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Life Health > Life Insurance

An Uneasy Eye to the Future

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Q: What issue on the regulatory and legislative front is of top concern to NAIFA at this year’s annual meeting?

A: Our main focus going forward will be tax reform. In 1913, the National Association of Life Underwriters, NAIFA’s predecessor, helped carve out during negotiations on the revenue act that created the income tax benefits for insurance products. Nearly 100 years later, we expect to be going back into negotiations.

We’ll be vigilant in monitoring Congressional efforts to water down or eliminate our products’ tax-favored treatment, which industry critics may advocate to advance the stated goals of tax reform: broadening the tax base and lowering tax rates. This is a danger, so we have to make our presence felt on Capitol Hill.

The scenario that’s most frightening is that Congress will place an income tax on all insurance products that currently enjoy a tax advantage.Another possibility is that Congress will first tax COLI [corporate-owned life insurance] products. But once you start taxing certain policies, then others become easier targets for future taxation.

Q: What other issues will come before NAIFA members at the annual meeting?

A: We’re continually monitoring the SEC as it looks to repurpose its fiduciary standard for registered investment advisors and broker-dealers. Our intel indicates the new standard might not be any different than the existing one. I will be speaking with SEC Commissioner Daniel Gallagher on Thursday [September 13] about the unintended consequences that could result from a harmonized standard, which NAIFA represents and what our members do for the American people.

A powerful fact that resonates with the SEC and members of Congress is that life insurance companies pay out $1.5 billion per day in death benefits. That’s not far behind the $1.9 billion the Federal government pays daily in Social Security benefits. Also, life insurance contributes 20% to all long-term savings in the U.S.

It’s essential that we protect our business model so the middle income market does not get disenfranchised by a one-size-fits-all standard. Consumers must have unfettered access to a qualified advisor who can provide competent advice and quality service.

Q: How specifically would an extension of the existing fiduciary standard to broker-dealers be harmful?

A: Many NAIFA members outside of the big cities have very small practices. If suddenly they’re beholden to a fiduciary standard, they may have to pay more for errors and liability insurance to remain in the business. And many agents will elect not to do so because they can no longer afford it.

Also, if more brokers shift to fee-based practices, then middle market clients who—commissions on products sales aside—were previously receiving investment advice for free may not be able or willing to pay the $2,000 or $3,000 to sit down with an advisor. And choosing to do one’s own insurance and financial planning can be a recipe for disaster.

Q: What is NAIFA’s position on a re-proposed Department of Labor fiduciary standard that would apply to investment advisors subject to ERISA law?

A: We think the DOL is overreaching, going beyond the bounds of ERISA law. Congress, in a rare show of bipartisanship, shares our view. The initial proposal subjected even investment advice on IRAs to the DOL fiduciary definition.

During last year’s annual meeting in Washington, some 1,000 attending members blanketed Capitol Hill—and the DOL thereafter pulled their original proposal. We don’t know what the DOL now intends, but we’ve heard rumors the re-proposed standard may not be much different than the original. We shall see.

Q: Will NAIFA have as large a presence on Capitol Hill during the coming debate on tax reform?

A: We’re going to have a Congressional Conference in Washington April 8-9 and we’re expecting 1,000 members to come to Capitol Hill to discuss NAIFA’s positions on tax reform. Also, a coalition comprising NAIFA and sister organizations—ACLI, AALU, GAMA and NAILBA—will be presenting a united front on this all-important issue. But the industry depends more than anything else on NAIFA to put troops—our members—on the ground to blanket the Hill.

Q: Given the heightened focus on tax reform over the coming months, will NAIFA have to scale back other political advocacy initiatives?

A: We can’t. We still have to be vigilant in monitoring other issues of concern. Among these are developments in the states respecting health insurance exchanges, long-term care rates, estate taxation, commission disclosure and investor-owned life insurance. NAIFA remains committed to monitoring all legislative and regulatory initiatives that might impact our industry.

But tax reform is such an overriding issue this year and next that we’ll have to put a lot of resources into it. Taxing our products differently could—more than anything else—negatively impact our business model.

Q: How so? Would there be a significant reduction in permanent life insurance sales? How dramatic might the impact be?

A: Selling life insurance for a living is very difficult for those of us in the business. It will be all the more so if Congress taxes the inside build-up or death proceeds. And it will be more burdensome for families to secure the financial protection they need, as they’ll have to buy more insurance to compensate for the now taxed benefits.

Q: NAIFA’s political clout, we’re reminded every year, depends in large measure on the strength of its membership. What obstacles do you face to maintaining or boosting your membership ranks? How significant an issue is membership in respect to advancing the association’s advocacy goals?

A: Proportionally, NAIFA is still gigantic in relation to the other industry organizations. Our members represent every district in Congress. And we still can put 1,000 people on Capitol Hill. But we, like associations across all industries, are buffeted by trends that make member recruitment harder.

Volunteerism is declining. More people are focused on supporting themselves in a weak economy. Also, younger people coming in to the business are not as interested as older agents in the personal, face-to-face meetings we offer.

Our membership currently stands at about 45,000. I do believe that NAIFA can start growing again, but getting to 100,000 members, a running goal we had in prior years, is not realistic in the near-term.

Q: What efforts are underway to boost the organization’s ranks and give value to life insurance professionals?

A: With a view to reinventing NAIFA, we instituted a blue-ribbon task force comprising, among others, six past presidents and an association expert. The panel reviewed our last strategic plan, NAIFA in the 21st Century, our value proposition, member recruitment efforts and the federation’s structure, which comprises 650 governing bodies—national, state and local associations.

A key recommendation of the task force is that nationally develop written partnership agreements with state associations to help them achieve recruitment goals. We expect these partnerships will result in a streamlining of marketing efforts to member prospects, as well as healthier and more productive relationships between national chapters and the states.


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