John Lefferts' Blog

Tuesday, August 7, 2018

Eat Your Own Cooking

The other day I took my car into a Discount Tire store for what appeared to be a slow leak in my back tire. I was prepared to have to buy a new tire, but asked that they try to fix it first. They said it would be ready in an hour, so I went to a nearby coffee shop to get work done while waiting. In 30 minutes, I got a text, “Your vehicle is ready for pick-up”. I got back to the store and the rep told me there was a nail in the tire about 3 inches long. He said they removed it and sealed the tire, then checked all the tires, rebalanced, buffed them and reset the calibration on the Tesla (I live in California where it’s the state car). I then asked, “How Much”. He said, “nothing…we just want you to be safe”.  I was dumbfounded. I’ve purchased tires from them before, but the tires on this car were the originals. The whole experience from their professionalism, exceeding expectations and then not charging me caused me to think, wow, I’m never going anywhere else ever to buy tires. And I’m telling everyone now about my experience. I’m a raving fan.

This caused me to think about my positive experiences in purchasing products over the years which led me to a conclusion I’ll share at the end. Some time ago, when I was in high school, my first real job was at Nordstrom. I sold ladies shoes…yup, I was a shoe dog! We’ve all heard the stories about when someone brought a tire back to Nordstrom for a refund and they gave it to him. And Nordstrom doesn’t even sell tires! The culture of the company to give top customer service permeated all the way down to me as a 16-year-old shoe salesman. To this day, I seldom shop anywhere but at Nordstrom because of it.

Then my first job out of college was with Frito Lay starting in the plant where they made Frito’s, Doritos, Lays and Ruffles. The quality control there was insane. The floors were always sparkling clean. If the batch had the slightest amount of too much/little oil, salt or the color of the chip was off, they would throw out the entire batch. Like Nordstrom, it is because of this experience that I will never buy a brand other than Frito Lay.

Then I entered the financial services business with AXA-Equitable. Equitable launched the first variable life insurance product back in the day and prided itself for always having one of the best performing Variable Universal Life products in the business. I bought a VUL in the mid-80’s and over the years have increased the death benefit several times and max funded it. To this day, while I’m fortunate to own several assets, my Incentive Life VUL is one of the most cherished assets I’ve ever owned. Having the ability to participate in market appreciation but growing tax free, being able to take money out with no taxes while having a death benefit in case I didn’t make it to retirement is like the best features of several financial products all wrapped into one. All for a net cost of less than 2bps that was more than made up by the tax savings (after tax equivalent for a high earner in California for 12% equals about 24%!)

I’ve had similar experiences with Lion Street which strives to affiliate with the best in the business and now with Assurance creating cutting edge technology for the financial services industry. The common thread among all my work experiences is that I had a true belief in the products I was building and/or selling. And, I ate my own cooking! (literally so in the case of Frito-Lay). The power you gain by owning or buying the products you sell is beyond description.  Like I did above with Discount Tire, I’ve shared my belief in Nordstrom-Frito-Lay-AXA Equitable products with many people over the years. And owning/buying those products have made my convictions even stronger. Or put another way, I’ve had “skin in the game”.

If you don’t buy products from the firm you are with, ask yourself why. Is it because you don’t believe in the products? Or maybe you don’t believe it the products because you haven’t committed to buying them? Whatever the case, the advice I would give you is to eat your own cooking!

It’s not what you look at that matters, it’s what you see
-Henry David Thoreau

Thursday, May 10, 2018

When I was 22...

I first wrote this article 4 years ago prompted by Linkedin. Given that today is my triplets 22nd birthday and AXA has given "Mother Equitable" back to the US via EQH IPO, I thought I'd repost "When I was 22...". Heading out to Chicago for the first college graduation this weekend. Whoo Hoo!

I enjoy the privilege of having triplet children graduating from high school this year. The household is about to go from semi-controlled chaos to total silence as they each venture off to college. One and Done! They're tired of hearing it as I say over and over, "the next 4 years are going to be the most exciting, fun and transformative years of your life".

Entering college, I really had no idea of what I wanted to do except play football and pursue "something in business". But there was one thing I KNEW I didn't want to do which was to follow my father's path into the insurance based financial services business. Dad had been a successful Agency Manager with The Equitable (now AXA) while I was growing up. As a very family oriented company, we were known as "Equi-kids". For some reason, I wanted to "be my own man" and carve my own career path. Upon graduating, I was offered a career path with Frito-Lay in the San Francisco Bay Area. To be exact, I was in Silicon Valley before it became “Silicon Valley”. And I was in the wrong kind of chips…potato chips! But it was a great experience and their management training was the best I could have ever received. However, after 2 years doing everything from ordering potatoes for the fryers to stuffing bags of chips in grocery stores, I came to the realization that folks in the food services industry didn't enjoy the lifestyle that a more entrepreneurial financial services career could offer. It simply wasn’t going to be like the one I enjoyed growing up (that is unless you own the food services company).

