Senior Insurance Blog

In the June 2009 issue of Senior Market Advisor, the magazine has a special feature entitled "100 Best Sales and Marketing Ideas." The ideas are all generated by producers such as yourself, so most of the ideas are probably applicable to your situation. If you go through all 100 ideas, you will see that they all can be summed up into 5 methods that can successfully grow your business.

1. Networking: The vast majority of the ideas are related to networking, most likely because this is the most effective method of growing your business. Hosting workshops, seminars, church meetings, and other events were said to be a great method of reaching large groups of new customers. Getting to know and partnering with other professionals in related fields, such as CPAs, lawyers, doctors, and so forth is another effective method for getting in touch with potential customers.

2. New Technology: With more and more seniors and baby-boomers utilizing the latest technology, many of the respondents suggested that having a Web site is a must, but that to really succeed, you need to implement SEO to be found on the search engines, as well as market your business through major networking sites LinkedIn and Facebook. Also be on the lookout for Internet applications that can streamline your business process such as salesforce.com.

3. Old Technology: As great as all the new technology is, it alone does not make a successful business. Some of the agents state that nothing is more effective at generating business than picking up the phone and calling (we entirely support this argument). Direct mail programs are also still said to be very effective at generating leads, as the majority of the senior market still isn't online. Additionally, faxing is still a quick, simple way for transmitting certain types of documents, especially those requiring written signatures.

4. Relationship Management: Many of the ideas mentioned were related to managing the relationships you have with existing customers. This is vital, as retaining customers costs five times less than acquiring new customers (quality management principle). Basically, you should call your customers at regular intervals to see how they are doing and to educate them on new products. Being a good listener was an idea that came up in the feature several times. There was also a common theme of treating potential clients like existing ones. Even if they don't want your business, they most likely know someone who does.

5. Education: Many of the respondents stressed the importance of continuing education, both formal and informal. We agree as one of the fastest ways to lose business is to pretend to know something you don't. Knowing the latest trends in products, technology, market trends, and so forth is an essential ingredient to success. Establishing yourself as an expert source in your network or community can generate many leads by itself. Another common theme was that sharing knowledge freely without asking for anything in return adds to the credibility of your business.

If you have the time, we recommend reading the feature. Though most of the ideas are techniques you already know, you may just find one or two new nuggets of knowledge that can spark the next great idea for your business.

According to the Associated Press, the Treasury department has decided to provide roughly $22 billion in Troubled Asset Relief Program (TARP) funds to six life insurers that include: The Hartford Financial Services Group Inc., Lincoln National Corp., Allstate Corp., Ameriprise Financial Inc., Principle Financial Group Inc., and Prudential Financial Inc.

Thus far, the only specified amounts made public are that The Hartford can receive up to $3.4 billion, and Lincoln National has been approved for $2.5 billion. These funds will be used to purchase illiquid assets that have wreaked havoc with the aforementioned insurers' investment portfolios, as well as provide the necessary capital levels to avoid expensive downgrades from ratings agencies. Though the TARP wasn't originally intended to include life insurers, TARP officials believe that since life insurers own 18% of all corporate bonds, providing them with assistance is consistent with the program's goal of correcting credit markets.

The news that such insurers were eligible to receive TARP funds rallied insurance stocks from their low point on March 6. Now that the funds have been officially approved, stock prices of the aforementioned insurers have begun to increase and will most likely continue to do so going forward. Currently, the TARP fund in general has about $110 billion left (out of $700 billion) according to Treasury Secretary Timothy Geithner.

It will be interesting to see how the aforementioned companies perform compared to other insurers who either rejected or were denied TARP funds, such as MetLife and Genworth Financial respectively. This begs the question: Do companies receiving TARP funds have an unfair competitive advantage? Granted, TARP funds are like any other type of loan that has to be paid back, but considering that such loans couldn't have been obtained in the free market, it could be perceived as disrupting the natural competitive environment. Regardless, receiving TARP funds isn't a free get-out-of-financial-jail pass, so the most important factor will be what these companies do with the money and how they manage their financial recoveries. It looks like only time will tell if this is a justified expenditure of our tax dollars.

The big news this week was the announcement of changes to Medicare supplement insurance standards by the Centers for Medicare & Medicaid Services. The changes are detailed in the Federal Register / Vol. 74, No. 78 / Friday, April 24, 2009 / Notices document. The following changes apply to Medigap plans with policy years beginning on or after June 1, 2010:

• Issuers are prohibited from denying or conditioning the issuance or effectiveness of a policy, or discriminating in the pricing of the policy based on an individual's genetic information; also, issuers are prohibited from requesting or requiring an individual or family member of an individual to undergo a genetic test.
  
