Insurance Know-How

Persistency: Insight into its impact on the value of your Book

Cameron Jacox — Wed, 16 May 2012 13:00:20 +0000

By guest columnist Cameron Jacox of Jacox-Hilton Consulting

Did you know that from actuaries to brokerage managers folks in our industry don’t look quite as hard at any other metric then PERSISTENCY?!

Persistency defined – it is the inverse of the rate at which policies “persist”, so it measures the rate of Lapses. Lapse rates are important because they can help or hinder the value of a Book of Business or, in aggregate the value of an MGA. But within your Book or Agency, what drives policies to lapse? How can you use predictive analytics to model future lapses?

The following commentary will use statistics from the 2007 Report of the Canadian Institute of Actuaries’ and supplementary data from the 2011 Society of Actuaries/LIMRA study of U.S. Persistency.

First of all, the Composite, or basic lapse rate across product categories and characteristics is 4.8% per year over 15 years. That, therefore, is a reasonable ‘broad-stroke’ number to use when valuing a Book of Business for future trailer revenue streams or analyzing your own Book.

Book of Business Value

There are significant gaps in the analysis on lapse rates available to date. It is not known whether a Term-10 policy that lapses in year 9 or year 11, in expectation or rejection of a renewal increase has been intentionally re-written at a lower cost. This is now a common practice by brokers whose goal is to maintain a low cost for their clients. As such, persistency at the broker level must be measured as client persistency, not persistency of an individual policy.

We all know that “shock” lapse rates in year 11 of a 10 year Term are high; 48% on a face amount basis as per the Society of Actuaries. Thankfully many of those clients are being rewritten before lapsing.

The Myth of Universal Life (UL)

Term to 100 policies are often described as ‘riskier’ because they don’t have the cash/funds value ‘cushion’ of the UL contracts being “overfunded” (with deposits exceeding the minimum requirements.) The funds value cushion allows a policyholder to stop paying temporarily and not lose their insurance. But overall, the lapse rate of the level cost UL is double that of the Term-100. It seems that when the ‘cushion’ exists, people abuse it. When it doesn’t, people are more responsible.

‘Affluent’ Clientele Provide Lasting Benefits?

The average death benefit measured in the CIA’s report was $130,541. Policies under $100,000 lapsed at nearly twice the rate of those over $250,000 (6.1% / 3.4%). This proves the old adage “the bigger the policy the higher the persistency”. More affluent clientele receive, and take, better advice and appear to be more able to think longer term and maintain payments.

I’m careful not to ‘classify’ people as affluent or poor. Our society is made up more of people at different life stages than in different so-called ‘classes’. The young have smaller face amounts which largely explains the higher lapse rate for policies with smaller face amounts; the young lapse at a higher rate because of uncertainty about plans, jobs, geographic mobility, etc. Those under 20 had a face amount average of 1/3 that of those above 30 , so we should instead say, “Mature clientele offer lasting benefits”.

A striking level of indecision is apparent amongst those with small policies, though: in the first policy year, they have a lapse rate of 11.1% vs. 4.2% for those with coverage above $250,000.

Obviously age also plays a role; those 65+ have more definitive financial plans. Their lapse rate is less than half that of those under 25 years of age.

Is Healthier Wealthier?

It seems so. Lapse rates for preferred risk class policies tend to be much lower than those with standard and substandard risk. Preferred risk class policies also carry a significantly higher average face amount. In contrast, smokers have lapse rates roughly 50% higher than non-smokers. They similarly, have premiums about 50% higher, so they have more financial pressure. In the first policy year, the gap is even higher, with 6.3% of non-smokers lapsing and 14.2% of smokers.