So I began interviewing with large financial firms such as Merrill Lynch, EF Hutton, New York Life and others and then decided to take an offer from Mutual Benefit in what appeared to be a financial planning career path. For some reason I didn't connect the dots that what my father had done as I was growing up was essentially the same. So I called my Dad and said "Guess What?!. I'm going to work for Norm Levine in San Francisco with Mutual Benefit" My Dad had known Norm professionally through the industry and chose his words carefully, but essentially said, "The Hell you are! Now you've decided to come into my business, you're going to come down to San Diego and work with me!"

I started my career in San Diego working first for my Dad learning the ropes the "old school way" and through the years kept working up the company food chain to find myself 20 years later in New York City as President and CEO of the very firm my Dad had worked for as I was growing up. Yes, the very and only one I KNEW I didn't want to work for as I entered college. The theme of this post prompted by Linkedin is to share stories and advice to the 22 year old college graduates #IfIWere22

Given my experience I suppose the first thing I should say is don't rule anything out and sometimes the "old man" is right. But there is so much more I would say to my 22 year old self now having the wisdom that experience and years provide. Here's a bullet list:

Know yourself. Be honest about what you're good at and what you're not so good at so you can maximize your strengths and minimize your weaknesses. Once you identify your unique skill, find a career that lets it shine. You also need to know what motivates you and what does not. If you're money motivated, don't be a social worker! If you hate conflict, ego's and rejection, don't pursue a career in business!

If you commit first, it commits back to you. You must take a leap of faith and close the back door once you enter any career path. If you wait for good things to happen before you mentally, emotionally, and physically commit, it’ll be a long wait. The happiest people are those who commit to the situation they are in and make the best of it while unhappy people are continually looking to external factors for their success or to blame for their failure. Take 100% responsibility, commit and enjoy the results, but you have to make the first and continuing move. Don’t be in the backyard looking for four leafed clovers while opportunity is knocking on the front door. And if after you've committed and have given it your all, but unsuccessfully, then learn from the experience and move on.

Simply showing up is half the formula to success. Exercising self-discipline in your time management is vital. You cannot maintain 9-5 hours and expect entrepreneurial pay. Show up whether you have something to do or not. You will create your own opportunities by being “in play”.

Effort, at times, defeats itself. If you maintain a consistent, steady pace of doing first things first and last things not at all, then you are on a path to success. By forcing everything, you can come across as desperate. People will buy into strength but will walk away from desperation. Keep the pace, let it flow, be patient, and success will follow.

It really is a numbers game. As much as we want to believe that there is such a thing as “working smart”, the fact remains that successful people simply make more calls and see more people. Don’t let your mind trick you into believing it’s otherwise. There is no substitute for hard work.

“Fatigue makes cowards of us all”. This quote says it all. If you are not well rested, are ill or lack energy due to little or no exercise, take care of it. Employers/Prospects buy strength and push away weakness. You need to be in top shape and good health to convey a positive and impacting impression. Get adequate rest and put yourself on a routinized exercise schedule. And by all means, make getting a good nights sleep a priority.

You are being judged by first impressions. The saying “You can’t judge a book by it’s cover” does not always apply in the professional world. People are judging us the moment we meet them and draw conclusions about you within a minute. Dress impeccably, drive a clean, well maintained car and be sure your props (pens, presentations, etc.) are first class. A common theme I have is, “Do it first class or don’t do it at all”

Believe, even when you don’t want to. Much of your success in anything will be predicated on your ability to maintain a positive mental attitude. Believe in your industry, believe in your company, believe in your products. You can choose to believe or not to believe (being indifferent is not believing). As motivational speaker/writer Brian Tracy says, be an “inverse paranoid. A paranoid is someone who thinks the world is conspiring against them. An inverse paranoid believes the world is conspiring FOR them. Believing, even when it’s difficult, will open doors and attract the opportunities you want where not believing closes the doors. Besides, given the choice, it’s a lot more fun.

It’s not what you say, but how you say it. Many of us spend agonizing time trying to figure out the catch phrase or line that will sell our product or service. It’s not entirely what you write or what you say, but the confidence in how you present yourself that will win the day. This is a proven fact that is counter-intuitive and must be worked on by all of us.

Set a single major life purpose and then 5 year personal and business goals for yourself. Of all the things I have done, this is one I adopted early in my career that motivated me towards success. Every 5 years I set goals some of which I met in 3 years, some I never met. But it's almost freakish how spot on my actual results often met my 5 year goals. A goal is written down and shared with someone who can help you achieve it. Anything not written down or not shared is simply a wish.

You become and get what you consistently think about. Any thought you carry repetitively, will become your reality. The picture in your minds eye of how you look, your level of success and your lifestyle, will eventually become reality if it isn't already. If you want to make $500,000 per year, then wipe out any thoughts in your mind with other figures. Think the unthinkable, dwell on it daily and your belief will create its own talents to get you there. Only you control this. Is your mind disciplined enough to hold the pictures of what you want to become rather than what you don’t want to be? All successful people know this universal key to success and practice it continually through prayer, meditation and visualization.

