With the intersection of recent stock-market declines and volatility, the 2006 Pension Protection Act (PPA), the implementation of the 2001 mortality table, and the prolonged recession, it is an important time to proactively review your client’s corporate life insurance programs. You might be thinking that should have been done six months ago.
No argument, but many corporations simply have had more pressing priorities and have not examined the benefit programs they fund with life insurance. Be sure, however, that this has been on the minds of your clients. Furthermore, if the existing advisor of non-client companies has not called on them, now is the perfect opportunity to prove your value.
CFOs, HR heads, and benefit managers have not only an appetite for reviewing their executive benefits and COLI programs, but are anxious to better understand these programs from four key perspectives: carrier strength, investment returns (read: cash value), internal costs and contract flexibility, and legislative risk. It is critical that you, as their trusted advisor, update them on all four of areas, regardless of their programs.
Begin your discussion by asking questions. What is going on in their business? What changes are they seeing and making? Perhaps your perspective from dealing with many businesses may be of extra value. Remind them that executive benefit programs can help attract, retain, or reward the people most important to a business. What has not changed is the need to grow a business. You have to incent top people to attract and retain them.
After getting a better feel for the company’s picture today, provide clients and prospects with an industry update and carrier-strength review. Help them understand that the majority of life insurance carriers are in solid financial shape, despite some notable exceptions. Demonstrate specific ratings for the carriers they are with; show all the ratings and know what each means.
But don’t let the client view the ratings as meaningless given the sub-prime situation. This is not a comparable situation. Ratings agencies have far more experience examining life insurance companies and making judgments on their soundness; the sub-prime world was new to them.
Talk openly about what could hinder the industry in the coming months and years. Carriers invest in the commercial real estate and corporate bond markets, which are not immune to problems. Tell clients what you can today, and keep them informed. They will appreciate this.
The value of forecasting
Next, put those benefit liability projections and policy cash value numbers associated with a benefit promise on the table. If the insurance is variable life you may want to take a deep breath before you do! Clients want to know the value of their policies today and what market volatility means for funding programs going forward, so projections are important. Ideally, have your computer ready to run all scenarios they may ask for. Clients today want to see models showing withdrawals and loans, so be prepared with those.