To paraphrase an old ad slogan, Brian H. Ashe, CLU, knows life insurance. He’s a past president of the Million Dollar Round Table and president of Brian Ashe and Associates Ltd., an insurance sales organization in Lisle, Ill. He’s also a frequent speaker and writer on financial planning issues, having started in the insurance and investment business in 1969.
So if anyone knows about life insurance, it’s Ashe. That’s why Senior Market Advisor asked him about the product and how it pertains to seniors (75 percent of his practice is made up of people over age 55) and the challenges the industry faces.
Here’s what he had to say.
SMA: What life insurance products are proving popular with seniors and boomers?
Brian H. Ashe: Permanent life insurance, whether it’s whole life or universal life or universal life with no-lapse guarantees. All of those products are proving to be attractive to seniors because they believe that their needs are permanent and term insurance usually has a termination point when the premiums you’ve been paying at the relatively low rate suddenly start increasing. I don’t think seniors are fond of being exposed to those types of increases in the years in which they are not making any income.
SMA: What sales techniques would you use to sell to seniors?
Ashe: Seniors have a better perception of risk. If you know you are not going to live forever and you know that investments don’t always give you great returns-and if you know many of the things in life are unexpected-you are more sensitive to risk. There are two primary risks that they have to pay attention to: longevity risk because they have to make sure they have enough money to last as long as they do, and investment risk. We know from an investment risk [standpoint] that since the Depression, every six, eight or 10 years we have reversals in the value of our holdings. So if I were a senior and I knew that there was a chance that either I or my spouse could live for another 30 years, and that means there has to be enough money to pay living expenses, increased medical expenses, increased long-term care and exposure to inflation over 30 years, then I must to find a way to handle both that longevity risk and the investment risk and life insurance happens to be the ideal product to do that because at the moment of death there is a whole bunch of income tax- and often estate tax-free dollars that helps to refill the bucket.
So the approach to speaking with seniors is to go over the increased risk that seniors are now exposed to by the fact that they live longer and since they are not making income anymore, they are exposed on investment risk on what they were able to accumulate during the first 40 or 50 years of their lives.
SMA: Do you encounter price objections?
Ashe: Of course, there is certainly that perception, as there is with most products. People would like to find out whether or not the product pricing is attractive and whether there is something that is less expensive. I would just remind [them] that back 15 or 20 years ago, a lot of life insurance products, the same ones that they are looking right now, cost 40 percent to 60 percent more. So actually, there have been reductions in life insurance pricing, number one.
Number two, the premium is always less than the problem. So if I have a $250,000 or $500,000 problem, because my 401(k) just decreased in value or I’ve got all of these expenses that my spouse would be exposed to in the event of my death, the premium that I pay each year in comparison to the $250,000 or $500,000 death benefit is much smaller. So the problem is the problem; the premium isn’t the problem.
Some people will say, I can’t afford it. They may not be able to afford it and there is nothing we can really do if they don’t have sufficient funds to pay the premium. We do have a variety of products. They still issue term insurance to seniors and they can have a low premium for maybe 10 or 15 years. There is universal life that has a flexible premium. There is whole life that has a guaranteed premium. But the premiums are significantly less than they were before and in comparison to the benefits that are paid, the premium is not the problem. The problem is the problem.
SMA: What challenges does the life insurance industry face today?
Ashe: Consumer education. I sit on the board of the Life and Health Insurance Foundation for Education and 40 percent of the adults in this country own zero life insurance. Of those people who do own life insurance they have enough to replace about three times their earnings. They should probably have more like 10 times their earnings. Second of all, when we have four out of 10 adults not having any insurance, the perception of risk needs to be accentuated because if people think they aren’t at risk, they are. Twice over the past 10 years, we’ve had these huge reversals in the stock market. Heck, if you are 55 or 60 years old and you are thinking of retiring and all of a sudden, 40 percent of your 401(k) is gone and then you die, that money that your spouse was counting on is now gone. So consumer education to help people understand both the risk that they face and the fantastic array of products that are available to help solve those problems, I think is probably one of biggest challenges that the industry faces.
SMA: The number of life agents is dwindling. What can the industry do to attract younger talent?
Ashe: I believe there are only about 30 companies left in the U.S. that actually recruit and train new agents and there are probably only three or four that do most of it. So if the industry would like to see more people in the business, then the companies are going to have to invest more in the recruiting and training of new agents. A lot of companies feel that it’s better to just invest in attracting experienced agents. But if all of the companies are doing that, then there is only a finite pool of people…and pretty soon there aren’t enough people to go around.
The second thing is, they might think about different ways of compensating new people, because traditionally, the four-year survival rates for new agents has been on average about 11 percent. Well, if you are only surviving one out of 10 people, that’s a lot of money to be paying to only have one advisor remain in the business after four years. Maybe some sort of additional subsidization so people don’t drop out because this business is a very tough business to get started in, especially the first two or three years. That would probably be helpful.
SMA: Does this any impact on an advisor?
Ashe: From the standpoint of an existing advisor, looking at the recruitment of new people I would welcome it. I welcome the competition, because I think we are made better by competition. And second of all, I would welcome the addition of new agents simply to accelerate the process of consumer education. Certainly, from a legislative and regulatory standpoint, if we have more voices to help to educate regulators and legislators about the products and the needs of consumers. I think the industry does better. Ten years ago NAIFA had almost 140,000 members. Now it’s down to about 50,000. That’s a huge difference.
SMA: People want to buy, but there aren’t enough agents to reach them, particularly in the middle market. What can you and the industry do to reach them?
Ashe: There are two things happening. One is, we see an increase in direct market sales, where direct marketing companies are filling some of the void for purchases in the middle market. I don’t have a problem with direct market sales. When consumers have indicated that they want to purchase either over the Internet or by phone, that’s fine. I still think there are probably 70 percent or 80 percent of the public that would like to have face-to-face assistance because it can be a complicated business.
And very frankly, the companies are going to have to invest in hiring and training people and compensating people to address the middle market. When their recruiting philosophy is let’s hire experienced agents, that’s to save money because they don’t have to train them. The second part of it is, they want experienced agents because the companies want to go after the wealthy marketplace. They want to go after the top 15 percent of consumers. And while you can certainly understand some of the economics behind it, if you have a whole bunch of companies crowding into that top 15 percent, none will receive any huge share of that marketplace because it can only be carved up so many ways. Consequently, companies would benefit by spending a little bit more time in the middle and the upper middle marketplaces because it’s where 85 percent of our population is.
Do you know who sells more life insurance policies than anybody else in the country? It’s State Farm, which is a multi-line company. Some of their policies are smaller than say, a New York Life or Northwestern Mutual, but if you looked at policy count, they sell about 10 percent of all of the policies that are sold in the U.S. To me, that’s kind of interesting, because they are actually out seeing the people, because they have to buy homeowners insurance, car insurance and so forth. So when we do get out among potential buyers, they do buy.
We would also do well to spend more time with the middle marketplace because life insurance receives favorable taxation since there is a social good associated with it. If Congress were to feel that we weren’t serving the marketplace as well as we should, it would present a challenge to continuing the benefits the life insurance industry enjoys. So we would help ourselves by spending more time with the middle marketplace.