I've enjoyed a successful career and had I known what I do now when I was 22, I'm not certain everything would have turned out all the better. Life throws us all curve-balls and we don't know when and the magnitude of them. You simply have to be prepared to respond when they do come your way. The important thing is to find what you're good at, develop a passion for it, commit to it, set 5 year goals for it and most importantly have fun doing it. We live at such an amazing time with so much change and opportunity. I wish all the success to the class of 2014 and for my triplets in the class of 2018? Stay tuned. I'll be giving you more advice than you can probably stand.

“Parents can only give good advice or put them on the right paths, but the final forming of a person's character lies in their own hands”
-Anne Frank

Thursday, April 19, 2018

Will Life Insurance go "Blockbuster" or "Netflix"?

Results from a 2018 Life Insurance Needs survey completed by Allianz confirms what we in the financial services business have long suspected. Whatever we’ve been doing to sell/recommend permanent life insurance is no longer working. Some interesting findings as follows:
·        66% of consumers are unsure or don’t believe benefits paid from life insurance are not taxable.
·        51% are unsure or don’t believe cash value from permanent life insurance can be used to help fund college educations, supplement retirement income or meet other financial needs.
·        85% said that a source of tax-fee income in retirement is what they find most valuable in a financial product
According to LIMRA, the share of Americans with at least some life insurance has fallen to less than 60% from 77% in 1989 and the sale of individual life policies has fallen by 40% since the 80’s. These are all fairly dismal statistics that beg the question, what is the industry doing about it? All other industries have gone “Netflix” where the life insurance industry is stuck in “Blockbuster” mode. 
The life industry continues to operate like Ned Ryerson (remember the pushy salesman in the movie Groundhog Day?) with hard to understand multi page paper illustrations that are impossible to sell from. This causes producers and agencies to slight compliance procedures and create custom spreadsheets by taking hours to “cut and paste” from the illustrations onto an Excel file. This while all other industries are selling their products and services online and digitally. But just like Netflix had the stream digitally in 2007, then in 3 short years pushed Blockbuster to bankruptcy in 2010, I believe the life insurance industry is currently at that same stage. Adapt or die. Life insurance carriers and distribution must develop a digital strategy to adapt.
What if I told you that there is a platform that takes illustration data for up to 40 carriers and 280 plans and creates automatic spreadsheets and an interactive visuals called “The Morningstar of Life Insurance” by Financial Planning Magazine. Finally, a digital platform that is built for today’s consumer that enables the agent/advisor to educate and explain how cash value life insurance works. The platform is called Ensight made by a tech firm in California named Assurance. Some key features that Ensight provides:
Single Entry of data: You enter the insured information and case design details once and then select the carriers and plans you want to illustrate. No more toggling between carriers to rerun illustrations
Automated spreadsheet: With the push of a couple buttons you can create side by side comparison spreadsheets with the complete carrier illustration attached.
Fiduciary compliant: Through a revision history, the platform retains every illustration added, taken off, printed and sent to a client. It is also a platform that shows features and benefits of several options enabling the demonstration of “best interest”.
Speaks Robo: While the illustrations is able to be shown in side by side comparison spreadsheets, they are also rendered in linear graphs that are interactive.
Enables online selling: Since Ensight is a visual digital platform, it is best suited to be shown either on a tablet in front of the client or through video conferencing. No more flipping through endless pages of illustrations. A simple, clean visual proposal platform that clients can actually understand.
Platform Video here:

When I first got in the business too many years ago (which predates carrier illustrations), I was taught to recommend permanent life insurance through a method we called “Educate to Sell”. It was a process by which we would do an initial fact finder, identify the potential needs of the prospect and once we had done that, educate them by explaining the various types of life insurance through graphs. Then after having explained visually the differences between Term, Variable, Whole Life, UL, etc, we would ask the client, “what type do you think makes the most sense for your situation?” while looking at the graphs. After having been educated on the various types of life insurance, they could make an educated decision on what product type made the most sense for them. Ensight is essentially “Educate to Sell” for the digital age. The majority of prospects and clients simply won’t buy what they don’t understand (and if they’re coerced into buying, it won’t stick). Educating them through a clean interactive visual format is by far the most effective way to do this type of business in the Netflix and Amazon era.
So I have hope that the industry can pull away from the statistical downward spiral as the tools used become more current and easier to use. The next several years will see some carriers and distributors go the route of Blockbuster while others will see the future and go the path of Netflix. How about you?
You never change things by fighting the existing reality.To change something, build a new model that makes the existing model obsolete.”  -R. Buckminster Fuller

PS-Full Disclosure: I am involved in the tech start up Assurance that has developed the Ensight Platform trying to drag the industry kicking and screaming into the digital era 