Payment Mode: More than a Selling Tool

Payment mode is critical to lapse rates: “Quarterly” payers lapse at over 20% in the first year and continue to have an elevated lapse rate forever. Those paying monthly have a rate of just 4.1% over 15 years and those paying annually are even slightly lower. My guess is that quarterly folks have a tendency to forget their payments since they’re not automatic yet they’re semi-regular. Annual payers pay up front in the first year, so their lapse risk is almost zero. Monthly payers will never forget since payments are automatic. If a client insists on paying quarterly, make sure you send them a reminder which might also include a copy of Insurance Know-How™ Policy Owner Life and Living Benefits Review Guide which reminds them of the various was the life insurance they own will / can benefit a variety of beneficiary classes.

For more information on book valuations see www.jacoxhilton.com. And for support tools to boost your life and living benefits sales objectives see www.inuranceknowhow.ca/store/

Cheers, Helena

Life & Living Benefits Insurance Sales Boosters

Helena Smeenk Pritchard — Fri, 11 May 2012 19:43:46 +0000

Would you like your client meetings to easily and effortlessly uncover multiple insurance sales opportunities?

Is prospecting one of the hardest parts of the job for you or someone you know?

Are you wondering how to start the life insurance conversation without blindsiding your investment clients?

Are you frustrated that your clients only ever seem to want to buy Term Insurance?

If you or someone you knows is looking for help with selling life and living benefits insurance then Insurance Know How™ Advisor Sales Essentials are what you’ve been waiting for! Click on www.insuranceknowhow.ca/store/ to find out more and take advantage or these incredibly low introductory offer prices!

David Chilton author of The Wealthy Barber observations about Canadians and Their Advisors

Helena Smeenk Pritchard — Wed, 09 May 2012 13:00:03 +0000

illustration by HikingArtist.com

Did you know that most people have 10 – 15% too little of what they really need?

That’s one observation David Chilton made in a talk given recently. Other observations and areas that you’ll want to keep in mind and explore when talking with your clients are:

Debt loads – David’s observation is that lines of credit and home renovations add up to financial disaster for the masses.
It’s a myth that Canadians are over insured. “Most insurance per capita does not equate to over insured!”
“The house spouse” has no insurance or not enough.
Key person insurance is almost non-existent as compared to the need.
Seniors aren’t moving from their fully paid for homes. They want room for their grandchildren, all their memories are there and moving is a hassle at the best of times!
Reverse mortgages are the enemy of kid’s inheritance! With seniors borrowing up to 40% of the value of a home and living longer compounding interest bites back!
Canadian’s national pastime isn’t hockey – it’s complaining, and right now they are down on financial advisors – including their own!

Assume that includes you. Here are a couple of suggestions as to how to change that:

Be proactive and contact your clients with value added information. Start with your c’s as they haven’t heard from you in the longest time! BBM, text, call or e-mail to let them know that all the numbers they have registered on the Do Not Call registry will have to be re-registered this September, and that the 3 numbers they can register are their land line, their cell phone and their fax number.
Know when their birthdays are and set up an insurance review 8 months before that date.
Offer an immediate value added service of a beneficiary review and a review of their group insurance benefits.
Consider sending them relevant life and living benefits insurance information (not product marketing material) that they can digest at their leisure and which will help them identify for themselves some potential gaps in their insurance coverage. e.g. Policy Owner’s Life and Living Benefit Policy Review Guide in a hand-written envelop and include a stamped and return addressed envelope.

Here’s what one advisor said about this Life & Living Benefits Policy Review Guide:

“I like it as it is simple and I find my clients don’t mind looking at it without glazing over. I also get them to sign the sheet so I know and they know it has been discussed … your stuff is good and simple for me, never mind the client!” Audrey Keip

Cheers, Helena

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What’s old is new again with a twist!

Helena Smeenk Pritchard — Wed, 02 May 2012 13:00:13 +0000

Did you know that the most effective way for you to get noticed in today’s technological world is not with the technology you use every day?

