Issues That Face Agents In The Ultra-Affluent Market

Product design alternatives widely used in the retail market would be unsuitable for the ultra-affluent.

One of the most obvious is the use of surrender charges. While widely used in the retail market, it is generally considered unsuitable for the large case market as it restricts future flexibility needed to react to competitive changes in the industry, product performance problems, financial issues with the carrier or changes in the clients personal situation.

Other custom design issues include the leveling of expenses and distribution costs, and the ability to change the product design as circumstances warrant.

Large insurance placements also raise a number of unique issues, most of which are well hidden behind complex tax, reinsurance and underwriting problems unknown by those not experienced in the ultra-affluent market. These include (but are not limited to) gift and GST tax issues and the need to truly manage the underwriting process (most of the ultra-affluent are older and have at least some health problems) to engender true competition among carriers.

This goes far beyond “shopping the market” by sending applications to numerous carriers, a process that can prove counterproductive, triggering involvement of the reinsurance market and negatively impacting the underwriting decision.

Another important success factor is the selection of carriers responsive to the unique requirements of this market. The process of carrier selection and review should be approached with the same level of due care a professional investment advisor would exercise in selecting money managers. While pricing is important, the customization and flexibility of product design and quality of future service support should be equally important criteria. In addition, there must be a commitment to equitable treatment of in-force policyholders and, of course, they must perform.

Finally, the producer must also be differentiated as a highly skilled client advocate, able to develop and manage relationships with sophisticated clients and advisors. Ideally, producers should be able to participate in the products design and features, have access to critical information or assumptions that drive current illustrations and future performance, and have the clout to impact future re-pricing and other performance issues.

They must offer in-depth insight into planning techniques and their analysis must go far beyond carrier illustrations to include independent financial modeling showing the impact of the product rather than simply the product itself. And, because the commitments they make to clients will often last far beyond their own careers, they must be part of a true firm with ongoing continuity, rather than an individual or part of a traditional agency.

–Michael Brink


Reproduced from National Underwriter Edition, May 5, 2003. Copyright 2003 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.