Monday, August 8, 2016

Insurtech: Ned Ryerson meets Silicon Valley

I’ve always been somewhat of a gadget guy. When 4K TV came out in an 85 inch screen, I had to have it. Got the solar panels on the house and a Tesla in the garage. And like many of you, I’ve got drawers full of old blackberrys, nokias and iphones as I’ve continually upgraded to the newest, fastest and shiniest gadget available. Juxtapose this to the industry I’ve been in for 30+ years, the insurance based retail financial services business. Of all the business models out there, it is arguably the least technology driven. While most other industries have gone Netflix, the insurance industry is still Blockbuster. The basic premise for this is that the products are sold and not bought. It’s a people business and technology will never replace the human touch. It’s the ultimate relationship business. All these premises are historically correct. It is a relationship business…but the relationship is changing. Ned Ryerson…meet Silicon Valley.

As some of you have noticed (Thanks for the congrat notes on Linkedin!), I recently joined a technology firm specializing in an industry sub-sect of Fintech known as Insurtech. Yup…traded in the pin striped suits for more casual attire and I’m developing new lingo like UX, UI and API.  Somewhat ironically, when the HBO series “Silicon Valley” first came out in 2014, I took a pass. It looked like something that would be of more interest to my 20 year old kids than a boomer like me. But recently at the office after hearing the team make multiple references to the show, my wife and I fired it up and plowed through 3 seasons in a matter of days. Very funny. When they quote Reid Hoffman as saying “If you are not embarrassed by the first version of your product, you’ve launched too late”, I can actually relate to it now.

In season 3, Silicon Valley introduces a new character into the show named Jack Barker. Given my perspective having been in the insurance industry and now the tech business, there seemed to me like a bit of symbolism in this. The character actor, Stephen Tobolowsky, who plays Jack Barker in Silicon Valley is the same actor who played the role of Ned Ryerson, the annoying insurance salesman in Groundhog Day twenty years prior. Check out the short video clips of these two scenes and you’ll see the similarities in the characters down to even holding the briefcase in the left hand. Ned Ryerson is often cited as the symbol of the obnoxious insurance salesman and of course Jack Barker is the symbol of a rich tech CEO. This got me thinking, is the insurance industry ready for technological change? Is it time for Ned Ryerson to become more like Jack Barker?

Obviously, I do believe it’s time for the insurance industry to digitize. Why? While it remains a relationship business, increasingly, the preferred customer relationship is going digital. But unlike most digital disruptors, I don’t think it’s going to bypass traditional distribution of the products and services. We see what is happening in the robo-advisor world where the cost of customer acquisition is financially bleeding the tech start-ups to the point where they are forced to sell out to traditional distribution platforms. While this is evidence that digital B2C is a risky financial services business model, it is increasingly more apparent that the traditional distribution platforms that integrate digital technology tools to enable their advisors will be far better positioned to thrive than those who stick with “the good ‘ol days”. Here are a couple trends and thoughts on why I see it this way (and why I’m bullish on Insurtech):
  • InsurTech investment is growing faster than FinTech: FinTech ($5.4 Bill investments in Q-1 2016) is large but mature. Most Insurtech investment is going towards the Property & Casualty insurance segment and B2C models. Investment in the Life/Annuity segment is far behind creating a substantial white space opportunity
  • The DoL is driving digital solutions: The U.S. DoL fiduciary rule impacts up to 60% of annuity sales and technology solutions are believed to be the predominant tool to comply. This will eventually bleed into other lines of business as it will be difficult to operate a distribution business model that is inconsistent across all product lines
  • Insurers are partnering with digital firms:Technology is expected to replace up to 25% of insurance jobs (McKinsey). Life Insurance carriers and distributors do not have the depth of talent nor budgets to build digital platforms and are choosing instead to partner with digital technology firms
  • Margins tighten/Scale matters: In a protracted low interest rate environment, the margins for insurance carriers are extremely tight. Overhead currently consumes up to 40% of premium revenues. This is forcing cost cutting efforts, industry consolidation and a desire to find lower costs methods of distribution using digital technology
  • The “insurance is sold-not bought” prevailing belief is changing: Historically the industry has been a top down product push model. Shifting demographics and technology are moving that to a bottom up customer centric model. Digital technology is at the root of placing the customer first.
  • Demographics are a driver: The vast majority of current sales come from the traditional agent channels. With an average age of 60, the agent/advisor channel is in decline and insurers need to find alternative lines and methods of distribution. Not surprisingly, the Independent Broker-Dealer model is growing sales of insurance products more quickly than the traditional independent agent channel.
  • Aligning with trends: Millennials are now the generation in the majority and are driving the shift in consumer preferences to digital. The mobile phone is quickly becoming the main screen
  • Augmentation Beats Automation: As revealed by the robo-advisor trending towards enabling rather than replacing the financial advisor, the same can be expected in the insurance industry as “Insurtech” matures
  • We have "robo-advisors" but where is the "robo-agent"?: There are multiple digital offerings to manage assets but surprisingly few to protect them in the life/annuity space.  
  • Digital has taken root with the customer:Cited by AM Best, 83% of consumers would use the internet to research life insurance before purchasing a policy if they had that option. One in four consumers said that given the option, they would prefer to research and purchase life insurance online. In addition, global mobile data traffic will increase nearly eightfold between 2015 and 2020.
  • The current distribution model is not
     LIMRA estimated that life insurance sales would increase $9.5 trillion if the 48 million under-insured households bought the amount of life insurance coverage they said they needed. However, a quarter of under-insured households said they were not approached to buy life insurance.
 Insurance carriers and distribution platforms will need to decide whether to continue down the traditional path and hope for different outcomes (i.e. definition of insanity) or transform their approach to customers and products using digital technology. As the Ned Ryersons' of the business age out and go away, the industry needs to adopt digital technology not only to attract a new generation of insurance based advisors, but to meet the standard set by Amazon, Google and Tesla for a digital buying experience. As actor Stephen Tobolowsky has done, it's time for the industry to morph from Ned Ryerson into Jack Barker. There's an app for that!

