Thursday, March 26, 2009

President Obama’s auto-enrollment retirement savings plan

President Obama recently proposed that employers without retirement plans should be required to establish an automatic retirement savings account (similar to an IRA) for all of their workers. The accounts would be funded by payroll deduction from workers’ paychecks.

Insurance Insight Group thinks this proposal makes a lot of sense. Workers have traditionally had a number of incentives available to them to encourage saving for retirement, such as the tax-deferral available in IRA’s and the employer-match available in many 401(k) plans. But it seems that the best way to encourage workers to save for retirement is the simplicity and automatic savings associated with payroll deduction. If it weren’t for payroll deduction, can you imagine how hard it would be for the average American family to pay their Social Security, Medicare, and income taxes?

President Obama’s proposal will also create opportunities for insurance agents. Up to now, insurance professionals have approached employers without retirement plans, trying to get these employers to offer 401(k) plans, SEP-IRA plans, or a variety of other plans to their employees. The insurance agents have been at a disadvantage because no such retirement plans are mandated by government, and also each of these plans costs the employer money both in plan contributions and administrative expenses. Under Obama’s proposal, employers without retirement plans would be forced to take action, and there is the additional incentive that these retirement savings accounts would be funded solely with employee contributions. So, the employer’s expense is limited to administrative expenses. To the extent that insurance professionals can offer these employers efficient solutions to this new mandate, they have an opportunity to earn ongoing commissions as these accounts are funded by employee payroll deductions.

For more on this, Insurance Insight Group's Principal and Actuary, Chris Conklin, answers a series of questions on this in an Q&A format posted on the Editor's Blog.

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Wednesday, March 25, 2009

Unusual industry conditions create challenges, avenues for growth

2009 is shaping up to be one of the most unusual years in the fixed annuity industry, ever. In most years, insurance companies welcome increases in sales of their insurance products. In fact, insurance companies employ and incent sales personnel and independent insurance agencies in order to increase sales. But a combination of unprecedented financial constraints and soaring sales volume has forced many carriers to take unusual actions to limit incoming sales volume.

It is not unusual to see insurance companies cut compensation or interest rates. But so far this year, we have seen some of these carriers eliminate popular products, terminate productive agent forces, eliminate the contracting of new agents, or even stop all new sales altogether. Why is this?

One constraint is the soaring popularity of fixed annuity products, particularly multi-year guaranteed annuities. Some carriers have seen monthly sales volumes in excess of their typical yearly annuity sales volume. The desire of financial consumers and retirees to find a safe place to put their money while still realizing a respectable return has led them to beat a path to fixed annuities.

At the same time, declining interest rates, high bond defaults, high stock market volatility, and the lack of availability of new capital has severely constrained the ability of these insurance companies to profitably write new business.

To respond, insurance professionals are going to need to be more flexible than usual, moving their new business volume from carrier to carrier as the availability of products dries up. These insurance agents are also going to need to work harder to service their business. Some insurance carriers are so swamped with service business that they cannot effectively process rollover business. Thus, insurance agents would be wise to work with their clients to obtain rollover checks rather than relying on carriers to do the work.

Savvy financial advisors will be able to take advantage of these conditions to grow their businesses dramatically. There never has been a better time to advertise fixed annuities to potential clients and the general public as now.

Wednesday, March 4, 2009

151A Lurking Danger to Consumers

Many concerns are circling the outcome of Rule 151A. But perhaps the most dangerous aspect of it all is that it will scare producers away from addressing retirement risks and offering index annuities to retirees and pre-retirees at a time when they are desperately needed.

The Key Role of Insurance Agents in Society
“Insurance is sold, not bought” is a well-known industry saying. Sometimes missed is the underlying meaning of this saying: that insurance agents play a key role in prodding American families to take the key steps necessary to secure their financial futures.

It is no different with retirement security. With the decreasing prevalence of company-provided defined benefit pension plans, individuals and families retiring in the future must rely more on their own savings. Unfortunately, study after study has shown that consumers are not saving enough for their retirement, nor are they making wise choices for how to save or invest their money.

As a result, it is crucially important to our society for insurance agents to be collectively pursuing families and reminding them to take the necessary steps to increase their financial security. One of the most powerful financial tools in an insurance agent’s arsenal is to help accomplish this mission is an index annuity. An index annuity provides a financially safe place for retirees to put their money, and it provides growth that is tax-deferred, that is linked to increases in a market index, and that is protected from decreases in the market index.

If insurance agents shy away from offering index annuities because of Rule 151A, our society will be left more vulnerable because consumers will not have insurance agents urging them as diligently to help make sure their financial futures are bright.

Still, various anti-annuity groups have perpetuated a false belief that insurance agents offering index annuities are predators, especially when their sales practices include free dinner seminars.

Rule 151A has created a toxic atmosphere for insurance agents who wish to offer free dinner seminars to reach out to potential consumers. Again, financial consumers who would otherwise have been helped by the services offered by insurance agents, are hurt by the Rule.

The Way Forward
“The only thing we have to fear is fear itself,” as said by President Roosevelt during his 1933 inaugural address, and he was referring to how the public should respond to the economic conditions of the Great Depression. The same is true for an insurance producer today regarding Rule 151A. Rule 151A has created uncertainty and financial fear even as the insurance industry is attacking Rule 151A in court leaving a possibility that Rule 151A will go away.

But, in the meantime, consumers still need insurance agents working diligently to help them realize their financial needs. Let’s not allow the fear and uncertainty created by rule 151A to distract us from our mission, because that would be a tragedy.

For more on this see the Chris Conklin’s article in Senior Market Advisor.

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