  
• Added Hospice coverage as a Basic ‘‘Core’’ benefit to all plans, as similar coverage was added as a basic benefit in plans ‘‘K’’ and ‘‘L’’.
  
  
• Deleted coverage for Preventive and At-Home Recovery. The NAIC concluded that Medicare Part B has changed to cover many more preventive benefits, and the usefulness of this benefit in a Medigap policy was significantly reduced, covering only part of an annual physical after Medicare covered the beneficiaries’ initial physical. The NAIC also concluded that the At-Home Recovery benefit was confusing and difficult to understand and administer, and changes to Medicare had made this benefit less meaningful.
  
  
• Created a new plan D, which is identical to the current plan D except that the At-Home Recovery benefit was deleted.
  
  
• Created a new plan G, which is identical to the current plan G except that the 80% Medicare Part B Excess charge benefit would be replaced by a 100% Medicare Part B Excess charge benefit, and the At-Home Recovery benefit was deleted.
  
  
• Eliminated the current ‘‘E’’, ‘‘H’’, ‘‘I’’ and ‘‘J’’ plans as they duplicated existing Plans.
  
  
• Created a new plan ‘‘M’’, which duplicates plan D but with a 50% coinsurance on the Part A deductible.
  
  
• Created a new plan ‘‘N’’ which duplicates plan D with the Part B coinsurance being paid at 100%, less a $20 copay per physician visit and a co-pay of $50 per emergency room visit, unless the beneficiary was admitted to the hospital.

These changes have created two sets of standardized plans which are known as the "1990 standardized plans" for plans with an effective date of coverage prior to June 1, 2010, and "2010 standardized plans" for those after. For those of you who are compelled to know the many details of the changes, click here. In the near future, once everyone has had some time to digest this information, we will post a blog regarding the implications of these important changes.

One of the most controversial topics in these financially challenging times is executive compensation, especially for those companies that are receiving TARP funds, otherwise known as a "government bailout." In recent weeks, AIG has faced immense criticism, investigations, and lawsuits over $165 million in bonuses paid out to top executives despite receiving billions of dollars in TARP funds and continually worsening performance resulting in losses in the billions of dollars.

With life and health insurance companies financially suffering in 2008 and 2009, most are either lining up to receive TARP funds, reducing coverage, or laying off employees to adjust to the current economic climate. This peaked my interest in researching what corporate leadership of these companies are sacrificing. What did I find? Not much. Most CEO's compensation decreased across the board, but was mainly a result of losses in stocks they hold or bonuses not received. Salary remained the same, and most still did receive bonuses of some sort.

So where do you stand on the issue of CEO compensation? In 2007, the average CEO was paid 344 times more than the typical American worker. Are they worth it? Is it even ethical? Should limits be placed on it? Below you will find 5 examples from our own industry. Read and let us know what you think. Here is the data I gathered from Associated Press articles:

Genworth Financial: CEO Michael Fraizer received a compensation package worth $3.6 million in 2008. In 2008, Genworth lost $572 million and saw its stock price plummet 89%. For 2009, the stock has taken a nose dive to close at $2.26 as of April 13, 2009. This recent fall was a result of Genworth missing the TARP deadline, however the company is exploring alternative methods of acquiring the funds.

Prudential Financial: Chairman, President, and CEO John R. Stangfeld received compensation valued at $16.3 million in 2008. He received a salary of $970,769 and a bonus of $3.3 million with the rest coming from stocks and options. In 2008, Prudential's financial services businesses lost $1.10 billion and its shares sharply declined by 68% and have lost another 38% of their value as of April 2009.

Hartford Financial Services: Chairman and CEO Ramani Ayer received $7.3 million in 2008. Ayer's base salary was $1.15 million with the rest coming from stocks and options. Like other CEOs, he received perks such as a car allowance, financial planning services, and retirement contributions adding up to $133,943. In 2008, Hartford lost $2.75 billion. As of April 2009, Hartford stock continues to drop due to fears about the company's bonds.

Lincoln National: CEO Dennis Glass received $9.1 million. His salary was $1 million and received performance-related bonuses adding up to $800,000. The rest came on other financial compensation options and stocks. In 2008, Lincoln National's stock plummeted 68% and has lost a further 45% as of April 2009. Unlike others, Lincoln posted a 2008 profit of $56.8 million, however it pales in comparison to the $1.21 billion profit of 2007.