“The best way to predict the future is to create it”

–Peter Drucker

Tuesday, May 24, 2016

Life Insurance 2.0 is coming

“Life insurance is a product that is sold and not bought”
This quote has been the mantra of the insurance industry for generations and somewhat an excuse for a lack of innovation. Life insurance is perhaps the most difficult financial product to sell and by far the most painful to buy. It’s also the reason that commissions are extremely rich while those who don’t specialize in it such as Independent Broker-Dealers and RIA’s often don’t even touch it. (so much for giving “Holistic Advice”!). But the financial services business is undergoing transformational change driven by new regulations, digitization of everything and huge demographic shifts.  And the life insurance industry is not exempt from these forces of change. Here are some influences shaping the life insurance business going into the future…kind of a “Life Insurance 2.0”
The purchasing process has to change
The life insurance buying experience is in the dark ages.  The buying experience for most every product is moving digital through social media that is real time and on the mobile phone.  Contrast that to the way life insurance is sold…think Groundhog Day . First, you have to find someone who needs coverage. Anyone want to talk about dying?…not an easy discussion to initiate. Then if you do find someone who will listen, the primary method for helping a prospect find the right coverage is by thumping multiple 20 page+ illustration’s on their desk complete with numbers they won’t understand and legalese they can’t comprehend. At this stage, perhaps after several meetings weeks apart, if they do trust your recommendation you have to fill out a very detailed multi-page application digging into some very personal and private information. Then comes the bleeding and peeing in a cup part scheduled whenever the paramedic can get to the client. Finally after requesting all their doctors information (APS) which can take months to secure, the underwriter mulls over all the information and if the history matches the underwriting guidelines, a policy is approved. It takes up to another month before the actual policy is issued and ready for delivery. All told, the buyer will have endured a 2-3 month process with very little communication along the way. Could we make this any more difficult? It’s the very opposite of how today’s buyer wants to transact…anti-social, the opposite of real time and totally paper driven.
Investment in InsurTech is hot
As noted below where you can see the huge growth in FinTech, the clear laggard is in the insurance industry known as “InsurTech”. But that is changing. While investment in FinTech is beginning to show signs of maturity, InsurTech is just getting started. A highly respected consulting firm in the space estimates that investment in P&C insurance technology lags banking (ie.FinTech) by up to 5 years and Life and Annuity lags by another 5 years. But with the increased investment and new technology players entering the space, that lag time will close. Tell someone you’re in the insurance business and nobody wants to talk to you. Tell them you’re in the InsurTech business and everyone wants to talk with you. Technology makes a relatively staid and boring industry a bit more exciting. The insurance industry is beginning to attract tech talent like never before which will drag the industry into the digital age, albeit kicking and screaming.
Mortality and underwriting meets bio-technology
At this year’s AALU meeting, one of the speakers was Dr. Craig Venter who runs the human genome project in my neck of the woods here in La Jolla, CA.  Dr. Venter has been instrumental in sequencing human DNA and like all things technology, the advances over the past couple years have been astounding.  Sequencing a human genome now costs just $1,345 compared with the $95 million it cost in 2001, according to the US National Human Genome Research Institute. In a few years, you could possibly get your complete DNA for a fraction of today’s cost. Having your DNA tested can give you tons of valuable information that can prevent a health catastrophe. Not only can it help prevent a life threatening disease, but it presents valuable information to an insurer. What if you knew that in 20 years you would have a high likelihood of getting Alzheimer’s disease?  There are measures you can take today to prevent that from happening if you knew it. The same with various cancers and other life threatening diseases. My son recently fought and won a battle with leukemia. If we had his DNA, it would have told us about the translocation of a particular gene that caused the cancer and we could have prevented it from happening in the first place. Armed with this information digitally, an insurance company no longer needs you to bleed and pee. They may no longer need to access volumes of medical information from your doctor. And having this information in advance helps the insurer get to “yes” faster rather than “no” longer. Underwriting for life insurance is about to be changed forever…for the better.
Digitization of everything
