Whatll You Have? Riders For Every Appetite

Advisors tell us how theyre dealing with the barrage of company offerings

By Linda Koco

“People know what they want, but they dont always know how to get there.”

That is Beth Scott Claytons explanation of why advisor input is so important when the client is making insurance decisions, especially about options offered in various insurance policy riders.

A disability insurance agent and broker with MassMutual based in Nashville, Tenn., Clayton allows that it is always easier to use packaged policies that have base coverage and options all rolled into one product.

But if the product is not packagedthat is, if it offers a base contract plus a variety of separate riders that can be added or not, depending on the case”that allows customization,” she says. It also helps the insurance professional help the client make informed decisions, she says.

The comments came as part of a National Underwriter inquiry into how professionals are approaching their work with riders today.

The subject comes up because insurers are pumping out countless numbers of riders for life, annuity, long term care and disability policies, and some agents report it is hard to keep up with all the options, changes and permutations.

“Agents are getting bombarded,” says Robert Brodie, an LTC agent with Robert Brodie Insurance in Ventura, Calif. “That can be a big problem. The companies are trying to get ahead of the game [by coming up with new features or provisions in the riders], but my opinion is a lot of the agents are getting confused.

“Unless you sit down and go over it, you may not do the right thing by your client,” he says.

Tom Hendershot, CEO of Hendershot Financial Group, Gaithersburg, Md., says reps in the 403(b) and annuity markets are being bombarded, too.

Most companies are pretty good at providing information and education when they debut a new annuity rider or enhancement, he says. “But some companies send out too much [material], and the rep gets totally confused.”

In his own practice, Hendershot adds, “weve decided that if it will take us more than 5 minutes to explain it to someone else with clarity, well stop selling it” or wont even start selling it.

To get that clarity, he and other experts say information is key. That is, financial product providers need to offer strong education and supportand advisors need to spend time listening and learning.

At many life insurance companies, there is something new coming out at least every 6 months, points out Jeffery Hardwick, vice president and managing director in broker-dealer distribution for Safeco Life and Investments, Redmond, Wash.

Some reps are getting lots of e-mails and faxes about those riders and enhancements, he says, but that may not be the best way to keep abreast. His advice? “Dont look at the paper. Listen to the wholesaler” who comes around to explain it.

“The companies that care about your work will go to the expense of sending people into the field to show you it works,” he says. “They will help you determine if it fits into your practice.”

The time spent with a company representative or wholesaler is well spent, Hardwick maintains. In addition to learning about the new rider, the rep can pick up information about the market. Wholesalers talk to the biggest competitors in the industry every day, he explains, “so there are always things you can learn.”

This learning about riders is not just an activity for the front-line advisor. Its for wholesalers, too, points out John Egbert, vice president and national sales manager at Manulife USA, Boston.

“Things are constantly changing [in the variable annuity market],” he says, so carriers need to get the word out to wholesalers as well as the field.

To do that, his company hosts frequent sales meetings as well as separate in-depth sessions with small groups of wholesalers (10 or so).

In the small group sessions, Egbert says, “we drill down to the level where the training is appropriate….We do this because we have to have our people extremely well trained, so we can get our message out in as concise and as distinguishable a way as possible.” This intensive training prepares wholesalers to go one to one with the brokers who attend training meetings at the broker-dealers.

This takes a lot of infrastructure and interpersonal skills, Egbert allows. But that is what it takes to keep the market apprised of critical riders and changes. His companys rollout earlier this year of a guaranteed minimum withdrawal benefit for its VAs went through such a process, as did rollouts of other VA riders before that.

What are some strategies that advisors and reps can use to sift the wheat from the chaff among all the rider options they have?

Use riders to address client needs. For example, Hendershot says a lot of older clients, especially those age 65 and up but even some in their 50s, now feel “scared” about putting money into equities. In the 2000s, he explains, “they got bloody knees, noses and elbows because of the market downturn.So we offer riders that guarantee the principal in their VAs. These riders are perfect for this market.”

Point out that the policy is not a commodity. Discuss how it is not a commodity any more than are legal services for wills and trusts, says Clayton. The riders let an advisor customize coverage to the person and the need.

Be aware of price issues. Many riders have a separate cost attached to them, points out Brodie. The client may give some push back upon hearing the price. When discussing this with the client, he says, “the agent needs to know the clients financial situation. The agent also needs to take into consideration what could happen in the economy and in the persons life over the next 20 years when the coverage will be needed.” It might be helpful to discuss whether the client wants to “pay pennies now or dollars later on,” he adds.

Represent companies that provide strong support and service and good contract language. For example, look for companies that have a phenomenal back office and that offer enhanced services for higher levels of production, suggests Clayton.

Present the customized plan (with separate riders) in comparison to whats available in packaged plans (having no riders to speak of). “The danger with packaged plans is that some dont do what the client wants,” notes Brodie. For instance, a packaged tax-qualified LTC policy may not have features available in a nonqualified LTCfeatures the client wants. His advice is to discuss the differences with the client. But if working with a policy that employs a “modular” approach to structuring coverage, he adds, “the agent must understand what is in each module and whether that can meet the clients need.”

Bone up on the details. Knowing the loopholes, caps, features and other characteristics is especially important in disability insurance, says Clayton, explaining that the contractual language impacts claims in critical ways.

If the clients financial picture is complicated, bring in other experts. “The true insurance professional understands how to deal with riders and rider choices,” Egbert stresses. But in complex situations, “you need various levels of expertisein estate planning, asset allocation, taxes, etc.to find the right solution.”

Narrow the scope. “No one can know details about all of the riders for all insurance companies in the United States,” says Clayton. But the advisor can learn about the good ones and develop comfort in discussing them, she maintains.

Dont chase the hottest riders and products. “Were conservative in our business practices,” points out Hendershot. “We do listen to our reps and what they are hearing about what clients are being exposed to. But then we look at our due diligence.” An advisor “cant let just anybody into play, because some can get you into big trouble. You need to know the market.” His firm aims to “be selective” but still open to new entries.

Know the risks. “If the rider sounds too good to be true,” says Hendershot, “guess what? It probably is.” A good way to get some reassurance about the risk presented by the rider is to ask the company if it has a good reinsurance contract backing the rider. If the company is covering the risk on its own, he continues, “that is a huge factor to consider, because its a reserving factor.” His advice is to ask more questions about how the company will handle the rider coverage if, say, the companys investments should plummet in a down market.

Most of all, advisors need to obtain education and training on the riders they have available, says Clayton. If the advisor is interested in being a life, disability or LTC insurance producer, she explains, “its incumbent upon that person to get educated on this.Read the contracts. Do the homework.”

Its true that there are only so many hours in a day, Clayton concedes. So advisors cannot afford to spend all of their time researching each and every rider they see. But, she adds, “thats where working with a good company comes into the picture.” Such companies help advisors keep up to date not only on riders but also on tax changes and other developments, she says.


Reproduced from National Underwriter Edition, June 4, 2004. Copyright 2004 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.