Fritz Leiber Letter to William Hart Envelope Front 9-Oct-1977 by California Cthulhu (Will Hart)

While BBMs and text messaging keeps you “looking young” (I learned recently that leaving voice messages followed up with an e-mail dates one’s self) savvy and very successful marketers have figured out what I’ve been saying in my Painless Prospecting and Insurance Know-How™ training all along. The best way to get noticed is to send your prospects or clients information in an envelope with a hand written address. Think about it. When you sort your mail which envelope will you open first? Almost always the hand written ones get opened first because they have become such a rarity!

Very successful information marketers have now caught on too. Recently I received two ‘hand written’ envelopes in the mail. The first one was so novel I studied it for about 5 minutes before I decided that a) it wasn’t hand written and b) therefore it was a computerized simulation. But the point is – it got my attention! So imagine the impact of your real handwritten envelop!

One advisor I trained used this psychology with referrals and what he sent them was a $25.00 gift card to a well known and popular coffee shop. His note invited his prospects to gather all their important documents like wills, power of attorney’s, life insurance etc. and go talk about all that’s important to them (he provided a list of questions) while enjoying a coffee and treat ‘on him’ and he would give them a call in XX number of weeks. His prospects converted to sales / clients ratio was very impressive.

If that approach is too rich for your budget and you’d like to send a hand written envelope with something other than a birthday card consider Insurance Know-How’s Policy Owner Life and Living Benefit Insurance Policy Review Guide. A pdf file that you can print at infinitum with your own cover note. Let this policy review guide educate clients on uses of life insurance they may not have known or thought about while at the same time highlighting for them existing or potential gaps they have in their life and living benefits insurance portfolio (see Policy Owners Life & Living Benefits Insurance Review Guide)

I write this having attended another funeral today. You know, the question is never “did they own Universal Life, Term, or Permanent insurance?” The question is always “did they have life insurance?” And thanks to your sales skills and Insurance Know-How™ support tools the answer can be a resounding YES!!!

Cheers, Helena

p.s. The Comprehensive Policy Review Guide is intended for an advisor’s use while the Policy Owner Review Guide is designed for the policy owner’s consideration. 30 year insurance veterans are blown away by them! Be the consummate insurance professional, get the entire life and living benefits insurance picture, uncover additional needs and plant seeds for future sales with the Comprehensive Policy Review Guide, a pdf file that can be used at infinitum!

Powerful Words Get Clients Returning Calls

Helena Smeenk Pritchard — Wed, 25 Apr 2012 13:00:09 +0000

illustration by HikingArtist.com, on Flickr

Did you know that you can increase your number of voice messages to returned call ratio by adding a few powerful words to your voice message?

What are they? Obligation and duty of care!

A message that says “My life licence and duty of care responsibility obligates me to call you and conduct annual reviews.”

“Because the Do Not Call Legislation does not allow any other advisor to call you without your permission, it is my duty of care obligation to meet with you on a regular basis. Please call me at [phone number] so we can arrange a mutually convenient time to meet.”

Dually licensed advisors whose primary focus is investments might say “Because I hold a license to sell risk management products like life, disability and critical illness insurance I have what’s called a ‘Duty of Care’ obligation to my clients to do insurance reviews. Please call me at [phone number] so we can arrange a mutually convenient time to do this review.”

How do I know using these powerful words works? An attendee of one of my training sessions said, “I want to say thank you as it has made such a difference in my approach at getting clients in for their reviews. People are returning my calls and happy to come in and review their coverages. Thank you for helping me take a big step forward as I have noticed a big change in my performance since your seminar.” Michelle Johnston – The Cooperators

This approach combined with an e-mailed attachment to your client of Insurance Know-How’s Policy Owner Review Guide not only gets your calls returned, but makes the insurance review meeting as productive as possible! (Click here for details) Thought provoking questions about everyday uses of life insurance that your clients may not know about are included and serve to have your clients identify insurance gaps for themselves – before you have your review meeting!

And there’s more. When completed the Policy Owner Review Guide will also provide you with updated personal information (often done by the policy owners so it saves you time) AND provides notations of written consent to continue to call and send e-mails.