Blockbuster has given way to Netflix, K-Mart/Sears have yielded to Amazon and Tower Records was beaten down by iTunes. Everything is moving to digital and the insurance industry is not an exception. While the insurance industry has been slow to adopt new technology  there are signs that this is beginning to change. By using data integration, cloud technology and new digital formats, technology today allows insurers to digitize the purchasing experience without having to change their legacy systems (which will continue to be a drag on progress). Imagine a digital lead nurturing program that, through analytics, targets customers based on specific demographic information along with life events that trigger the needs for life insurance. Perhaps through Facebook or other social media, a client clicks on a message that seems personalized to them and their particular situation taking them to a landing page educating them on the features and benefits.(Side note: when you explain the features and benefits of permanent life insurance without first saying it’s life insurance, the product sounds amazing. Of course, compliance folks don’t let you do that...nor should they). Once the prospect has been educated online through various mediums such as video, storyboards or a Khan academy styled explanation, they then fill out some personal information online which begins to populate an illustration and application. If they chose to do so, they can talk to an agent or advisor unless they prefer to continue on their own (most will likely choose an agent/advisor). With the data input about name, age, face amount and premium, multiple illustrations can be simultaneously run and rendered on a simplified policy comparison chart (like above) with visual graphs viewable on any device of their choice (with the compliance approved illustrations attached via pdf should they want to review them). Once a product is selected, an electronic application is filled out and electronically signed, medical underwriting is streamlined by using online DNA information and a policy is issued almost immediately. Technology today can tackle the two most difficult things in the business which is finding a qualified prospect under a favorable circumstance and making the purchasing process less time consuming and confusing. 
Non-traditional channels will be compelled to address life insurance needs
The big story lately in financial media has been the margin compression in the wealth management space. The DoL and the advent of robo’s are moving the dial on that even quicker. With the AUM fees expected to be cut from today’s standard of 1% to about 25 basis points, and commissions fading away, RIA’s and Independent Broker-Dealers will need to find revenues from somewhere else. There is a general belief that fees for comprehensive financial planning (as opposed to investment management) is one place to go whether it’s a flat fee, hourly charge or baked into a higher % of AUM. But one of the tenets of financial planning if memory of my CFP training is correct, is life insurance. How can an advisor meet their fiduciary requisite and not address their client’s life insurance needs? I don’t think they can. But why don’t advisors address it today? …you guessed it…it’s freaking complicated! And it makes the advisor look stupid if they don’t have it mastered. But what if the process to address it is digitized and made seamless? That’s where I see the advisor stepping up and making life insurance part of their value proposition. At the same time, life carriers are actively looking for alternative lines of distribution since the traditional agent with an average age of over 60 is a dying breed. Look to see new forms of permanent life insurance priced for the advisory marketplace so the conflict of interest over commissions are taken away. And technology will enable the RIA and Independent Broker-Dealer to address the needs in a far more consumer friendly way.
Robo-advisor as a proxy for robo-insurance
Not surprisingly, the majority of FinTech investments early on went towards B2C direct models trying to disrupt the space through what we know as the "Robo-Advisor". Now that we’ve seen a couple of them crash and burn, there seems to be a reorientation towards using technology to enable rather than replace the advisor. In InsurTech, we’re likely going to see the same. The majority of InsurTech investment is currently going towards B2C models attempting to go around the current distribution channels following the theme of “disruption”. But following the FinTech trend, I think within a couple years just as we’ve seen the robo-advisor shift, we’ll see the same with InsurTech. Technology in insurance will reset from attempting to bypass the traditional channels to enabling them. (that is…until all the agents age out of the business!)
There is no other industry as ripe for a technology overhaul than the life insurance industry. Paper driven legacy systems have been like a ball and chain on technology progress. However, the dynamics impacting the industry are creating opportunities to change that. The painful process of finding a prospect and the multi-month purchasing process is on the cusp of changing through new technology. It will be the carrier or distribution firm who finds a way to change the buyer experience through new technology that will win in the future. However, as life firms have been in cost containment mode the past several years, the talent to create a digital platform is slim. I see carriers and distributors more likely to partner with InsurTech firms to create the future platform while using their current resources to keep the lights on with legacy systems. Imagine if we could flip the old quote around and say, "life insurance is a product that is bought and not sold" ...Life-Insurance 2.0 is almost here. 
"The secret of change is to focus all your energy not on fighting the old, but on buillding the new" -Socrates

