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NAIFA president urges increased product innovation at MDRT meeting

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At the 2014 MDRT annual meeting in Toronto, NU Senior Editor Warren S. Hersch interviewed John Nichols, president of the National Association of Insurance and Financial Advisors (NAIFA) and president of Chicago-based Disability Resource Group Inc., a national insurance agency he founded in 1999. The following are excerpts of the internew.

Hersch: How well is your DI practice doing? What plans do you have to grow the business?

Nichols (pictured below right): Our goal is to double premium revenue in the next three years. We’re currently at $5 million of premium; we want to get to $10 million. With a team of 17 people, the practice is focused on the disability income insurance market because (1) I was trained in this area; and (2) at age 32, I had a water skiing accident and near-death experience that rendered me for a time a quadriplegic. This incident has really fueled my passion for DI.

Hersch: There seems to be a continuing disconnect within the advisor community in that many fee-based financial service professionals view life insurance as a component of planning outside the scope of their practice. How do you account for this? Is NAIFA doing anything to bridge this chasm — for example, cross-promoting NAIFA and FPA [Financial Planning Association] membership at the organizations’ respective annual meetings?

Nichols: Financial planners understand that life insurance is important, but they generally view it from a planning — not an implementation –perspectiv

e. They’ll have a conversation about life insurance, but it’s your decision, as the client, to decide whether to purchase a policy and from whom. That’s the distinction.

J Nichols

As to NAIFA, we have not had discussions about cross-promoting with FPA, only with sister organizations in the life insurance space: MDRT, GAMA and NAILBA. This is done through the Joint Executives Committee (JEC) meetings, the next of which is coming in July. There are multiple associations represented there with which we connect to explore how we can help each other.

Hersch: As an MDRT member, have you observed common regulatory issues and concerns among MDRT members globally?

Nichols: I’m more familiar with what’s transpired in the U.K., Australia and Canada than I am with regulatory changes impacting our members in Asia. In respect to the U.K., I can’t say whether its regulatory regime — which now prohibits commissions on life insurance sales — will be replicated the U.S. But if it is, we’re likely to see a significant reduction of agents and brokers, as has happened in Britain.

There are about 350,000 advisors in the U.S. A comparable regulatory environment could reduce the number of advisors to, say, 30,000 — a dramatic decline. Yet given the number of uninsured and underinsured people, especially in the middle market, the need for life insurance professionals has never been greater.

Harmful regulatory changes could play out in other ways vis-a-vis the proposed SEC and DOL fiduciary standards. To boot, registered reps have to stay abreast of compliance requirements imposed by FINRA and their broker-dealers. Some broker-dealers have even stricter compliance requirements than FINRA.

Hersch: Staying on the topic of compliance, have you had to make changes recently to meet heightened FINRA or broker-dealer rules?

Nichols: Yes, though the changes have not been significant. However, when you do small incremental changes over a period of 10 to 15 years, it adds up. Some of the compliance work involves continuing education; other parts entail more paperwork. These changes add to the complexity and/or time we spend on the job.

Hersch: Have new technologies helped to alleviate the regulatory burden or kept pace with your practice needs?

Nichols: Three technology levels are relevant to this question: (1) the consumer level; (2) the practice level; and (3) the carrier level. Consider, for example, e-signature technology. In order to use the technology for insurance-based products, I had to get approval from various business partners.

As the technology environment has changed, so have consumer expectations, in part because of technology giants like that offer one-click buying. And so the question arises, are we as a firm meeting those expectations? And are our broker-dealer and carrier partners meeting them?

Consumers often ask why they have to sign multiple pages of documents to buy a policy. More complex transactions are a reality of the insurance business, in part because of increased disclosure requirements, but also because of insurers’ legacy IT systems. Many of these older systems don’t accommodate e-signature technology.

Hersch: Turning to the insurers’ products, do you believe that additional carrier innovations are necessary to help grow your practice? What product innovations do you want to see?

Nichols: Carriers have continued to innovate, though not at the pace we would like. We observe the faster product cycles in other industries and ask ourselves why the carriers are lagging. As it relates to disability income insurance, the product innovation needs to be more creative.

One example: In Chicago, I work with a lot of families who have kids with a disability. Why don’t DI insurers offer something like “KidsCare” — DI for kids? Yes, children don’t earn an income, but if they don’t have a DI policy to protect them, their family’s financial foundation could crumble.

Another example: adding a wellness component to DI policies. By incorporating provisions that can improve health — free biometric screening or, say, programs to assist policyholders stop smoking or lose weight — carriers can expect fewer DI claims and an improved bottom line. It’s a win-win for everybody.

Hersch: And what about combo products? Are product manufacturers adding DI riders to their life insurance and annuity offerings, as they have with long-term care riders?

Nichols: We’ve seen zero innovation along these lines. That’s because life insurers, most notably the publicly held companies, are focusing on the short-term need: the first wave of 79 million baby boomers who are now transitioning to retirement and are thinking about long-term care planning.

DI, in contrast, is of greater interest to younger workers. Though fewer in number than the boomers, they still represent a lot of people with a potential DI need: 90 million, including GenXers, Millennials and those under age 16–Generation Z.

A tidal wave is coming: There will be 56 million people under age 30 in the workforce by 2015. So, with or without combo products, I remain bullish on DI sales.

Hersch: How do you expect your practice and NAIFA will evolve in the coming years?

Nichols: At the practice level, we’ll continue to integrate new technologies to enhance our practice capabilities and ease the buying process for the consumer. As to NAIFA, we’ll be intensifying consumer education initiatives, given the increased importance of financial literacy. As an association, we expect to be at the vanguard of this effort, in concert with our sister industry associations.

See also:

TPA principal lauds new fee disclosure rules at MDRT

12 facts you should know about disability insurance

Disability insurance: Addressing the facts with clients


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