Adding three powerful words combined with over 35 years of industry experience turned into sales tools for you will serve your clients best interests first, and generate amazing amounts of incremental sales for you!

Cheers, Helena

Do this and increase your insurance sales results by at least 17%

Helena Smeenk Pritchard — Wed, 18 Apr 2012 13:00:15 +0000

Did you know that a recent study in the Harvard Business Review proved that sales increased by 17% just by a salesperson mimicking a client or prospect? (see http://www.dnabehavior.com/blog/communication/mimicking-customer-communication-style-increases-sales-17/)

Mirror Spock vs. Shaggy (128/365) by JD Hancock, on Flickr

But it gets better! The Life Insurance Management Research Association (LIMRA) contends that doing this effectively can actually increase sales results by as much as 29%!

Believe it or not this was part of my rookie sales training, and later as a trainer I facilitated the program called Behavioral Dynamics developed by Dr. Ed Timmins.

So why does mimicking or ‘mirroring’ work?

There are lots of reasons and foremost among them is that people will buy from those that they perceive to be similar to them. Mirroring accomplishes that because you are not only mimicking their posture, you are also mirroring their hand and eye movements AND using their vocabulary in the same way they use it.

When concentrating on mirroring you are automatically completely focused on your prospect or client and less so on yourself and your agenda. That makes them feel important and understood versus being given “a sales pitch”!

While listening and mirroring their vocabulary prospects will give you valuable clues to how to sell them. Folks who use a lot of feeling words are emotionally involved with their physical world and their relationships ‘on a gut level’. Others who use facts, data, research and “I think” words are likely somewhat removed from their emotions, or may not even be aware of them. Either way, what people say and how they say it is all valuable information for you to help people take your recommended action in a way they are comfortable with!

Have you heard the expression “Actors sell and sales people act”? Well now you know why it is true – the good ones do actively act as the mirror! Try it and let me know how it works for you.

Cheers, Helena

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Tips from a Top Underwriter

Helena Smeenk Pritchard — Wed, 11 Apr 2012 13:00:58 +0000

Did you know that one of the smartest things you can do to help your client’s applications get through underwriting with the best possible rating is to take the time to get the answers to the medical questions on the application even when a paramedical is required?

Illustration by HikingArtist.com, on Flickr

Top underwriter Ross Morton (see http://www.rossmorton.com/words/articles/) explains that the Privacy of Information Act prohibits underwriters from speaking to you about information that you do not know. By getting all the answers and medical background you have opened the door to talk with an underwriter about your client’s application when the need arises. The more information an underwriter has the easier it is for them to make accurate, in context decisions.

Ross also points out that by taking the medical history you will also be well positioned to coach you clients for the Paramedical examination. While it’s been mentioned before it bears repeating and that is to coach your clients to FAST. Don’t assume that they won’t.

Helping clients to understand that their paramedical is “a one shot deal” – a snapshot of how they are doing at that moment in time and the only “picture” that the underwriter will see – means that they understand the importantance of doing everything possible to ensure the best possible paramedical results by:

FASTING
avoiding salty and fast foods for a couple of days before hand
drinking lots of water
avoiding alcohol
delaying a strenuous workout
getting a good night’s sleep
scheduling the paramedical for early in the day (which makes it easier to keep the fast)
wearing a short sleeve shirt or top
taking all medications as directed
having all medications on hand with labels

These common sense tips help make the paramedical experience and results as positive as possible. For more tips see www.medaxio.com.

There is one more key point: know your client’s lifestyle and tell the underwriter about it!

Don’t write a book, just put information in context in a brief cover letter. For example, indicating how compliant or non-compliant your applicant is about taking their medication as directed is important risk assessment information as is knowing how long the current dosage of medication has been taken.

No change over several years is a good thing for the underwriters to know, as is the context of speeding / motor vehicle violations. For example, if your client has several speeding tickets, but is a travelling salesperson and drives 100,000 kilometers in a year, that’s a different story than an applicant with the same number of motor vehicle infractions who only drives 6,000 kilometers in a year.