Monday, April 25, 2016

Demographics and the Emergence of Robo-surance

 Ever since I entered the financial services business back in the 80’s, the Baby Boomer demographic has been the overwhelming driver of consumer behavior and how companies marketed their products and services. While it remains true that the majority of investable assets remain with the Boomer generation due to a lifetime of accumulation, what seems to be changing is their influence on purchasing behavior and decision making.  Why? After multiple decades of demographic dominance, it is estimated that as of last year, there were about 75.4 million Millennials, outnumbering the approximately 74.9 million Baby Boomers. The Boomer has been overtaken in sheer size for the first time in over six decades. Pew Research Article  
So far, 20% of Baby Boomers have retired. By 2020, it is estimated that 44% of boomers will have retired. While the Boomer is definitely where the assets are currently, guess who is going to inherit all that money in the coming decades? You guessed it…Millennials. And just as the size of the Boomer generation impacted how we marketed to them, Millennials are today shaping the business models for the future. To be successful for this segment, it comes down to one key word: Digitization. That’s why we’ve seen an explosion in FinTech investment for the financial services industry. It seems everything is going digital whether it’s going direct to the consumer over the web or enabling intermediaries to be more efficient and tech forward in marketing to the shifting demographic. As noted below where you can see the huge growth in FinTech, the clear laggard is in the insurance industry known as “InsureTech”. But that is changing. In this article titled  "The Insurance Tech Moment is Coming" , it states, “Insurance is the next FinTech” growing faster in the past couple years than FinTech itself, which includes the “Robo Advisor”. It appears that InsureTech lags the FinTech investment by about 2 years…but it's catching up.
Combine this phenomenon of industry digitization with all all the other drivers of change such as regulations (DoL today and likely the SEC soon), Advisor/Agent demographics on the decline and the demand for financial services products and advice on the increase, and you’ve got an atmosphere ripe for disruption. But not the kind of disruption where the robo will replace the advisor. As we in the business know, people do not make impulse purchases on complex products and services or as we often say, they're sold and not bought. That’s why we’ve seen multiple slick robo offerings struggle with gaining traction only to be bought out by well capitalized human advisor firms. But there will be some direct models that can replace the advisor/agent. Financial services and insurance products that are more straight forward and simple such as simple asset allocation, home/auto insurance, term insurance and health insurance will be easier to buy online in the future through B2C direct models. However, Comprehensive Financial Planning, Permanent Life Insurance and Annuities are more likely to be digitized through a financial professional rather than around them due to the complexities.
Not surprisingly, the majority of FinTech investments early on went towards B2C direct models trying to disrupt the space. Now that we’ve seen a couple of them crash and burn, we’re seeing a reorientation towards using technology to enable rather than replace the advisor. In InsureTech, we’re likely going to see the same. The majority of InsureTech investment is currently going towards B2C models but following the FinTech trend, I think within a couple years just as we’ve seen the robo-advisor shift, we’ll see the same with robo-surance. (Note: Insurance is so tech backward, there isn't even a "robo-advisor" like-kind term, so I made up "robo-surance")
Another emerging trend in insurance is the need to find alternative forms of distribution. With the average agent age at 60 and regulations causing manufacturers to drop their proprietary distribution models (as Met did recently), insurance carriers and BGA's have to find a way to open up sales to grow or else they’ll die a slow death. Coincidentally, the RIA and Independent B/D's are seeing their margins compressed like never before and similar to the insurers, need to find alternative lines of revenue or they'll also die a slow death. With the benefit of technology being able to simplify an otherwise complicated product and service (think Turbo-Tax), there are some technology companies entering the financial planning and insurance space to do the same. By taking a consumer focused approach which is leaning towards digital and reshaping the complexities of insurance products, not only will the traditional channels be more effective, but those who have typically referred this piece of business away such as RIA's may be inclined to keep it in house, particularly if the carriers reprice their products (from commission to asset based) which is the current trend. 
One company I've been advising in this space is Assurance. The firm is taking the Intuit Turbo-Tax technology and applying it to the complex life insurance business to format illustrations that not only help the financial professional comply with new regulations, but renders the proposals digitally in a graphic, easy to understand way, viewable on any device (computer, tablet, cell phone) rather than thump down multiple confusing 20 page illustrations on the desk. 
We are at the intersection of demographic change (Boomer to Millennial) and regulatory disruption where the natural solution is new technology. Just as it has been said that if you google yourself and nothing comes up, you really don't exist, likewise, if you are a financial services or insurance firm and don't have a digital consumer offering, the firm doesn't exist. It's time that the insurance industry play catch-up with a digital strategy. Assurance is one of a handful of firms that can show them how to do it. 
"A horse never runs so fast as when he has other horses to catch up and outpace"