Aetna: The company isn't applying for TARP, but I'm including it because it is about to layoff 3% of its workforce, or about 1,000 jobs to "adjust to the slowing economy." Chairman and CEO Ronald Williams received $17.4 million in 2008, including a $1.1 million salary, a $1.9 million bonus, and use of a personal corporate aircraft. In 2008, Aetna's profit declined 24% and its stock price dropped from $57.73 to $28.50.

2010 is shaping up to be a pretty important year for your clients financially.  Some of these changes are for the better, others not so much.  As you speak with your clients, it may be helpful for you to know what changes they face going forward into next year. At the very least, these make for some great discussion topics:

Medicare Advantage Premium Increases: 10 million Medicare Advantage customers will face monthly premium increases of $40 – $70 according to the U.S. Centers for Medicare and Medicaid Services due to changes made by the Obama administration.  In addition to higher premiums, providers are also looking to reduce coverage for an array of services to help offset lower reimbursements by the government. With the typical Medicare Advantage customer on a very tight budget, this increase can immensely affect the quality of life. 

Social Security Payments to Freeze:  The Congressional Budget Office predicts that social security will not see any cost-of-living adjustments until 2012.  Since adjustments are tied to consumer price inflation, which is expected to see little to no increase over the next two years, the CBO believes social security payments will remain the same during that time period.  The problem here is that the combination of reduced coverage and continually increasing health costs will make it more difficult for most seniors to keep up with their greatest expense.

New Retirement Withdrawal Rules:  The passage of the Worker, Retiree, and Employer Recovery Act of 2008 brought with it a waiver for the required minimum distribution age of 70 ½ for retirement account holders and their beneficiaries. This allows retirees to keep money in their accounts to possibly recover some of the losses sustained in 2008.   This law is in effect as of this year, and the decision of whether to withdraw or not will affect tax returns due in 2010.

Roth IRA Changes:  According to U.S. News, in 2010 income ceilings for Roth conversions will be dropped, allowing anyone to convert as much of their qualifying retirement accounts into Roth IRAs.  Since Roth IRAs are funded with post-tax dollars, investment gains are not taxed.  With the market having bottomed out (hopefully it can’t get any worse), many financial experts expect investments to recover in 2010.  With a Roth IRA, account holders can expect to pay no taxes on any gains made during the recovery. Additionally, conversion taxes can be spread over 2010 and 2011.  In summary, 2010 has never been a better year to covert.

Estate Tax Dead?: According to the Wall Street Journal, President Obama plans to block the repeal of the estate tax in 2010, which was passed in 2001, by then-President George W. Bush.  Democrats have included a footnote on page 127 of President Obama’s budget that reads “The estate tax is maintained at its 2009 parameters.” So estates will be taxed at up to 45% with an exemption level of $3.5 million for an individual.  Democrats reason that only 2% of the richest families pay it, and the money will help fund ongoing government efforts to stimulate the economy. If the estate tax hits zero in 2010, it may never come back, and Democrats don’t want to risk losing that source of tax revenue. The battle continues in Congress with Republicans and a handful of conservative Democrats fighting to keep the law as is.

According to the Wall Street Journal, the United States Treasury Department is finally opening the Troubled Asset Relief Program (TARP) fund for life insurance companies.  At this point you may be asking yourself, “Isn’t the TARP only for banks?”  Well, according to former Treasury Secretary Henry Paulson, if insurance companies own a bank, then they can qualify for TARP.  So of course, several major insurance carriers went ahead and bought banks to get their piece of the pie. 

Among those insurance companies asking for TARP money are Genworth, The Hartford, MetLife, and Prudential.  Lincoln National alone has applied for $3 billion.  The primary reason why such major insurance carriers are applying for TARP is the mortgage-backed securities in their financial portfolios, a.k.a. “Toxic Assets.”  These toxic assets are severely affecting the liquidity of these companies (and others not mentioned) leading to ratings downgrades and warnings. 

The Wall Street Journal also pointed out that with insurance companies applying for TARP, customers of these companies are likely to see this as a major risk to their investment and cash in their policies to go to stronger companies.  If this were to happen on a large scale, then this would force the weak insurance companies to dump their investments, causing the general market to decline further.

One of the hottest debates in our country today is determining whether big businesses should be allowed to fail, or be subsidized until they become financially stable again.  We’ve been hearing the debate rage on in the banking and automotive sectors, and it now appears that the debate has reached our doorstep.  We want to know what you think, so let the entire community know where you stand on the issue.  Now that insurance companies are eligible for a government bailout, should they be given one?