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Life Health > Life Insurance

So Many Riders, So Little Time

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“Its impossible to read and digest all the stuff I get about new policy features and riders,” declares Gary Pendleton.

The owner of Preferred Planning and Insurance Inc., in Raleigh, N.C., Pendleton is a personal producing general agent who has contracts with roughly 70 insurers.

But, every month, he says, “I get mailings, e-mails, faxes, CDs, and VHS tapes from, Id say, 300 companiesfrom the ones I do business with and from the ones that want to get in here.”

He is not alone. Over the past decade, the wildfire growth in insurance product features and riders has produced acres of promotional materials–the likes of which veteran producers have never seen.

In some shops, these acres of materials have become the playing grounds for so-called product-jockeys–i.e., producers who like selling sizzle or the hottest new feature in town.

But elsewhere, it has propelled producers to develop disciplined strategies for taming the multi-rider beast. They say they like having so many options at their disposal, but, as Pendleton puts it, “it would take me two hours every day to read, view, and listen to everything that comes in here.”

So producers in all linesfrom life, disability, annuities and moreare coming up with ways of incorporating new riders into their practice without losing precious sales and service time.

Kenneth Martin, president of First Protective-Insurance Designers in Raleigh, N.C., says he always starts with a fact-and-feelings-finding interview with the client.

Thats essential, Martin says. “Dont approach the client with riders or policy features on your mind. Those things are of tremendous value, but it is incumbent on the agent first to listen very closely to the client in order to determine the clients objectives and financial planning needs.”

Only after that does he look for products and riders that can meet those needs.

“I go to the office, reflect, explore some of the options, look at my portfolio, and ask myself what I can do to solve this clients problem,” Martin says.

What if an agent finds a rider that might help, but that he or she doesnt know much about? “Study up on it first before ever making a recommendation to the client,” Martin says.

Some clients dont know what they need when they first come in, Martin says. “In fact, thats more the norm than the exception.”

But thats still no reason to offer a laundry list of riders, he explains. Rather, if the client doesnt know what he or she needs, “listen and draw it out.” Thats the agents purpose, he insists. “Its our value-added. The Internet cant do that.”

Martin likens this studied approach to what a doctor does when patients have vague complaints. “The doctor doesnt respond with a list of medications. The doctor first looks at whats going on, and then finds the best remedy.”

In insurance, the productsand the riders that customize themprovide the solution, he stresses. “But to find the right solution, we first need to find out what the need is.”

In assessing the options, “I always try to stay objective,” says Terrell Sachman, an associate at AXA Advisors LLC, Northbrook, Ill.

“Clients pay for objectivity, not subjectivity,” he explains.

In practical terms, this entails a continuing process of elimination. Only certain riders and features apply to any type of plan, Sachman explains, so, “once you decide on the general plan, that automatically eliminates certain riders” and keeps others in the running.

Then, when setting up the actual plan design, you eliminate certain other riders in favor of ones that best help implement the plan, he says.

But rider selection is not just a matter of which type fits the situation, Sachman stresses. “Some are standard and offered at no cost. Others are offered for an additional cost. And the at-cost riders might be similar in some respects but different in others.”

These factors affect which type of product and features to recommend. For instance, Sachman says that at his firm, “we do an apples-to-apples comparison–on the type (built-in or not), cost, provisions, benefits, and so on. In the end, its usually not the rider thats the tail wagging the dog. Usually, its the policy and the cost.”

In particular, he says he aims to offer riders that directly impact the policy in substantive ways. For instance, in a second-to-die case, a policy split option rider might make a critical difference to the clients; or in a split-dollar case, it might be important to offer a first-to-die rider as part of the exit strategy.

Certain other optionssuch as waiver of premiumare nice to have, Sachman maintains. “But they are considered features, not riders, and typically they are not purchased with larger policies.”

The distinctionbetween features and ridersbecomes important once the producer starts making the final recommendations, he says. “You need to be aware that certain riders are essential to the strategy. In fact, its almost malpractice not to offer them.”

As for picking which of the essentials to offer, Sachman favors disclosing all the options to the client.

Dont just point out the cost differences, he urges. Also point out the tradeoffs between riders that may cost less but that also offer reduced coverage or guarantees. For instance, integrated term riders can reduce the overall cost of a life policy, Sachman says, but the presence of such riders may also reduce certain guarantees in the contract.

“We need to point out these differences,” Sachman says.

The problem with rider and feature differentiation is that the effect “can be very confusing to the producer and the client,” contends Harvey Kotler, owner of Harvey Kotler Inc. of Pepper Pike, Ohio.

One example he cited is a dividend option inside a whole life policy that debuted some years ago when some insurers were trying to make WL more competitive with universal life. “It was confusing when it came out, and it is confusing to this day,” Kotler says.

The option converted dividends to buy more WL for the client at net rates, he says. However, because dividends are not guaranteed, “the product presented a risk to the clientthe risk that the dividends wont perform as you wanted and that the plan wont do as you expected.”

That feature wasnt marketed as a rider, Kotler says. It was an option. He cites it as an illustration of the confusion that new features, including riders, can create.

Some agents ignore certain new riders simply because the features arent suited to their practice, Kotler adds. For instance, he says a real effort is being made today to get agents to sell critical illness riders as well as stand-alone CIs. “But I havent adapted to it,” he says, explaining that he thinks CI may work better in the worksite market than in individual sales, where he practices.

In reviewing the rider universe, Kotler says the more traditional products like the family income rider are popular among younger clients, and the newer agents who tend to work with young families.

Guaranteed issue options are also popular for this market, he says, and “they provide a good opportunity for the agent to go back and see the client every few years.” Waiver of premium is popular, too, he adds, plus “it creates an opportunity for an agent to transition to a discussion of disability income.”

But Kotler isnt shutting his eyes to the newer-styled features and riders. For instance, he looks favorably upon accelerated benefit features because “they have met a social need.” (Note: Those features started out in the 1990s as life policy riders but are now typically offered as life contract provisions.)

Kotler also thinks the new long-term care riders are “wonderful.” They have “a real place in the age 50-plus markets” he says.

Pendleton, the producer who finds the nonstop blitz of rider and feature information somewhat daunting, is not opposed to new features, either. He says hes always looking for new ideas to help clients.

But he says he prefers to learn about the features at seminars where he can interact with product developers and talk with colleagues.

He has some other ideas, too, for insurers to consider when promoting new features:

–”Call to invite me to the seminar. Dont mail the invitation, because I might not see it.”

–When presenting it, “dont say we have the best commission in the world and the best product in the world. Everyone says that.”

–”Rather, show how the new feature will help the agent do business.If you tell me what youre going to do for me, and Ill go to the seminar, and Ill listen.”

Sachman has a suggestion that he thinks might help, too: “The insurers should consider providing a supplemental list with the application that explains what the available policy features and riders mean. Many apps today do list the choices right in the application, with check boxes by the side of each. The problem is, these lists often use abbreviations or short non-descriptive words to identify the choices, and that is confusing.”

What should younger producers do to get up to speed on all the new riders?

“If you dont understand something, call the company,” suggests Martin. “Virtually all the companies have sophisticated underwriting departments and support services that can answer questions. And if the first person there cant help you, move on to another. Someone will know.”

“Also, affiliate with veteran producers, for mentoring and possible sharing, and go to industry meetings,” suggests Kotler. Yes, he says, it is the companies responsibility to train and provide materials. “But the onus is on you to find out what you dont understand.”

Join study groups, read trade publications, and brainstorm with peers, adds Sachman. “But leave your ego at home.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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