Wednesday, April 13, 2016

Sun-Moon-Stars Align for Retail Financial Services Platforms

It’s not often that from a business perspective, the sun, moon and stars align to create both tremendous opportunity and incredible change. What we are witnessing now in the financial services business is that exact phenomenon. But in this business, it’s not the sun, moon and stars, but instead, shifting consumer preferences, technological advancements and regulatory change. The alignment of these key components is creating a game changing environment that will further delineate winners from losers while being unforgiving to those prone to maintaining the status quo. The release of the DoL rule last week was the final piece to fall into alignment setting everything in motion that had prior been somewhat paralyzed.  Now that we have some clarity, it’s finally time to press forward…game on! Here are some observations about this unique point in time…
Consumer preferences: It’s no mystery that everything is moving towards a digital platform for most anything we need and want. Whether it’s entertainment through Netflix, shopping with Amazon or updating features on the Tesla, it’s no longer an option to opt out of the digital revolution. Brick and mortar stalwart Nordstrom had 8% of their sales online in 2010. It is expected to soon be up to 30% and that’s a store most folks like to physically shop. What about the one’s that aren’t as consumer friendly?  I suppose now that my 83 year old mother prefers to shop through her Amazon Prime account, it’s a sure sign to me that the way folks prefer to purchase products and services is profoundly changing.
Technological advancements: It’s been said that if a customer googles your company or name and nothing comes up, you really don’t exist. In today’s world, particularly with the rising millennials, you now have to be seen on tablets and most importantly, smartphones. With the average age of a financial advisor at 55 and the insurance agent pushing 60, there is a strong tendency to do things the way we’ve always done them. When I started in the business we used to carry around “rate books” for insurance products. That gave way to computer illustrations. Now that we’re at the intersection of new technology and changing regulations, you no doubt will see the next evolution of ways to engage and communicate complex products to consumers through the device of their choice, not ours. In the future it is going to be benchmarking data analytics comparing product recommendations and disclosures through graphics seamlessly viewable on any device you prefer.  
Changing Regulations: If consumer preferences are the moon and technological advancements are the stars, then the sun (the big one!) is the seismic change in regulations taking place. There is much yet to digest about the 1,000+ page DoL rule, but whether it gets through or not, it is likely the catalyst to get long anticipated industry change moving. Some first impressions:
  • The DoL was smart to acquiesce on some of the initial language. Yes, the insurance and B/D industry will continue to push back, but how can you argue against doing what is in your client’s best interests? It was a challenge for them to keep it from happening and now it has happened, it will be a greater challenge to stop it from moving forward.
  • Sales illustrations have long been a tool used to recommend certain products. But in a best interest environment, that won’t be enough. It has been said that without the advent of new technology such as the robo-advisor, this rule would not be possible. Likewise, it’s going to require new technology to meet the DoL requirements. Benchmarking alternatives, providing the necessary disclosures and listing every potential conflict of interest goes way beyond the current illustration of today. Advisors/ Brokers/Agents are going to need a tool to demonstrate that they have met all the requirements of the best interest contract (BIC) to play in this space going forward.
  • With the DoL “genie out of the bottle” , I don’t think there is any going back. Firms that choose to take a wait and see approach as many have done thus far will find themselves at a severe disadvantage whether the rule moves forward or not. While the large IBD’s such as LPL and the wires don’t like it, they’re not gambling on the rule being overturned and are already moving forward on plans and infrastructure to comply. And with a more “friendly” version of the rule having come out than previously thought, it is more likely that the SEC will fall in line for all non-retirement products as well.
  • Just as the DoL pulled indexed annuities from the
    insurance exemption and under the BIC due to their complexity, I think a “harmonized” SEC best interests rule will pull in complex life insurance as well. If an indexed annuity and variable annuity are “complex” enough to be overseen by the DoL then it stands that Indexed Universal Life and Variable Universal Life will likely be pulled into the fiduciary complex.
  • In that the DoL has essentially harmonized the regulations for a huge piece of business, it is natural that business models will follow suit. This lends to the Tribrid model of B/D, RIA and BGA under the same roof for ease of meeting regulatory requirements while reducing liability and risk.
  • It is quite likely that insurance companies will reprice their life and annuity products not only to meet the “reasonable” compensation thresholds of the DoL but also to open up a new line of distribution through RIA’s. If distribution expenses are stripped out of the life/annuity products and they get repriced like an AUM model, RIA’s who routinely refer this line of business out may be inclined to keep it in house.
  • It is estimated that the DoL covers up to 60% of investable assets. This is the first regulation that universally covers state insurance agents, FINRA brokers and SEC investment advisors cutting across the outdated and cumbersome product silos. It will materially change distribution business models to fall in line with the new regulations. Either business models comply or they impracticably decide not to play in this space from where up to 60% of their business is coming from. I don’t really think there is an option.
I started in this business during the 80’s and have witnessed the evolution through the years. But I have never seen such dramatic change that threatens the very existence of multiple business models as they are structured today. RIA’s and certain forward thinking broker-dealers have been working under a best interests scenario enabled with technology for some time and will only need to make a few adjustments to comply. But the insurance industry has been caught flat-footed on this one. Not only does this change the entire revenue model of high commissions, but the insurance industry has been notoriously slow to adopt new technology. We see a proliferation of robo-advisors, some going direct to the consumer and others enabling the advisor.  But where is robo-surance? I suspect that insurance industry executives are thinking long and hard about that right now. Fintech and the robo-advisor have been dominating industry headlines the past several years. The coming trend? Insuretech and robo-surance…stay tuned
"If you change the way you look at things, the things you look at change"