The life insurance community is facing an unprecedented “perfect storm” of legislative and regulatory challenges. Yet, even as it continues to do battle with Congress and industry watchdogs, the National Association of Insurance and Financial Advisors itself is facing an operating deficit and a continuing loss of members–twin threats that could place the organization’s future at risk.
These were the sobering messages delivered by NAIFA executives at a general session of the organization’s 2009 NAIFA Convention and Career Conference, held here last week.
“As we work through the coming year, and deal with proposals on tax, regulation and health reform, it has never been as important as it is today for all of us at the local, state and national levels to band together as a team,” said NAIFA President Cliff Wilson. “Our clients and the industry need a proactive and strong NAIFA. I believe the progress of this past year positions us to lead with credibility as we move forward.”
The blueprint for this progress, he said, is the NAIFA 21 Strategic Plan. Adopted in April 2007, the initiative contains 5 strategic objectives: (1) reconstituting and growing NAIFA political programs, including its APIC and IFAPAC political action committees; (2) introducing legislation and regulation; (3) working collaboratively with sister organizations; (4) strengthening state legislative and regulatory activities; and (5) improving the speed and frequency of communication.
On all 5 fronts, said NAIFA’s executives, the organization has had successes, most notably in respect to advocacy. Wilson observed that NAIFA’s federal relations staff attended or co-hosted more than 100 D.C. fundraisers for members on key committees of jurisdiction between January and July of 2009. NAIFA was also one of two organizations invited to meet with high-level White House and Treasury officials to articulate the industry positions on regulatory reform.
Additionally, Wilson said, NAIFA crafted bills to streamline producer licensing and allow agents to act as “navigators” in health reform legislation. The organization also expanded securities lobbying efforts and engaged directly with SEC and FINRA officials.
Of the many insurance projects on which NAIFA lobbied collaboratively with other organizations, the largest coalition was assembled in an effort to circumscribe the authority of a proposed Consumer Financial Protection Agency. A dozen organizations worked together on the initiative.
The stakes in the various legislative battles, said NAIFA CEO John Healy, are high, particularly with respect to continuing Congressional threats to remove or erode the tax-favored treatment of life insurance. Benefits long enjoyed by policyholders and their beneficiaries–the tax-free distribution of death benefit proceeds and the tax-deferred build-up of cash values inside permanent contracts–will remain at risk so long as additional tax revenue is needed to close the yawning budget deficit and national debt.
Legislative threats, Healy warned, are particularly acute, coming on the heels of the most severe recession since the Great Depression, and because of an unusual coinciding of major legislative initiatives that Congress is now addressing.
“Last year’s market meltdown, followed by the course-altering elections of 2008, has spawned a perfect legislative and regulatory storm that has already affected our profession and industry and will continue to do so in the future,” said Healy. “The franchise and foundation of our business are being challenged and will remain under relentless attack as Congress and the Administration look for ways to pay for all they want to do.
“Congress is at work on three critical fronts: health care reform, regulatory reform and the taxation of life insurance and annuities,” he added. “But only NAIFA has the ability to stand guard on behalf of you and your clients. We will fight for our industry.”
At the same time, Healy said, NAIFA will continue to expand educational and professional development initiatives that have long been a core competency of the organization.
To that end, he said, NAIFA Member Benefits Committee launched 10 new products at this year’s conference, including new online seminars, coaching programs, plus sales, prospecting and marketing solutions. In total, he noted, members accessed NAIFA’s web-based tools and resources an “astounding 36,000 times” during the year past.
Among the tools on display: a new Virtual Library and Virtual Assistant that offer access to sales concepts, client presentations, specimen documents, tax tables and business tips and tools; and NAIFA’s Sales System, a sales process presented in 12 online modules.
Despite NAIFA’s legislative and professional development achievements, the organization itself is facing challenges as a going concern, both financially and in terms of membership.
A federation of 50,000-plus members and 700 state and local associations, NAIFA remains well shy of the 100,000 members it had established as a benchmark goal in years past-a number it had deemed as key to securing advocacy and other objectives. Yet boosting the organization’s membership could be still a greater challenge in coming years, NAIFA’s executives acknowledged, because of a membership dues increase that was proposed and subsequently passed at this year’s convention.
Outgoing Treasurer Peter Browne told the members, “Let me put it to you bluntly: Without a dues increase, either we will have to deplete our reserves, which is unacceptable, leaving us with no cushion for emergencies, or we will have to drastically cut back advocacy activities and reduce member benefits. To continue our work of advocacy, government relations and political action, we need more support from each member.”
NAIFA’s capital reserve, said Browne, currently stands at over $2.5 million. In fiscal 2008, its operating revenue and expenses were $15.3 million and $16.1 million, respectively, yielding an operating deficit of $863,000.
For the just completed 2009 fiscal year, Browne added, NAIFA’s Board of Trustees approved an operating budget deficit that reflects continuing investments in NAIFA 21 programs, including increased investments in advocacy efforts and member benefits.
The recession of the year past, he said, resulted in a net decline of members and dues revenues that fell short of the amount budgeted. Additionally, the economy in Falls Church, Va., where the organization is headquartered, remains “depressed” frustrating NAIFA’s attempts to find new tenants for vacant space in the building. These challenges notwithstanding, he added, NAIFA was able to cut operating expenses by nearly $1 million during the past year.
“In summary, our balance sheet has been weakened and our net assets eroded, indirectly through operating deficits and directly through a decline in reserve investments,” said Browne. “We need a sustainable financial model, one that will allow us to operate without a deficit, even in hard times and permit more long-term planning with more predictable revenues.”