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Life Health > Life Insurance

Look On The Bright Side

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With stock markets reaching levels not seen since the Clinton administration the former president has re-emerged to dispense advice to President Obama.

In fact, his suggestion that President Obama tell the American people that he is “hopeful,” and “completely convinced we’re gonna come through this” economic crisis in reasonable financial shape sounds like a relatively refreshing blast from the past.

So, despite the fact our minds are preoccupied with joblessness, homelessness, swindles and bankruptcies, in addition to plunging home values and staggering losses in our portfolios, Mr. Clinton’s suggestion is a very welcome antidote to the unrelenting negative outlook both in the Administration and the media.

This is especially true for life insurance carriers and agents, whose business suffered over the last 8 years, not only during the Internet and financial meltdowns, but from the Bush tax cuts.

These tax cuts, in 2001 and 2003, left the future of the estate tax in limbo for several years, adversely affecting sales of annuities, life insurance and other high-margin products.

Moreover, it increased the relative attractiveness of equity-based products at the expense of plain-vanilla insurance products held in both operating and retirement accounts, regardless of the income level of the owner.

That meant that the insurance industry was reduced to second fiddle as its competitors, at banks, brokerages, mutual funds and other investment enterprises, took in the lion’s share of new investments.

It forced the industry to make its products more attractive at the cost of lower margins and higher risk, as life carriers can now attest.

But, the current confidence-sapping economic turbulence is creating a flight to safety, and could provide the pendulum swing in investment philosophy that could benefit the life insurance industry. Another strong positive for the life insurance industry is the retention of the estate tax.

Moreover, last week the Obama administration unveiled its budget proposal for the new federal fiscal year, and made clear that the Bush tax cuts will not be renewed, and that taxpayers who earn more than $250,000 a year will be paying more taxes going forward as part of a deficit-reduction program.

That will also provide additional incentives to buy the tax-sheltered products that are the bread-and-butter of the life insurance industry.

A word of caution: That does not mean happy days are here again.

Some of the current tax-advantaged products offered by the industry will be under intense scrutiny in a Congress desperate to reduce a deficit that is reaching mammoth proportions.

For example, things are pretty tough when Secretary of State Hillary Clinton has to promote purchase of Treasury bonds to the leadership of the Chinese government rather than pursue the Administration’s human rights agenda in her inaugural visit.

And executive compensation packages, especially at the higher levels, many financed through insurance products, offer a convenient whipping boy for politicians seeking to point the blame for the current economic crisis on “Wall Street.”

And, deficit reduction proposals may include stronger limits on non-qualified executive compensation plans used to keep mid-level as well as higher executives.

Several regulatory issues also add to the uncertainty.

For example, federal regulation may bring with it demand for compliance with both federal and state consumer protection schemes.

For carriers, compliance with the Community Reinvestment Act could be a price of long-desired federal regulation.

And, the Democrats who now control both houses of Congress as well as the presidency may push to provide a consumer protection role for the Federal Trade Commission, a very sensitive issue for life insurance agents who recall the chilling effect of an FTC staff study in the late 1970s on whole life insurance sales.

State anti-rebating laws could also be revisited at both the federal and state level. Former Rep. John LaFalce, D-N.Y., according to records, held hearings on this issue in the 1980s and called for their repeal.

And, at the state level, New York, for one, is again taking a hard look at uniform commission disclosure rules that could force agents to disclose the commissions they rightly earn for providing advice as well as products to their customers.

But, the life insurance industry has effective advocacy groups, and a history of working both sides of the political aisle.

In general, however, there is light at the end of the tunnel for the life insurance industry, with a wary public very willing to accept lower-yielding investment products in exchange for the safety they offer.


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