While many advisors are uncomfortable asking and taking the time to get the answers to the medical questions, it is in the long run in everyone’s best interest.

Cheers, Helena

p.s. All products in the Insurance Know-How™ store are designed to be used with your prospects and clients; these resources have been professionally designed by a graphic artist and are white labelled for your benefit. Be the consummate professional advisor while getting more prospects and sales with these amazing pdf files!

The Life Insurance Oxymoron and Sales Opportunity

Helena Smeenk Pritchard — Wed, 04 Apr 2012 13:00:56 +0000

Illustration By Frits - hikingartist.com

Did you know that there are still lots of Endowments in existence and that the Endowment is a life insurance oxymoron?

An oxymoron combines contradictory terms, and so too does the endowment. Endowments are typically comprised of the two components of permanent life insurance – the first being the protection component and second being the cash accumulation component. However because endowments expire at a predetermined age, say 20 years after the date of purchase or age 55, 60, 65 or 85 they then are exactly like term insurance because the tax free death benefit disappears.

When the life insurance protection expires the policy “matures” the owner of the policy typically receives the amount of insurance protection in cash unless the policy allows for the purchase of an annuity.

When the maturity value is taken as a lump sum in cash there is a policy gains tax (not capital gains) payable at the tax payer’s marginal tax rate.

Expired insurance coverage, cash in hand and increased taxes will be your client’s situation when their Endowments mature. With increased life expectancy, sluggish economies and age 60 now being the new 40 your clients need your help to make sure they have the right amount of life insurance coverage they need!

If you could use help uncovering this and lots of other pertinent information that is often missed in regular life insurance reviews meetings, then Insurance Know-How™ Advisor Sales Essentials Comprehensive Policy Review Guide is for you!

Cheers, Helena

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p.p.s. New products are being added to Insurance Know-How™ store weekly. New this week, The 6 Step Guide to Completing this Job Description

Critical Illness – “It’s too expensive.”

Helena Smeenk Pritchard — Wed, 28 Mar 2012 13:00:44 +0000

Did you know that the objection “It’s too expensive” is more often heard from advisors than from their clients and prospects? To which I ask “As compared to what?”

I coached an advisor recently who was unable to convince his brother to buy critical illness insurance two years ago, choosing instead to ‘self insure’. His brother was financially reasonably well off and owns two cottages. The concern now that he has cancer? Will he lose (have to sell) the cottages?

How many people do you know can afford to pay $1,500 a day for medication not covered by Ontario’s provincial health care plan? That was the cost of medication 12 years ago for a friend of mine’s wife who ultimately succumbed to a brain tumour. He was lucky that his group benefits plan did cover that medication.

Critical illnesses insurance is too expensive? Whether that’s your objection or your client’s objection stop and ask/think about “If you were to be diagnosed with a critical illness next week where would your money come from?” Wait for the answer.

Then ask “What will the cost of getting money from those sources be?” What if the real estate market is in a slump or depressed as it is in some states right now? What if your investments have just “tanked”?

If you have to withdraw funds from your retirement saving, how much will be lost? What taxes will you have to pay on those funds? How will you make that up the principal and the lost compounding growth rate?

Remember critical illness insurance was invented because Dr. Barnard saw that medical science is keeping people alive from conditions that used to kill us, but in doing so doctors were “killing people financially.” Too expensive? The way I see it most people can’t afford NOT to have critical illness coverage!

Cheers, Helena

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How to explain policy ratings, declines

Helena Smeenk Pritchard — Thu, 22 Mar 2012 16:53:01 +0000

From time to time I receive e-mails from consumers with questions like “I wondered if it was legal for insurance companies to refuse to insure children with autism?”

What advisor hasn’t dreaded the rated or declined application conversation with their prospect or client? Since the demise of the captive agents, training on how to handle these situations is almost non-existent.

Read the whole article at advisor.ca