definitely deserves.
Your client is depending on you to guide him or her through the whole process of purchasing their life insurance. If your client is choosing you to be their agent, you should do your job to the best of your ability. The end result of utilizing good ethics begins with honest professional advice and ends with a properly insured new client with a premium they can easily afford.
About Jack Venturi:
Jack Venturi has been a licensed insurance broker for more than 25 years specializing in all forms of life insurance products in all 50 states. Learn more about him at bestchoicelifeinsurance.com. View Jack’s listing and pledge for The Insurance Bill of Rights (click here).